Nigeria Deposit Insurance Corporation (NDIC) has commenced the process of reviewing deposit insurance premiums for Nigerian banks.
According to NDIC, the move is part of efforts to be able to determine the maximum sum an insured financial institution would have to pay to cover its risk against possible incidence of collapse.
The initiative strives to ensure that the insurance cover is adequate to support this objective within the banking sector.
Bello Hassan, managing director, NDIC, who said this at a workshop for journalists in Ibadan, the Oyo State capital, added: “We have commenced the review of our approach to the determination of premium by banks to make it more risk-based, such that the probability of the risk crystallising, becomes a major factor in the pricing methodology of our premium going forward.”
In recent times, there have been calls on the corporation to enhance the support for insured institutions that are facing financial difficulties.
The NDIC chief executive officer said the corporation has identified the need to reconsider its framework, to provide realistic terms and conditions that will enable qualifying insured financial institutions promptly access technical and or financial support, in line with S.(2)(1)(b) of the NDIC Act, whilst also protecting the corporation from possible downside risks.
With the emergence of bigger banks post-consolidation, NDIC said sound risk management became one of the key factors in ensuring the safety and soundness of the banking system.
The corporation said it believes that it is imperative to transit from the flat rate premium assessment system to a differential premium system.
“The rationale for the review is to be able to scientifically say ok, this is what is supposed to be the deposit insurance fund that is supposed to be held at any point in time to meet risk that will crystalise. What is that risk? That is the risk of making pay-outs,” he said.
NDIC sought the collaboration of relevant stakeholders, including the media “to improve on our processes in resolving liquidated financial institutions.”
Hassan explained that some of the obstacles bedevilling the efficient and timely resolutions of liquidated institutions, such as slow recovery and realisation of assets as well as litigation by erstwhile shareholders and creditors of closed banks can only be addressed through effective collaboration, adding “…and if it collapses, how much funding do we need to put in place to be able to make that liability that will be able to crystalise and so we are looking at various scenarios under the reverse framework, but essentially we want to make it risk-based looking at the various factors that could impact on the viability of the bank to be able to say that maybe this is the number of banks that might likely collapse and if they collapse, do we have sufficient funding to be able to make that pay-out?”
The workshop was tagged: “Enduring Extreme Disruptions: Resilience & Reinvention for Banking System Stability & Deposit Insurance”.
As economies across the globe continue to grapple with the devastating impact of the COVID-19 Pandemic, Mr Hassan said it has become expedient and highly desirable for supervisors to come up with appropriate strategies that are required to build resilience into the nation’s financial systems to provide the much-needed support to the federal government’s economic recovery agenda.
The NDIC MD said the key focus is to scale up the deposit insurance framework; provide timely support to insured institutions as and when required; ensure faster and orderly resolutions of liquidated insured institutions; as well as continue to assist the Central Bank of Nigeria (CBN) in promoting the stability of the banking system.