Understanding Deposit Insurance in Nigeria and its Workings -By Nide Dayo
The fast increase in the number of banks from forty(40) to a hundred and twenty (120) between the year 1986 to 1992 led to a serious increase of competition amongst these banks and it also led to sharp practices among this banks. People with questionable integrity were becoming owners of banks and banks managers as at then.
These were the pointers that led to serious breakdown in corporate governance and boardroom squabbles, downturn in the economy and political upheavals at that time. It also compounded the difficult situation the corporation found itself. The banking sector could be likened to one that is always in distress at that time.
A report by the committee set up by the board of central bank of Nigeria(CBN) in 1983 made a recommendation that a depositors protection fund should be established so as to examine and monitor the operations of the banking system in Nigeria. This led to the establishment of The Nigeria deposit insurance corporation through the promulgation of decree No. 22 of 15th June 1988[¹].
This write up will do justice to the analysis of the deposit insurance scheme and some selected related questions.
2. DEPOSIT INSURANCE, SELECTED QUESTIONS AND ANSWERS
The deposit insurance is a scheme put up by the government in order to protect depositors in situation of loss of their insured deposits.
The banking industry are such that are fragile and vulnerable to liquidity and solvency problems. This is because of the nature of their transactions, that is, they transact in transforming short-term liquid deposits into longer-term. So also, their transactions of lending loans to a large variety of borrowers and customers.
The deposit insurance is therefore a financial guarantee to protect depositors in the event where a bank fails. The scheme also reposes some high level of confidence to depositors in the banking industry.
2.1 DO I NEED TO REGISTER FOR THE DEPOSIT INSURANCE BEFORE MY DEPOSIT CAN BE COVERED?
No you do not need to register. Under this scheme once you owned deposit account in a bank that is insured by the NDIC then your deposits are covered without no charge on your deposit account.
2.2. HOW DO I KNOW IF MY BANK IS INSURED BY NDIC?
There are always a Nigerian deposit insurance corporation sticker that are displayed in all banks, both at their head offices and branches showing that such bank is insured by the NDIC.
2.3. HOW WILL I COLLECT MY DEPOSIT IF MY BANK FAILS OR ITS LICENCE REVOKED?
You can collect your deposit by filing your claims through the completion of whatever forms provided by the NDIC and you will need to furnish the NDIC with your account documents such as your unused cheque books, old cheque stubs, passbooks, fixed deposit certificates, etc. And a valid identification would be required of you, such as, National identity card, driver’s licence or international passport. After that, if you are verified that the account belongs to you, your insured sum shall be paid.
2.4. IS THE DEPOSIT INSURANCE SAME WITH THE CONVENTIONAL INSURANCE?
NO, the deposit insurance is a different scheme from the conventional insurance. In that, it serves a different purposes. The scheme is to protect the interest vis-à-vis the rights of depositors and to also develop a financial industry that is sound.
The conventional insurance are known to be a profit earning scheme and are such a commercial driven scheme which is far different from the concept of deposit insurance.
3. THE NIGERIAN DEPOSIT INSURANCE CORPORATION (NDIC)
Section 1 of the Nigerian deposit insurance corporation Act 2006 established the corporation.
The NDIC Is an independent agency set up by the government to protect depositors and guarantee payment of insured funds in the event of failure of insured institution.
The Nigerian deposit insurance corporation is by law an automatic liquidator when the banking licence of a bank is revoked by the central bank of Nigeria.
In the case of JOLIMAIR (NIG) LTD & ANOR V. LIBERTY BANK PLC[²]. the court of Appeal held that the Nigerian deposit insurance corporation is by law an automatic liquidator when the banking licence of a bank is revoked by the central bank of Nigeria.
The NDIC Act 2006 in section 40(1) provide that _”whenever the license of an insured institution is revoked by the central bank of Nigeria, the corporation shall act as liquidator of such failed insured institution with the powers conferred on a liquidator under the companies and allied matters Act and shall be deemed to have been appointed a provisional liquidator by the federal high court for the purpose of that Act_ ”
Section 56 of the banks and other financial institutions Act also recognized the NDIC Act.
3.1. WHICH BANKS ARE REQUIRED TO INSURED THEIR DEPOSIT LIABILITIES WITH THE NDIC?
Section 15 of the NDIC Act mandated all licensed banks and such other financial institutions in Nigeria engaged in the business of receiving deposits shall be required to insure their deposit liabilities with the corporation and any license bank or such other deposit taking financial institutions which contravenes the provisions of this section shall be guilty of offence.
3.2 CAN I SUE THE NDIC FOR DEBTS INCURRED BY A FAILED BANK?
The court of Appeal in NDIC V. MOHAMMED & ORS[³] held that the NDIC cannot take personal responsibility for liabilities incurred by the closed bank before it became distressed.
3.3. WHAT DOES IT MEAN FOR A BANK TO FAIL?
A bank failure is the closing of an insolvent bank by the central bank of Nigeria when such bank are unable to meet their obligations to depositors and others.
3.4. HAS THERE BEEN A CASE OF FAILED BANKS OR A BANK WHICH THEIR LICENCE REVOKED?
Yes, between 1994 and 2006 there are records of 45 failed banks and the NDIC had wound up such banks. In 2018, 158 micro finance banks licenses has been revoked.
3.5. HOW MANY DAYS WILL IT TAKE THE NDIC TO PAY MY INSURED DEPOSIT WHERE MY BANK FAILS OR LICENCE REVOKED?
Where the licence of your bank is revoked or where your bank fails payment of your insured deposits shall be made by the NDIC within 90days either by cash or negotiable instruments.
3.6. HOW WILL I KNOW THAT NDIC IS ABOUT TO PAY WHEN MY BANK LICENCE IS REVOKED OR FAILED?
The NDIC shall cause notice to be given by advertisements in national newspapers or other news media requiring all depositors with the insured institution under to forward their claims to the corporation.
3.7. DOES THE NDIC OFFER FINANCIAL ASSISTANCE TO INSURED BANKS?
YES, but it is at the request of the insured institution and such conditions as may be specified by the corporation, if such institution has difficulty in meeting its obligations to its depositors and other creditors.
The above analysis of the concept of deposit insurance is believed to serve as an educative series to banks depositors and customers.
Gone are the days when depositors has this fear of unknown in situation where their bank fails. The NDIC has brought a huge succour.
The second part of this educative series will be out soon.
Nide Dayo is a law student at Lagos state university. He is a commercial and corporate law developing student. Reach me on email@example.com or WhatsApp +2349044219239
1. “NDIC history” available on https//ndic.gov.ng/about-ndic-
2. (2016) LPELR-CA/L/1117/10
3. (2018) LPELR-CA/K/303/2014
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