NDIC raises deposit insurance coverage for bank customers in Nigeria to N5 million

Date:

The Nigeria Deposit Insurance Corporation (NDIC) has announced a substantial increase in the maximum deposit insurance coverage levels across various banks.

 

Effective immediately, the new coverage adjustments were revealed during a press conference held by the NDICā€™s MD/CEO, Mr. Bello Hassan, on May 2, 2024.

 

Recommended reading: NDIC to EFCC: Return recoveries made on our behalf for disbursements to depositors in Nigeria

Key details of revised insurance coverage:

Deposit Money Banks (DMBs): The maximum deposit insurance coverage has been elevated from N500,000 to N5,000,000. This change will now fully cover 98.98% of depositors, significantly up from the current 89.20%.

Microfinance Banks (MFBs): Coverage for MFBs has risen from N200,000 to N2,000,000, aiming to protect 99.27% of depositors, compared to 98.76% under the previous limits.

Primary Mortgage Banks (PMBs): The coverage has been increased from N500,000 to N2,000,000, ensuring 99.34% of depositors are fully covered, up from 97.98%.

Payment Service Banks (PSBs): Coverage has been adjusted from N500,000 to N2,000,000, covering nearly all depositors at 99.99%.

Mobile Money Operators (MMOs): The pass-through deposit insurance for MMO subscribers has jumped to N5,000,000 per subscriber.

The NDIC MD stated:

 

ā€œBased on these considerations, and in line with our commitment to enhancing depositorsā€™ protection, public confidence, financial inclusion, and stability of the financial system, I am pleased to announce that the NDICā€™s Interim Management Committee (IMC), during its 18th meeting held on April 24th and 25th, approved a 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 maximum deposit insurance coverage has been increased from N500,000 to N5,000,000, providing full coverage to 98.98% of total depositors compared to the current coverage of 89.20%. In terms of the value of deposits covered, the revised coverage would increase to 25.37% compared to the current 6.31% of the total value of deposits.

 

ii. Microfinance Banks (MFBs): The maximum deposit insurance coverage has been increased from N200,000 to N2,000,000, providing full coverage to 99.27% of total depositors compared to the current level of 98.76%. This would increase the value of deposits covered by deposit insurance to 34.43% compared to the current 14.38% of the total value of deposits.

 

iii. Primary Mortgage Banks (PMBs): The maximum deposit insurance coverage has been increased from N500,000 to N2,000,000, providing full coverage to 99.34% of total depositors compared to the current 97.98%. This would increase the value of deposits covered by deposit insurance to 21.04% compared to the current 10.77% of the total value of deposits.

 

iv. Payment Service Banks (PSBs): The maximum deposit insurance coverage has been increased from N500,000 to N2,000,000, providing full coverage to 99.99% of the total number of depositors. This would increase the value of deposits covered by deposit insurance to 43.10% of the total value of deposits from the current coverage of 40.60%.

 

v. Subscribers of Mobile Money Operators: The maximum pass-through deposit insurance coverage has been increased from N500,000 to N5,000,000 per subscriber per MMO as the applicable coverage level for depositors of DMBs.ā€

 

Reason for upward review

In his address, Mr. Hassan outlined the journey and rationale behind the adjustments in insurance coverage. Initially set at N50,000 in 1989 to cover 85% of depositors, the coverage was progressively increased to N200,000 in 2006, and later to N500,000 in 2011 for Deposit Money Banks (DMBs), with similar adjustments made for other financial institutions over the years. The latest study in 2023 underscored the need for a further increase due to high percentages of depositors being fully insured but still a considerable value of deposits remaining uncovered, which posed risks like potential bank runs.

 

Mr. Hassan emphasized that the revised coverage is a strategic balance between protecting depositors and ensuring the stability of the financial system. The changes aim to extend protection to a larger percentage of the population, enhance financial inclusion, and mitigate the potentially destabilizing effects of bank runs.

 

Mr. Hassan emphasized that these changes are supported by solid financial backing from the NDICā€™s Deposit Insurance Funds (DIFs), anticipated premium collections, and robust supervision and bank resolution frameworks outlined in the NDIC Act No. 33 of 2023. This strategic enhancement aims to balance the protection of depositors with the need to encourage market discipline among banks, thereby preventing unnecessary risk-taking and the destabilizing potential of bank runs.

 

What does this mean for Nigerian bank customers?

In the event of a financial institutionā€™s failure and the revocation of its license by the Central Bank of Nigeria (CBN), the NDIC will reimburse eligible depositors up to the maximum insured amount of N5 million in Deposit Money Banks (DMBs) and N2 million in Microfinance Banks (MfBs) and Primary Mortgage Banks (PMBs).

The Corporation sells the assets of failed banks and collects debts owed to them so that depositors whose claims exceed the maximum insured sums can receive liquidation dividends on a pro-rata basis.

The liquidation dividend is the amount paid to depositors by the NDIC after a bank is liquidated if the depositorā€™s amount exceeds the insured amounts. Payments to creditors and shareholders are made from the proceeds after all depositors have been repaid from the assets of closed financial institutions.

With the maximum insurance coverage raised substantiallyā€”for example, from N500,000 to N5 million for depositors in DMBsā€”customers can feel more secure about the safety of their deposits. This higher coverage ensures that a larger portion of their money is protected in the event of a bank failure, thereby boosting depositor confidence in the banking system.

The new coverage levels are designed to fully insure a higher percentage of depositors. For instance, the coverage for DMBs now fully protects 98.98% of depositors, up from 89.20%. This change means that almost all depositors are completely covered by the NDICā€™s insurance, reducing their risk significantly in case their bank collapses.

With increased deposit insurance, individuals and businesses might be more inclined to save their money in banks, contributing to higher levels of financial inclusion. Knowing that their deposits are secure, even those who previously underutilized banking services due to fear of potential bank failures might now be more likely to engage with the banking system.

Overall, these changes are expected to bolster the resilience of Nigeriaā€™s banking sector, enhance depositor protection, and contribute to a more stable financial environment, benefiting both individual bank customers and the broader economy.

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