NDIC increases commercial banks’ deposit insurance coverage to N5m

The Nigeria Deposit and Insurance Corporation (NDIC) has reviewed the maximum deposit insurance coverage for deposit money banks (DMBs) from N500,000 to N5,000,000 and this would provide full coverage of 98.98 per cent of the total depositors compared with the current cover of 89.20 per cent.

The Managing Director, Mr Bello Hassan, disclosed this in Abuja on Thursday while briefing the press on the review. He said the decision to increase the maximum deposit insurance coverage levels for all licensed deposit-taking financial institutions was taken by the NDIC’s Interim Management Committee (IMC), during its 18th meeting held on April 24th and 25th and this is with immediate effect.

According to Hasan, 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.

He said, “This is in line with the Principle 8 of the International Association of Deposit Insurers (IADI) Core Principles for Effective Deposit Insurance, which advised jurisdictions, to periodically review their deposit insurance coverage, to ensure that, it is credible and cover large majority of depositors to prevent risk of bank runs, but leave a substantial amount of deposits exposed to market discipline.

“Findings indicate that high percentages 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 (DMBs, PMBs, MFBs, and PSBs), meanwhile, a substantial portion of the total value of deposits, remain uninsured.

“We need to stress at this juncture that high levels of uninsured deposits posed a risk of bank runs. Indeed, the International Association of Deposit Insurers (IADI) Brief No. 9 of 2023 that examined the recent bank failures in the United States of America and Switzerland, concluded that, high levels of uninsured deposits in insured institutions might increase the likelihood of bank runs with dire impact on the stability of the financial system”.

He added that the corporation took the decision based on these considerations, and in line with the commitment to enhancing depositors’ protection, public confidence, financial inclusion, and stability of the financial system.

“In terms of the value of deposit 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 total value of deposits.

For microfinance banks, the increase of the maximum deposit insurance coverage from N200,000 to N2,000,000, 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 total value of deposit, currently covered.

For Primary Mortgage Banks (PMBs), the increase of the maximum deposit insurance coverage from N500,000 to N2,000,000 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 total value of deposit, currently covered.

For Payment Service Banks (PSBs), the increase of the maximum deposit insurance coverage from N500,000 to N2,000,000 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.

For subscribers of Mobile Money Operators, the increase of the maximum Pass-through deposit insurance coverage from N500,000 to N5,000,000 per subscriber per MMO as the applicable coverage level for depositors of DMBs.

Hassan added that, “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 (DIFs), expected annual premium collection, enhanced supervision that would reduce the likelihood of bank failures, effective bank resolution frameworks and other funding arrangements provided by the NDIC Act No. 33 of 2023”.