NDIC raises maximum deposit insurance to N5m for commercial banks

… Says 98.98% of the total depositors are fully insured

Oru Leonard 

The Nigeria Deposit Insurance Corporation (NDIC), has announced that  the maximum deposit insurance coverage for deposit money banks (DMBs) customers has been to N5 million from N500,000.

What this means is that in the event of a bank failure, all depositors with deposits from N5 million and below will get their money refunded in full whilst larger depositors will also get a minimum of N5 million. Additional payouts could be based on the assets recovered.

The MD/CE of NDIC Mr. Bello Hassan disclosed this on Thursday, May 2nd, 2024 at a press briefing in Abuja.

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.

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.”

He indicated 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.”

He further explained that the review became necessary because a significant number of depositors weren’t adequately insured which posted 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 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 covers large majority of depositors to prevent the risk of bank runs, but leave a substantial amount of deposits exposed to market discipline.

He said 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 examined the recent bank failures in the United States of America and Switzerland and 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.