NDIC Weighs Risk-Based Premiums for Banks

NDIC Weighs Risk-Based Premiums for Banks

By Sahabi Abdul

The Nigeria Deposit Insurance Corporation is considering adopting a risk-based approach in calculating premiums to be paid by banks on insured deposits, Managing Director Bello Hassan said.

Faced with the choice of a flat rate or risk-determined approach, the regulators in the past favoured banks paying a flat premium rate, which had the sturdier, stronger banks subsidizing the weaker ones, he said in a speech at a conference in Lagos on Monday.

This approach failed to consider the specific circumstances of individual banks and their potential risk to the financial system. In reconsidering it, the NDIC will now take those factors into account “to ensure that the probability of the risk crystallizing becomes a major factor in the pricing methodology of our premium going forward,” Hassan said. This will enable timely interventions as soon as risks are spotted, he said.

The agency at present has insurance cover for 97.6 percent of Nigerian bank depositors, who incidentally have no more that 500,000 naira individually in their accounts, and which happens to be the insured limit per depositor.

“The implication is that in the event of bank failure, above 97 per cent of depositors would be fully covered by the corporation,” Hassan said.