Between ponzi schemes and deposit insurance system
investors from that of bank depositors if the scheme crashed as many Nigerian banks had equally failed in the past. He inquired “Who will pay the depositors if their bank fails. Tell me?”
As cynical as Shomefun’s arguments might sound, they are also erroneous and far from the truth. Shomefun is truly unaware of the protection available to him and other bank depositors under the Nigeria Deposit Insurance System. The reality is that all bank depositors with exception of banks’ staff and directors enjoy protection on their bank deposits through the deposit guarantee system of the NDIC.
The advent of NDIC in the financial landscape since 1989 provided another layer of protection for bank depositors through the deposit insurance system (DIS). The government at the time had introduced the Structural Adjustment Programme (SAP) which led to the liberalisation of issuance of banking licences and sharp increase in the number of banks. The need then arose to put an institution in place to protect bank depositors from the likely effects of stiff competition among the banks that was envisaged in the aftermath of the deregulation of the economy. In addition, the economic liberalisation policy shifted the government’s attention from a blanket guarantee on the banking industry to that of protecting the depositors, especially the small and unsophisticated savers. The NDIC’s layer of protection for the bank depositors is provided through its core mandate namely deposit guarantee, bank supervision, failure resolution and bank liquidation.
The NDIC’s deposit guarantee involves reimbursement to bank customers in the event of failure or difficulty of payments by the financial institutions. The deposit insurance system guarantees payment to depositors up to a maximum limit as provided for in the NDIC Act in the event of failure of a banking institution. From a maximum limit of N50,000 per depositor per bank at its inception in 1989, the guaranteed sum had been reviewed upward to N500,000 per depositor per Deposit Money Bank (DMB) as well as N200,000 per depositor per Primary Mortgage Bank (PMB) and Microfinance Bank (MFB) to reflect economic realities. In 2016, with the growth in the deposit structure of PMBs, the maximum deposit insurance coverage was increased to N500,000 per depositor per PMB to further enhance public confidence in the sub-sector.
Following the advent of noninterest banking and mobile money, the Corporation swiftly developed frameworks for non interest deposit insurance to depositors of Non-Interest Banks (NIBs) and pass-through deposit insurance for subscribers of Mobile Money Operators (MMOs). Both depositors of NIBs and subscribers of MMOs are insured up to N500,000 per depositor/subscriber respectively.
It is imperative to note that the maximum deposit guarantee levels for all categories of banks cover over 95 per cent of the total depositors. The implication of this is that if any bank fails, over 95 per cent of its depositors will first receive their full deposit from the NDIC’s deposit insurance fund while the balance in excess of the insured sum is paid in form of liquidation dividend from the proceeds realised from disposal of physical assets and recovery of debts owed the failed bank.
Through bank supervision which is carried out in conjunction with the Central Bank of Nigeria (CBN), the Corporation carries out effective bank supervision in order to reduce the potential risk of failure and ensure that unsafe and unsound banking practices do not go unchecked.
Under the distress resolution, the Corporation equally protects depositors’ funds through the steps taken to address any sign of distress in any bank to prevent it from failing. A case in point was the establishment of three (3) bridge banks in 2011 namely Mainstreet Bank Ltd. Keystone Bank Ltd and Enterprise Bank Ltd. The three (3) bridge banks assumed the assets and liabilities of the defunct Afribank Plc Bank PHB Plc and Spring Bank Plc respectively when it became obvious that the shareholders’ funds of the three (3) affected banks had been completely eroded.
The bridge bank mechanism recorded remarkable achievements as it sustained the daily operations of the three erstwhile banks and protected a total deposit liabilities of the banks amounting to N809 billion. The mechanism also enhanced depositors and other stakeholders’ confidence in the banking system by safeguarding a total of 6,667 jobs that would have been lost if outright liquidation option had been adopted.
With the extensive protection to depositors by the NDIC, it is obviously safer and wiser to save your money in licensed banking institutions than to gamble it through the so called investment in the Ponzi schemes that is currently reigning worldwide.
It is imperative to note that the maximum deposit guarantee levels for all categories of banks cover over 95 per cent of the total depositors. The implication of this is that if any bank fails, over 95 per cent of its depositors will first receive their full deposit from the NDIC’s deposit insurance fund