Depositor’s funds in the financial institutions are protected by the government through a scheme known as Deposit insurance Scheme (DIS), but it is important to know the amount paid to depositors in the event of a bank failure.
As explained by the Nigeria Deposit Insurance Corporation (NDIC), the agency empowered to administer the DIS in Nigeria, deposit insurance is a system established by government to protect depositors against the loss of their insured deposits placed with member institutions in the event that a member institution is unable to meet its obligations to depositors.
It engenders public confidence in, and promotes the stability of, the banking system by assuring savers of the safety of their funds.
Here is the deposit insurance cover for a depositor in the event of a failed bank.
The insured limit is currently a maximum of N500,000 for each depositor in respect of deposits held in each insured Deposit Money Bank (DMB) (including Non-Interest Banks) and Primary Mortgage Bank (PMBs) and N200,000 for depositor in Microfinance Bank (MFB) in the same right and capacity. The amount to be reimbursed has to be defined.
This implies that if you have about N5 million in your account, you would be paid N500,000 if a bank becomes insolvent or closed by the Central Bank of Nigeria (CBN), said an analyst.
Limited coverage is to minimize moral hazard through excessive risk-taking by bank management and depositors. Unlimited coverage could constitute a perverse incentive for excessive risk-taking.
If a depositor has an account in the main office of a bank and also at a branch office, are these accounts separately insured?
No. The main office and all branches are considered to be one institution. Therefore, the accounts would be added together and covered up to the maximum insured sum, said NDIC.
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If a depositor has deposit accounts in different insured banks, will the deposits be added together for the purpose of determining insurance coverage?
No. The maximum insurance limit is applicable to deposits in each of the participating banks. In the case of a bank having one or more branches, the main office and all branch offices are considered as one bank. In summary, if a person has many accounts in one bank, all the deposits are taken together as one account even if the deposits are in various branches of the same bank. On the contrary, if a depositor has accounts in more than one bank, they are insured independently up to the maximum insured sum per bank.
Is the insurance protection increased by placing funds in two or more types of deposit accounts in the same participating institution?
No. Deposit insurance is not increased merely by dividing funds held in the same right and capacity among the different types of deposits available. For example, demand, time and savings accounts held by the same depositor in the same right and capacity are added together and insured up to the maximum insured sum.
Is there any arrangement in place by the NDIC to waive or reduce premium payable over time for insured institutions?
Section 12 of the NDIC Act 16 of 2006 provides that subject to stated conditions, part of the NDIC’s surplus can be applied to reduce premium payable by insured institutions. Furthermore, the NDIC already applied differential premium assessment for the DMBs and PMBs. However, the NDIC is considering adopting DPAs for the MFBs such that the premium payable by such Institutions would be based on their risk profile.
Would funds released by Federal Mortgage Bank for NHF loans and other poverty alleviation funds, donor funds, deposit for shares with PMBs/MFBs be included as Deposits when Computing the Deposit Insurance Premium?
No. Special funds such as Donor funds or other funds that are for onward disbursement to beneficiaries are excluded from assessable deposits. The onus is on the insured institutions to ensure proper classification of such funds in their books, NDIC responded.
If a husband and wife or any two or more persons, have, in addition to their individual accounts, a joint account in the same insured bank, is each account separately insured?
Yes, the NDIC said. If each of the co-owners has personally signed a valid mandate card and has a right of withdrawal on the same basis as the other co-owners, the joint account and each of the individually-owned accounts are separately insured up to the insured maximum sum.
