Written by The Nigeria Deposit Insurance Corporation is an independent federal agency established in 1988 to provide deposit insurance to Nigerian Banks and other deposit-taking institutions of the Nigerian financial system.
Together with the Central Bank of Nigeria, the Nigeria Deposit Insurance Corporation supervises and examines the affairs of institutions in the Nigeria Banking system.
The functions of the Nigeria Deposit Insurance corporation are as follows:
1. Deposit Insurance
This is the primary function of the NIDC since it is an insurance corporation.
The Nigeria Deposit Insurance Corporation(NDIC) insures all deposit liabilities of licensed banks and deposit-taking financial institutions in Nigeria.
It insures all deposit-taking financial institutions, including commercial banks, microfinance banks, and primary mortgage banks.
The current maximum insured deposit amount is N500,000 per depositor per bank for Primary mortgage institutions(PMIs) and commercial banks, and 200,000 for Microfinance Banks (MFBs)
By providing deposit insurance, Nigeria Deposit Insurance Corporation ensures that depositors do not lose all their funds in the event of a bank failure.
2. Risk Management
The NDIC also plays an important role in managing risk in the banking system.
To manage risk, the NDIC may carry out risk-based supervision and monitoring of insured financial institutions.
Risk-based supervision is a proactive approach taken by the NDIC that involves assessing the risk profile of each financial institution and tailoring supervisory actions accordingly.
By engaging in risk-based supervision, the NDIC can identify potential issues early and take appropriate corrective measures before they become major problems.
Apart from risk-based supervision, the NDIC also has a full suite of early intervention and resolution powers that it can use to manage risks in the banking system.
These powers include the ability to:
- Remove or restrict the powers of the board and management of an institution.
- Direct an institution to take specific corrective actions to address any issues that may pose a risk to depositors or the wider financial system.
- Appoint a receiver to take control of an institution to protect depositors and other creditors.
3. Provides Assistance to Insured Institutions
Another function of NDIC is that it provides assistance to commercial banks, microfinance banks and other deposit-taking institutions.
The assistance that NDIC provides to Banks is as follows:
- Financial assistance: The NDIC provides loans and other forms of financial assistance to insured institutions that are experiencing financial difficulties.
- Capacity building: The NDIC also provides capacity-building programs to insured institutions to help them improve their governance, risk management, and compliance practices.
- Technical assistance: The NDIC provides technical assistance to insured institutions to help them address specific challenges or issues. For example, the corporation can assist with the development of recovery plans and risk assessments.
4. Supervises Banks
Along with the Central Bank Of Nigeria, the NDIC supervise and monitors the operations of banks to ensure that they comply with regulatory requirements and best practices in the banking industry.
This supervision undertaking by the NDIC includes inspecting and assessing the financial health and performance of the banks.
The NDIC also monitors the activities of banks and ensures that banks maintain the adequate capital and liquidity levels required by laws.
This supervisory role of banks is necessary to prevent bank failures and protect the interests of depositors.
5. Assists in the formulation and implementation of Sound Banking Policies
Another important function of the Nigerian Deposit Insurance Corporation (NDIC) is to assist the monetary authorities in formulating and implementing sound banking policies and practices.
The NDIC assists monetary authorities in formulating policies that promote sound banking practices by providing expert advice, conducting research on the banking system, and making recommendations on regulatory policies and practices on the best banking policies to adopt.
6. Bank resolution
Another important role of the NDIC is the resolution of Nigerian banks.
As the primary protector of deposits in the Nigerian banking system, the Nigeria Deposit Insurance Corporation has the right to resolve a failing bank or a bank in distress.
When a bank is in distress or at risk of failure, the NDIC has the power to intervene and take measures to resolve the bank.
For example, in a bid to resolve the bank, the NDIC may take over the management of the bank, restructure its operations, or merge it with another bank to ensure that depositors’ funds are protected.
In cases where a bank cannot be resolved, the NDIC may liquidate the bank by selling off its assets to repay depositors’ funds.
The bank resolution function of the NDIC is crucial to maintaining public confidence in the Nigerian banking system.
It helps to ensure that depositors are protected and that the wider financial system remains stable and resilient.
Indeed, by resolving failing banks, the NDIC has helped to prevent systemic risks and promote financial stability in the Nigerian banking system, both of which are essential for sustainable economic growth and development.
7. Bank liquidation
Apart from resolution banks, the NDIC also liquidate failed banks that do not respond to its resolution measures.
When a bank is deemed to be insolvent, the NDIC will take over the management of the bank, with the goal of recovering as much of the bank’s assets as possible in order to pay off depositors and other creditors.
It ensures that the liquidation process is done in an orderly and transparent manner to minimize the impact of liquidation on depositors and the wider financial system.
The bank liquidation function of NDIC ensures that depositors are reimbursed for their losses up to the maximum insured amount of the failed bank.
