The Nigerian Deposit Insurance Corporation (NDIC) is considering the introduction of a risk based premium assessment system for primary mortgage banks (PMBs) which will allow the regulator charge a lesser or higher insurance premium on a PMB depending on its level of risk.
Experts said on Monday that this new system will now serve as an incentive for efficiency and best practices in the sub-sector.
“We are also considering reviewing the basis of premium so that instead of the present flat rate, we can introduce a risk based premium assessment system which is now the case with the DMBs,” Umaru Ibrahim, managing director, NDIC, said on Monday in Abuja.
“That way, we will be able to promote safer and best practices and in the process, the best management institutions will have less premium to pay,” he added.
In his key note address at the opening session of the two days sensitisation workshop for operators of the PMBs, Ibrahim said NDIC is also considering an upward review of the insurance cover for depositors of PMBs which was recently raised to N200,000 in the event of failure.
He said the categorisation of premium covers and upward review of insured deposits had become necessary given the huge exposure that the industry carries as well as the quantum of premium they give.
Ibrahim also said that the NDIC has already developed a framework of financial assistance for the PMBs in order to promptly intervene and assist them to overcome temporary liquidity problems.
The workshop which focuses on ‘Developing and implementing sustainable effective risk management in PMBs in Nigeria’ is an opportunity for the corporation to beam searchlight on the risk management in the periods of the PMBs.
Ibrahim said the primary mortgage institutions should be keen in enhancing their risk management standards because some mortgage portfolios are on a predominantly variable rate and therefore highly sensitive to interest rate fluctuations.
He noted that for instance, an increase in interest rate could make mortgage repayment difficult and result in default which may in turn result in toxic assets. Besides, new mortgage could become less attractive for consumers due to affordability pressures.
Ibrahim further assured that the regulators, NDIC and the Central Bank of Nigeria (CBN), are working to ensure continuous resolutions of risk management issues in the financial system. One of such, according to him, is the rapid capacity building on the implementation of Basel II and III.
Hassan Musa Usman, managing director, ASO Savings & Loans Plc, later told BusinessDay that the new system of categorising insurance payable by PMBs is commendable as such incentive will help instill best practices in the system.
“If the regulators find that some companies are riskier than others, they should make them pay higher rates than those who are less risky. The way it is now is that everyone pays the same insurance rates.
“But with this new system, if you can improve your efficiency and be less risky, you can pay less insurance premium.
“So you have an incentive to actually have a very good system so that you can pay less premium and that will help the business and system in the long run,” Usman told BusinessDay in a chat.
