Real Reason why NDIC upwardly review Deposit Insurance Coverage for Banks Nationwide
The Nigeria Deposit Insurance Corporation, NDIC recently announced a revision of the Maximum Deposit Insurance Coverage for banks operating within the country.
At a media briefing held in Abuja, NDIC’s Managing Director, Bello Hassan, revealed the new coverage benchmarks.
The MDIC for Deposit Money Banks has been raised from N500,000 to N5m, for Microfinance Banks from N200,000 to N2m, for Primary Mortgage Banks from N500,000 to N2m, and for Mobile Money Operators subscribers’ pass-through from N500,000 to N5m per subscriber.
Hassan emphasised that the update aims to bolster depositor safety, public trust, the inclusivity of financial services, and the overall stability of the financial sector.
He stated, “The increase in the maximum deposit insurance coverage levels for all licenced deposit-taking financial institutions with immediate effect.”
NDIC stated that the increase of the maximum deposit insurance coverage of DMBs from N500,000 to N5m would provide full coverage of 98.98 per cent of the total depositors, compared with the current cover of 89.20 per cent.
In terms of the value of deposits covered, the revised coverage would increase the value of deposits covered by deposit insurance to 25.37 per cent compared with the current cover of 6.31 per cent of the total value of deposits.
The increase of the maximum deposit insurance coverage of MFBs from N200,000 to N2m would provide full coverage of 99.27 per cent of the total depositors compared with the current level of 98.76 per cent and would increase the value of deposits covered by deposit insurance to 34.43 per cent compared with 14.38 per cent of the total value of the deposit, currently covered.
The increase of the maximum deposit insurance coverage of PMBs from N500,000 to N2m would provide full coverage of 99.34 per cent of the total depositors compared with the current 97.98 per cent and would increase the value of deposits covered by deposit insurance to 21.04 per cent compared with 10.77 per cent of the total value of the deposit, currently covered.
The increase of the maximum deposit insurance coverage of PSBs from N500,000 to N2m would provide full coverage of 99.99 per cent of the total number of depositors and would increase the value of deposits covered by deposit insurance to 43.10 per cent of the total value deposits from the current cover of 40.60 per cent.
The increase of the maximum pass-through deposit insurance for Subscribers of Mobile Money Operators coverage from N500,000 to N5,000,000 per subscriber per MMO is the applicable coverage level for depositors of DMBS.
The coverage ceiling was raised from N50,000 to N200,000 in 2006, The coverage limit of N100,000 was also set, for the first time, for MFB and PMB depositors in the same year.
In 2011, the coverage limits for DMBs increased from N200,000 to N500,000 and from N100,000 to N200,000 for depositors of MFBs and PMBs.
Additionally, the coverage level was further adjusted to N500,000 in 2016 for PMB depositors as well as subscribers of licenced Mobile Money Operators. Coverage of N500,000 was equally extended to depositors of PSBs in 2020. Meanwhile, the coverage for DMBS remained at N500,000.
“As part of the periodic evaluation of the effectiveness of the deposit guarantee, the corporation conducted a study in 2023, to determine the adequacy of the Maximum Deposit Insurance Coverage.
“This is in line with Principle 8 of the International Association of Deposit Insurers Core Principles for Effective Deposit Insurance, which advised jurisdictions, to periodically review their deposit insurance coverage, to ensure that, it is credible and covers a large majority of depositors to prevent the risk of bank runs, but leave a substantial amount of deposits exposed to market discipline,” he stated.
He added that the study revealed that a high percentage of depositors, ranging from 89.20 per cent to 99.99 per cent were fully insured under the maximum deposit insurance coverage levels across different bank categories.
He said, “Consideration was given to ensure that the coverage was limited but adequate to protect a large number of depositors and credible enough to prevent the destabilising effect of bank runs.”
Hassan said the adoption of the revised maximum deposit insurance coverage is supported by the corporation’s current funding, represented by the balances in the various Deposit Insurance Funds, expected annual premium collection, enhanced supervision that would reduce the likelihood of bank failures, effective bank resolution frameworks in 2023 and other funding arrangements provided by NDIC Act No. 33 of 2023.
He assured depositors of NDIC’s commitment to ensuring the stability of the financial system in the country.
“I would like to reaffirm the NDIC’s unwavering commitment to protecting depositors and contributing to the stability of the financial system.
“These adjustments to the maximum deposit insurance coverage reflect our dedication to adapt and evolve in response to the changing landscape of the financial industry, and we remain steadfast in our pursuit of a secure and resilient banking environment for all,” he said.
