NDIC may raise mortgage banks’ deposit insurance to N500, 000

BRIGHTER days may lie around in the corner for customers of Primary Mortgage Banks (PMBs), as the nation’s independent agency saddled with protecting depositors and guaranteeing payment of insured funds may soon jerk up its payments for deposit insurance in the event of failure of insured mortgage operators.

   The Guardian learnt that the apex Banking Supervisory agency, Nigeria Deposit Insurance Corporation (NDIC) has been sampling opinions among the mortgage operators on the possibility of raising the deposits, which now stands at N200, 000. PMBs had recently concluded its recapitalisation exercise that increased share capital of national banks to N5 billion and state mortgage banks to N2.5 billion. Obervers say, the move will reduce the risk of depositors in the sector.

   Presently, NDIC reimburses depositors of all PMBs up to a maximum limit of N200, 000 per depositor in the event of failure of a mortgage bank. The N200, 000 per depositor took effect in 2010, and represents an increase of 100 per cent over the earlier N100, 000, when the insurance package was first extended to the sector in 2006.

    Specifically, feelers emanating indicate that the organisation is positively disposed to reviewing the insurance coverage to about N500, 000, to protect depositors and ensure effective operations of the sector. NDIC contribute to the stability of the financial system through effective supervision of insured institutions, provision of financial/technical assistance to eligible insured institutions, prompt payment of guaranteed sums and orderly resolution of failed insured financial institutions.

   By December 2006, the total assets of the 36 mortgage firms that rendered returns NDIC were N91 billion. The sum of N50 billion, representing 70 percent of the figure, was invested in placements and other investments while only N21 billion or 30 percent of the total sum was in loans and advances.

   The new development was confirmed recently by NDIC Managing Director, Alhaji Umaru Ibrahim during an interaction with PMBs in Abuja, where he hinted of the impending increase.   “We hope to review the insurance coverage that we do provide to PMBs, you are aware that right now it is N200, 000 in case of any failure. We are thinking why not segregate slightly from what is obtained in the Micro Finance Banks (MFB), given the huge portfolio and risks you carry,’’ he said. 

 The Executive Secretary, Mortgage Banking Association of Nigeria (MBAN), Mr. Kayode Omotoso told The Guardian that such move will increase the confidence of depositors on the mortgage sector. He said that depositors of the newly delisted mortgage banks would be covered up to N200, 000, depending on individual’s portfolio with the PMBs.

      On the just concluded recapitalisation, Omotoso explained that the ability of PMBs to go distress would be lower. “The higher the recapitalisation, the lower it is to go distress.” He stated that the recently publication that one of the PMBs has issue with liquidity and could not meet customers’ obligations, were overblown.

   He said: “Even commercial banks, there were occasions, you could have liquidity problems, but not prevalent. Temporary liquidity is not impossible in the banking system. You may have it today, tomorrow, it is over. These are temporary, it is only when they become permanent or goes into insolvency that it causes a lot of concern. That is why CBN created a window for those who have liquidity problems to overdraw their account.”

According to him, the corporation is also reviewing the basis of premium of the PMBs in the country. He said that instead of using the flat rate which was the initial practice, the corporation would introduce risk-based premium assessing system. This, he said, was obtainable with the Money Deposit Banks.

“That way, we will be able to promote safer and best practices and in the process, the best manned and managed institutions will have less premium burden on them,’’ he said. On the workshop, he said that discussion would be focused on the state of affairs of the mortgage institutions and risk management and its importance.

He said that weak corporate governance and poor risk management frameworks could result in risky behaviours by the PMBs, adding that it could help to create huge toxic assets and ultimately put insured deposits at risk.

Ibrahim said that the supervisory authorities were concerned about build up of toxic assets with Micro Finance Banks which stood at about 45.7 per cent as at December 2013 against the prescribed maximum of 5 per cent.

“Our attention is now being focused on both the MFBs and PMBs sub sectors so as to address the emerging challenges. “Our efforts can only be successful if the operators can embrace good corporate governance and sound risk management practices. “We cannot afford the repeat of 2008/2009 crisis,’’ he said. Ibrahim said PMBs in Nigeria could create significant impact if they adhere to the recommended corporate governance practices based on effective risk management practices instituted by regulatory authorities.

He said that PMBs should be interested in enhanced risk management standards as some mortgage portfolios were on predominantly variable interest rate Ibrahim added that government was making effort to rejuvenate the sector through its recent initiative on mortgage and housing policies. He said that the ratio of mortgage finance as a percentage of Gross Domestic Products currently stood at one per cent, while countries like South Africa at 29 per cent, Mexico at 10 per cent and Malaysia at 29 per cent.

The managing director said the corporation would continue to ensure that all insured institutions were put on the path of sustainable growth and development. He appealed to all PMBs to pay their annual premium promptly.

NDIC to Increase Mortgage Bank Customers’ Deposit Cover

The Nigeria Deposit Insurance Corporation on Monday unveiled plans to increase the deposit insurance coverage for customers of Primary Mortgage Banks operating in the country. The Managing Director/Chief Executive, NDIC, Alhaji Umaru Ibrahim, dropped the hint in Abuja in a keynote address at a sensitisation workshop for operators of the PMBs.

The workshop, with theme: ‘Developing and implementing sustainable effective risk management in PMBs in Nigeria’, was organised by the NDIC to promote safe and sound banking practices.

But Umar said since the PMBs seemed to carry more risks and pay more insurance premium than microfinance banks, there was a need to increase the corporation’s coverage from the current N200,000 per depositor.

He, however, failed to provide the amount for the new deposit insurance cover being planned by the corporation.

Umar said, “Going forward, we are going to review the insurance coverage for the PMBs which is currently N200,000, and we are thinking why not segregate that sector from what obtains in microfinance banks, given the huge risks that you carry and the quantum of premium that you pay

“We are also considering reviewing the flat rate and introducing the risk-based premium, which is the case in the banking industry with deposit money banks.