Insider deposits, including staff and directors of the insured banks and other financial institutions (FIs) are not covered by deposit insurance (DI), according to the Nigeria Deposit Insurance Corporation (NDIC).
This is in line with Section 22 of NDIC Act 2023 (formerly section 16 of the NDIC Act 2006), all deposits of a licensed bank or any other financial institution shall be insured by the corporation except in some areas.
Other exceptions are counter-claims from a person who maintains both deposits and loan accounts, the former serving as collateral for the loan, inter-bank placements, and such other deposits as may be specified by the board.
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“The primary mandate of the NDIC is prompt payment of guaranteed sums of failed insured financial institutions”, said Kabir Katata, director, Research, Policy and International Relations (RPIRD).
The resolution of failed banks by the NDIC is handled by the Asset Management Department (AMD) while Claims Resolution Department (CRD) is responsible for pay-outs of claims filed by depositors as well as payment of liquidation dividends to uninsured depositors and creditors of closed banks.
According to him, one of the biggest constraints hindering prompt and accurate reimbursements is the lack of early access to accurate depositor information.
This includes access to depositor records in advance of a failure, poor quality of depositor records at banks, and the lack of a bank client unique identifiers to aggregate deposits held by the same person/entity so as to apply the deposit insurance coverage limits.
Other key impediments to timely reimbursement include the difficulty in determining depositors’ claims and related loans/liabilities for complying with netting requirements and the lack of appropriate IT reimbursement systems and reimbursement plans to deal with different sized banks.
To expedite the reimbursement process, a Deposit Insurance (DI) should rely on technology-based systems to process depositor information in a systematic and accurate manner.
The NDIC maintains four distinct funds: Deposit Insurance Fund (DIF) for Commercial/Merchant Banks, Non-Interest Deposit Insurance Fund (NIDIF) for Non-Interest Banks, Special Insured Institutions Fund (SIIF) for Microfinance/Primary Mortgage Banks and Payment Service Bank DIF (PSB-DIF) for PSBs.
DIS should reimburse depositors’ insured funds promptly and should manage its funds adequately for insured depositor reimbursement.
Also, regarding recoveries, the deposit insurer should have, bylaw, the right to recover its claims in accordance with the statutory credit or hierarchy (having at least the same credit or rights or status as a depositor in the treatment in law of the estate of the failed bank).
The NDIC Act of 2006 provides that depositor reimbursement should commence at most 90 days after bank closure.
Katata said the NDIC Act (Section 28) provides that payments of the insured deposits shall be made by the Corporation within 30 days of the Corporation becoming the liquidator of such insured institution where the licence of that institution is revoked.
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“The NDIC has a robust legal framework to reimburse depositors whenever the need arises,” he said. According to him, since 1989, the NDIC has been involved in payouts to depositors of 467 insured banks in-liquidation, comprising 49 DMBs, 367 MFBs, and 51 PMBs.
“The Corporation has strived to build effective processes and systems for meeting the deposit insurers’ obligation to make timely and accurate reimbursements to depositors,” Katata added.
