NDIC, CBN deliver better supervision

Analysts seek end to regulatory failure

FOLLOWING THE ADOPTION of the risk adjusted premium based system by the Nigeria Deposit Insurance Corporation (NDIC) in determining what premium a bank pays under the deposit insurance scheme

FOLLOWING THE ADOPTION of the risk adjusted premium based system by the Nigeria Deposit Insurance Corporation (NDIC) in determining what premium a bank pays under the deposit insurance scheme, findings by business a.m. show that high risk banks with weak fundamentals are now much easier to spot.

Deposit insurance is a financial guarantee to protect depositors in the event of a bank failure and also to offer a measure of safety for the banking system. It entails banks paying an amount to insure their customers’ deposits in the event of eventuality.

Following the migration from the old system of flat rate by all the banks as guided by the NDIC, it became obvious that some banks are less prone to risk than the others.

Such criteria which easily make this obvious include capital base, non performing loan portfolios, quality of management, weak internal control/audit and liquidity.

With this system that separates industry leaders from the weaklings, analysts wonder why the regulatory authorities that collect information from the banks on a daily basis would take their eyes off the players considered not too strong to the level where they ultimately fail.

The analysts want the regulators, made up of the Central Bank of Nigeria and the NDIC to constantly put the weak players under their searchlight to avoid any confidence-shaking development in the nation’s banking industry again.

The NDIC took the intiative to introduce the differential premium assessment system in order not to lump every player together, even though the flat rate system was simple in operation and implementation.

Upon the categorisation of banks into low risk and high risk players, and the adoption of the differential premium for deposit insurance, The NDIC, for instance, in 2015 reduced the premium paid by banks by N9.09 billion in 2015 following the reduction of the premium base rate from 40 basis point to 35 for each deposit money bank .

The merits of the flat-rate premium system include simplicity. However, the high risk banks in the past indulged in over lending since they were not charged arbitrarily for their risk profile. Also, low-risk banks effectively pay for part of the deposit insurance benefit received by highrisk banks.

Risk-adjusted differential premium system was devised to correct these percieved weaknesses of the flat rate as verybody carries what he causes.