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NDIC Spreads Insurance Net by 900%

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CEM REPORT, FINANCE | The Nigeria Deposit Insurance Corporation (NDIC) has announced a significant increase in deposit insurance coverage for bank customers in Nigeria. This move, effective immediately, aims to bolster depositor confidence and strengthen the overall stability of the financial system.

The NDIC announced a whopping 900% increase in the maximum deposit insurance coverage for depositors of Deposit Money Banks (DMBs). This means the coverage has jumped from ₦500,000 to a much more substantial ₦5 million. This significant rise is projected to provide full coverage for a staggering 98.98% of all DMB depositors, compared to the previous coverage of just 89.20%.

NDIC Increases Coverage Across the Board

The NDIC’s move extends beyond DMBs. Here’s a breakdown of the increased coverage for other financial institutions:

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Microfinance Banks (MFBs): The maximum deposit insurance coverage has been raised from ₦200,000 to ₦2 million, offering full coverage to 99.27% of depositors (up from 98.76%) and significantly increasing the value of insured deposits (34.43% compared to the prior 14.38%).

Primary Mortgage Banks (PMBs): The coverage has been bumped up from ₦500,000 to ₦2 million, ensuring full protection for 99.34% of depositors (previously 97.98%) and raising the value of insured deposits to 21.04% (from 10.77%).

Payment Service Banks (PSBs): Similar to PMBs, PSBs see a coverage increase from ₦500,000 to ₦2 million, offering near-complete coverage (99.99%) for depositors and boosting the value of insured deposits to 43.10% (up from 40.60%).

Mobile Money Operators (MMOs) also benefit from the NDIC’s decision. The maximum pass-through deposit insurance coverage for MMO subscribers has been raised by 900%, mirroring the increase for DMB depositors and reaching ₦5 million per subscriber per MMO.

The NDIC’s Rationale

Bello Hassan, the Managing Director/CEO of NDIC, emphasized that the revised coverage represents a strategic balance. “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,” he stated.

Read Also: PMI Report: Business Activity Edges Up in April

Hassan elaborated that the increased coverage is financially sound, backed by the NDIC’s current funding, expected premium collections, enhanced supervision to reduce bank failures, and effective bank resolution frameworks. “These adjustments reflect our dedication to adapt and evolve in response to the changing landscape of the financial industry,” he concluded.

Deposit Insurance

The NDIC’s deposit guarantee scheme is a cornerstone of depositor protection in Nigeria. It safeguards depositors’ savings up to a set limit in the event of a bank failure. This coverage applies to all depositors across licensed deposit-taking institutions, including DMBs, MFBs, PMBs, PSBs, and MMO subscribers.

The maximum deposit insurance coverage is periodically reviewed through research-based studies to ensure its adequacy and effectiveness. Factors like deposit distribution, inflation, per capita GDP, exchange rates, and other statistical models are considered when determining the coverage level.

Impact on Depositors

The NDIC’s significant increase in deposit insurance coverage is positive news for Nigerian bank customers. It offers greater protection for your hard-earned savings, fostering trust and confidence in the banking system. This move by the NDIC strengthens the financial sector and promotes a more stable environment for all stakeholders.

While the coverage has been substantially increased, it’s crucial to remember that deposit insurance has limitations. It’s always wise to diversify your savings across different institutions and consider alternative investment options. However, the NDIC’s initiative undoubtedly provides a significant safety net for Nigerian depositors.

Expert Opinion

However, some experts caution that the significant increase also warrants consideration of potential drawbacks:

Moral Hazard: Increased insurance coverage could potentially lead to banks engaging in riskier lending practices, as the potential consequences of failure are seemingly mitigated. The NDIC acknowledges this concern and emphasizes the importance of “market discipline” by depositors and continued strong bank supervision.

Funding Implications: The NDIC highlighted its current financial resources and enhanced supervisory measures to support the increased coverage. However, ensuring long-term sustainability of the deposit insurance scheme with a significantly higher payout limit will require careful monitoring and adaptation.

If You Ask Me

This significant increase in deposit insurance coverage is likely to be a topic of discussion for some time. It will be interesting to see how it impacts depositor behavior, bank lending practices, and the overall stability of the Nigerian financial system in the long run.

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