The Nigeria Deposit Insurance Corporation (NDIC) has said that it is working on achieving a no policy, no cover policy for the Nigerian financial sector.
NDIC Managing Director, Umaru Ibrahim said the corporation, HAS included in the ongoing amendments to its Act, a section that will empower it to cover only institutions that have paid their premium.
He said the implementation of such act, will enable it plug some loopholes and ginger the insured firms to pay their premium promptly.
He said the Corporation is also working on establishing a ‘Resolution Fund’ that will enable it create more buffers to handle cases, should a bank fail.
The NDIC covers all deposit taking financial institution licenced by the Central Bank of Nigeria (CBN). These include Deposit Money Banks, Microfinance Banks, Primary Mortgage Banks (PMBs) and Non-Interest Bank. The NDIC currently provides deposit insurance cover to 24 commercial banks, 880 microfinance banks, 77 primary mortgage banks and one Non-Interest Bank.
Ibrahim explained that NDIC collaborates with the CBN for effective banking supervision, adding that such would protect depositors, foster monetary stability and promote effective and efficient payment system, as well as ensure innovation and competition in the subsector.
He said the Corporation has for several years, carried out these tasks which have resulted in the reduction in examination cycles of banks and led to minimal disruptions in the payment system.
He advised PMBs to adhere to recommended corporate governance practices, based on effective and sustainable risk management practices as instituted by the regulatory authorities.
“Weak corporate governance and risk management frameworks could result in risky behaviours by PMBs, which could in turn result in the creation of huge toxic assets and ultimately put insured deposits at risk.”
He lamented that the supervisory authorities were deeply concerned about the build-up of toxic assets of micro finance banks, which stood at about 45.70 per cent as against the prescribed maximum of five per cent, while hinting that the corporation’s attention is now being focused on both Micro Finance Bank and PMB sub-sectors so as to address the emerging challenges.
He, however, advised that PMBs should be interested in enhanced risk management standards because some mortgage portfolios are on a predominantly variable rate and therefore highly sensitive to interest rate fluctuations.
He said: “For instance, an increase in interest rate could make mortgage repayment difficult and result in default which may give rise to toxic assets. Furthermore, new mortgages could become less attractive for consumers’ due assets.
PMBs should be able to assess a consumer’s ability to continue with mortgage repayments in the case of an interest rate rise. A lack of thorough and effective assessments could pose a major risk for many PMBs.”
Ibrahim stated that the corporation and the CBN were making concerted efforts to ensure that risk management issues in the financial system were continuously addressed via rapidly developing capacity in the implementation of Basel II and III.
The maximum deposit insurance coverage was increased from its set level of N50,000 at inception to N200,000 in 2006. In 2010, it was further raised to N500,000 for commercial banks.
