NDIC raises maximum bank deposit insurance coverage to N5m

•99% of depositors now covered, says corporation

The Nigeria Deposit Insurance Corporation (NDIC) has raised the maximum deposit insurance coverage for deposit money banks (DMBs) and others from N500,000 to N5 million.

The increase, which translates to 900 per cent, comes as stakeholders raise questions on whether the previous coverage reflects market reality.

This means depositors would henceforth be paid as much as N5 million of the deposit as the insured amount in the event of bank failure.

The increase which takes immediate effect, the corporation said, would provide full coverage of 98.98 per cent of the total depositors compared with the current 89.2 per cent cover.

Addressing a press conference yesterday, Managing Director/Chief Executive of NDIC, Bello Hassan, raised the alarm over the high level of uninsured deposits across DMBs, primary mortgage banks (PMBs), microfinance banks (MFBs) and payment service banks (PSBs), stating that the situation posed a significant risk to the stability of the financial institutions.

He said findings indicated that a high percentage of depositors ranging from 89.2 per cent to 99.99 per cent were fully insured under the maximum deposit insurance coverage levels across the different bank categories. Still, he noted, a substantial portion of the total value of deposits remained uninsured.

According to him, the International Association of Deposit Insurers (IADI) Brief No. 9 of 2023 examined the recent bank failures in the United States 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.

Bello said the NDIC’s Interim Management Committee (IMC), during its 18th meeting held on April 24 and 25, 2024, approved a three increase in the maximum deposit insurance coverage levels for all licensed deposit-taking financial institutions with immediate effect.

On the adjustments for the DMBs, he said, in terms of the value of deposits covered, the revised coverage would increase the value of deposits covered by deposit insurance to 25.37 per cent compared with the current cover of 6.31 per cent of the total value of deposits.

For MFBs, the NDIC chief said, the increase of the maximum deposit insurance coverage from N200,000 to N2 million would provide full coverage of 99.27 per cent of the total depositors compared with the current level of 98.76 per cent and would increase the value of deposits covered by deposit insurance to 34.43 per cent compared with 14.38 per cent of the total value of deposits currently covered.

In the case of PMBs, Bello said the increase of the maximum deposit insurance coverage from N500,000 to N2 million, would provide full coverage of 99.34 per cent of the total depositors compared with the current 97.98 per cent and would increase the value of deposits covered by deposit insurance to 21.04 per cent compared with 10.77 per cent of the total value of the deposit currently covered.

Also, for PSBs, the increase of the maximum deposit insurance coverage from N500,000 to N2 million would provide full coverage of 99.99 per cent of the total number of depositors and would increase the value of deposits covered by deposit insurance to 43.1 per cent of the total value deposits from the current cover of 40.6 per cent.

Also, for subscribers of mobile money operators (MMOs), the NDIC boss said the increase of the maximum pass-through deposit insurance coverage is raised from N500,000 to N5 million per subscriber as the applicable coverage level for depositors of DMBs.

Based on these and in line with the corporation’s commitment to enhancing depositors’ protection, public confidence, financial inclusion and stability of the financial system, Bello emphasised that the revised deposit insurance coverage has balanced the NDIC’s goals of deposit protection and financial system stability with incentives for depositors to practise market discipline and prevent banks from moral hazard.

According to him, consideration was given to ensure that the coverage was adequate to protect many depositors and credible enough to prevent the destabilising effect of bank runs.

He said 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 yearly premium collection, enhanced supervision that would reduce the likelihood of bank failure, effective bank resolution frameworks and other funding arrangements provided by the NDIC Act of 2023.