NDID MD?CEO address on the review of the Maximum Deposit Insurance Coverage

1 ADDRESS OF THE MD/CE NIGERIA DEPOSIT INSURANCE CORPORATION (NDIC) MR BELLO HASSAN AT THE PRESS CONFERENCE ON THE REVIEW OF THE MAXIMUM DEPOSIT INSURANCE COVERAGE LEVEL, THURSDAY 2ND MAY 2024

My Executive Directors and other members of staff of the NDIC, Ladies and gentlemen of the press. I extend my warm and heartfelt gratitude to each and every one of you for taking your time to join us today for this important press conference, on the Review of the Maximum Deposit Insurance Coverage Level.

1.0 The Nigeria Deposit Insurance Corporation (NDIC) began operations in March 1989 with the primary objective of protecting depositors and contributing to financial system stability. The Corporation has four core mandates of Deposit Guarantee, Bank Supervision, Distress Resolution, and Bank Liquidation.

2.0 The NDIC’s mandate of Deposit Guarantee is a critical component of depositors’ protection, as it guarantees the payment of deposits up to a maximum set limit in the event of bank failure. The deposit guarantee, covers depositors of all deposit taking financial institutions licensed by the Central Bank of Nigeria, which includes Deposit Money Banks (DMBs), Microfinance Banks (MFBs), Primary Mortgage Banks (PMBs), Non-Interest Banks (NIBs), Payment Service Banks (PSBs) and subscribers of Mobile Money Operators. The maximum deposit insurance coverage is determined through periodic research based studies, to ensure its adequacy and credibility. Various factors considered in setting the coverage level are; deposit distribution, impact of inflation, per capita GDP, exchange rate and other statistical models, among others.

3.0 The maximum deposit insurance coverage for depositors of DMBs was set at N50,000 at the inception of the Corporation in 1989 through a research survey. The amount was set in such a way that up to 85% of the total depositors in the nation’s insured banks would be 100% covered. Subsequently, 96% of all depositors were protected when 2 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 the year 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. The coverage level was further adjusted to N500,000 in 2016 for PMB depositors as well as subscribers of licensed Mobile Money Operators (MMOs). Coverage of N500,000 was equally extended to depositors of Payment Service Banks (PSBs) in 2020. Meanwhile the coverage for DMBs remained at N500,000.

4.0 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 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.

5.0 Findings indicate that high percentages of depositors ranging from 89.20% to 99.99% 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 level 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.

6.0 Based on these considerations, and in line with our commitment to enhancing depositors’ protection, public confidence, financial inclusion, and stability of the financial system, I am pleased to announce that the NDIC’s Interim Management Committee (IMC), during its 18th meeting held on April 24th and 25th, approved an 3 increase in the maximum deposit insurance coverage levels for all licensed deposit-taking financial institutions with immediate effect. The adjustments are as follows: i. Deposit Money Banks (DMBs): The increase of the maximum deposit insurance coverage from N500,000 to N5,000,000, would provide full coverage of 98.98% of the total depositors compared with the current cover of 89.20%. In terms of the value of deposit covered, the revised coverage would increase the value of deposits covered by deposit insurance to 25.37% compared with the current cover of 6.31% of total value of deposits. ii. Microfinance Banks (MFBs): The increase of the maximum deposit insurance coverage from N200,000 to N2,000,000, would provide full coverage of 99.27% of the total depositors compared with the current level of 98.76% and would increase the value of deposits covered by deposit insurance to 34.43% compared with 14.38% of total value of deposit, currently covered. iii. 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% of the total depositors compared with the current 97.98% and would increase the value of deposits covered by deposit insurance to 21.04% compared with 10.77% of total value of deposit, currently covered. iv. 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% of the total number of depositors and would increase the value of deposits covered by deposit insurance to 43.10% of the total value deposits from the current cover of 40.60%. v. 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. 4 7.0 I must emphasise that, the revised deposit insurance coverage has balanced the NDIC’s goals of deposit protection and financial system stability with incentives for depositors to practice market discipline and prevent banks from unnecessary risk-taking and moral hazard. Consideration was given to ensure that the coverage was limited but adequate enough to protect a large number of depositors and credible enough to prevent the destabilizing effect of bank runs.

8.0 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.

9.0 In conclusion, I will 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.

10.0 I thank you for your attention. Mr. Bello Hassan, OON Managing Director/Chief Executive, NDIC 2nd May 2024