As part of efforts to ensure the resilience and stability of the nation’s financial system, the apex deposit insurance regulatory authority on Thursday reviewed the maximum deposit insurance coverage limit of all commercial banking institutions in the country.
Announcing the review in Abuja during a media briefing, the Managing Director/Chief Executive of the Nigeria Deposit Insurance Corporation (NDIC), Bello Hassan, said the review, which takes immediate effect, raised the maximum deposit insurance coverage levels for all licensed deposit-taking financial institutions in the country.
The review, which was approved by the Corporation’s Interim Management Committee (IMC) during its 18th meeting on April 24 and 25, raised the deposit insurance coverage level for Deposit Money Banks (DMBs) from N500,000 to N5m, while that of Microfinance Banks (MFBs) was increased from N200,000 to N2m, and Primary Mortgage Banks (PMBs) from N500,000 to N2m.
Also, the deposit insurance coverage level for Payment Service Banks (PSBs) was raised from N500,000 to N2m, while the maximum Pass-through deposit insurance coverage of Subscribers of Mobile Money Operators was increased from N500,000 to N5m per subscriber per MMO as the applicable coverage level for depositors of DMBs.
With the review, Hassan said DMBs would be provided full coverage of 98.98 percent of the total depositors compared with the current 89.20 percent, while the revised coverage would increase the value of deposits covered by deposit insurance to 25.37 percent compared with the current cover of 6.31 percent.
For MFBs, he said the review would provide full coverage of 99.27 percent of the total depositors compared with the current level of 98.76 percent, while increasing the value of deposits covered by deposit insurance to 34.43 percent from 14.38 percent of total value of deposit, currently covered.
Similarly, Hassan said PMBs would be provided full coverage of 99.34 percent of the total depositors compared with the current 97.98 percent, while the value of deposits covered by deposit insurance would increased to 21.04 percent compared with 10.77 percent of total value of deposit, currently covered.
Besides, the review would provide full coverage of 99.99 percent of the total number of PSBs depositors, and increase the value of deposits covered by deposit insurance to 43.10 percent of the total value deposits from the current cover of 40.60 percent, just as Subscribers of Mobile Money Operators would be positively impacted by the revision.
Tracing the commencement of NDIC operations to March 1989 with the primary objective of protecting depositors and contributing to financial system stability, the MD identified the Corporation’s four core mandates to include Deposit Guarantee, Bank Supervision, Distress Resolution, and Bank Liquidation.
He said Deposit Guarantee was 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, adding that this covers depositors of all deposit taking financial institutions licensed by the CBN, namely DMBs, MFBs, PMBs, Non-Interest Banks (NIBs), (PSBs) and subscribers of Mobile Money Operators.
Since 1989, when the maximum deposit insurance coverage for depositors of DMBs was set at N50,000, to ensure 85 percent of the total depositors in the nation’s insured banks would be covered 100 percent, Hassan said subsequently 96 percent of all depositors were protected when the coverage ceiling was raised from N50,000 to N200,000 in 2006.
For the first time, he said the coverage limit of N100,000 was also set for MFB and PMB depositors in 2006, while the coverage limits for DMBs were raised in 2011 from N200,000 to N500,000, and from N100,000 to N200,000 for depositors of MFBs and PMBs, while the level was further adjusted to N500,000 in 2016 for PMB depositors as well as subscribers of licensed Mobile Money Operators (MMOs).
Although the coverage of N500,000 was equally extended to depositors of Payment Service Banks (PSBs) in 2020, the MD said the coverage for DMBs remained at N500,000.
As part of the periodic evaluation of the effectiveness of the deposit guarantee, he said the Corporation conducted a Study in 2023, to determine the adequacy of the Maximum Deposit Insurance Coverage.
The study, which was to ensure credible coverage of a large majority of depositors to prevent risk of bank runs, he pointed out, left a substantial amount of deposits exposed to market discipline.
Findings from the study, he said, revealed that between 89.20 percent to 99.99 percent of customers were fully insured under the maximum deposit insurance coverage levels across different bank categories, while a substantial portion of the total value of deposits, remain uninsured.
A high level of uninsured deposits in banks, Hassan pointed out, posed a risk of bank runs, with dire impact on the stability of the financial system.
He said the decision to increase the maximum deposit insurance coverage levels for all licensed deposit-taking financial institutions in the country was only in line with the Corporation’s commitment to enhancing depositors’ protection, but also to ensure public confidence, financial inclusion, and stability of the financial system.
The revised maximum deposit insurance coverage, he said, was supported by the Corporation’s current funding, represented by the balances in the various Deposit Insurance Funds (DIFs), expected annual premium collection, enhanced supervision to reduce the likelihood of bank failures, effective bank resolution frameworks and other funding arrangements provided by the NDIC Act No. 33 of 2023.
In line with the concerted efforts to enhance the resilience, solvency, and capacity of banks to continue supporting the growth of the Nigerian economy, the CBN unfolded a plan recapitalise the banks in the country.
The plan, which was unfolded through a circular by the Director, Financial Policy and Regulation Department of the CBN, Haruna Mustafa, to all commercial, merchant, and non-interest banks as well as promoters of proposed banks in the country would within 24 months, between April 1,2024 and March 31,2026, adjust their capital bases from the current N25 billion to a minimum of N200 billion in order to strengthen the financial system.
Also, all commercial banks with international authorisation would be expected to have a minimum capital base of N500 billion over the period.
The apex bank also set new minimum capital base for commercial banks with national authorisation at N200 billion, while the new requirement for those with regional authorization would be N50 billion, same as merchant banks, while non-interest banks with national and regional authorisations would be required to have a minimum capital base of N20 billion and N10 billion, respectively.
