MD, NDIC, Mr. Umaru Ibrahim
The Nigeria Deposit Insurance Corporation (NDIC) Tuesday revealed that it has solicited for assistance from the World Bank, to enable it develop a framework that will be used in determining the strength of its Deposit Insurance Fund (DIF).
DIFs are funds set aside to pay back the money lost due to the failure of a financial institution.
Managing Director/Chief Executive Officer, NDIC, Mr. Umaru Ibrahim, disclosed this in a speech presented at the International Association of Deposit Insurers (IADI) Africa Regional Committee (ARC) workshop hosted by the corporation in Lagos yesterday. The event was titled: “Deposit Insurance System and Designs.”
The NDIC boss said: “The size of our DIF relative to the quantum of insured deposits in the system leaves much to be desired, as the adequacy of our DIF is still not properly ascertained using the Target Fund Ration in line with the best practice. However, the corporation is currently pursuing aid from the World Bank to enable it develop a framework for the computation of Target Fund Ratio and using it in determining the adequacy of our DIF.”
According to him, the ‘bridge bank’ option which was used to recapitalise the three nationalised banks in 2011 is still uncommon in the region.
He reiterated that “through the adoption of ‘bridge bank’, N809.4 billion total deposits as well as about 6,667 jobs of the three banks were saved.”
Umaru added: “As far as we are concerned, the ‘bridge bank’ option turned out to be a more cost-effective resolution option than direct payout and has helped in boosting confidence of depositors and other creditors in the system in particular, and the nation’s banking system in general.”
He identified shortage of funds and low level of awareness as some of the challenges affecting the NDIC’s operations. He described the Deposit Insurance System (DIS) in Nigeria as “the ‘explicit type’, and a risk minimiser, with broad mandate of deposit guarantee, supervision, distress resolution, and liquidation.”
According to him, the choice of the explicit DIS for the country was borne out of the desire to protect small and unsophisticated savers, whom, he said, constituted the bulk of depositors in the Nigerian banking system.
In his address, the Chairman, IADI, ARC, Mr. John Chikura, pointed out that globally, deposit insurance has become an integral part of the financial safety net. “There exists a wide spectrum of deposit insurers with varied mandates, powers, roles and responsibilities. Notwithstanding their varied mandates, deposit insurers contribute to the overall growth of the economy. They do so by promoting to the stability of the financial system.
“They build public confidence through the delivery of comprehensive public awareness programmes aimed at increasing financial literacy and better-informed depositors. During a systematic crisis, deposit insurers maintain confidence in depositors by increasing deposit coverage limits and implementing systemic stabilising measures like blanket guarantees,” Chikura said.
According to him, globally, about 110 countries have adopted explicit deposit insurance systems compared to about 12 countries in the 70s.