NDIC, CBN de­liver bet­ter su­per­vi­sion

An­a­lysts seek end to reg­u­la­tory fail­ure

Business a.m. - - FRONT PAGE - Moses Oba­jemu

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.

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