•Corporation adopts new pricing regime
The Nigeria Deposit Insurance Corporation (NDIC) has said that 15 Primary Mortgage Banks (PMBs) have defaulted in paying their deposit insurance premium to the corporation.
The NDIC Managing Director/CEO, Umaru Ibrahim, who disclosed this at the 2016 sensitisation workshop for PMBs’ operators held in Lagos, at the weekend, said the corporation’s records showed that 15 out of 42 PMBs are yet to meet their premium payment obligations to the corporation. He urged the affected operators to promptly pay their premium to the corporation in line with regulatory guidelines.
Ibrahim disclosed that NDIC has the capacity to sustain its efforts in ensuring that insured institutions are put on the part of sustainable growth and development, and exercise that would depend largely of premium contribution.
The corporation, he said, has also deployed the Differential Premium Assessment System (DPAS) in pricing the deposit premium of Primary Mortgage Banks (PMBs).
He said the DPAS centres of strong Enterprise Risk Management Framework (ERMF) and classifies banks into various risk buckets and apply different premium rates depending on the level of risk involved.
He said the DPAS will mitigate insurable risks for PMBs as well as encourage effective enterprise risk management.
According to him, the ERMF would include sound strategic planning and transformative business model and addresses the issue of moral hazard which guarantees caution and avoidance of excessive risk taking in running a PMB.
Ibrahim said: “To the operators in particular, the risk-based premium system allows the institution to pay much less premium than would have been the case, had the alternative, flat rate system had been adopted.
The NDIC boss said the corporation is the sole agency empowered to guarantee depositors’ funds in the deposit-taking financial institutions.
“To stimulate the confidence and patronage of mortgage customers, the corporation continued to review the its deposit insurance coverage for depositors of PMBs is now N500,000 in the event of failure. The current coverage level represents and increase of 150 per cent over the earlier level of N200,000. Thus, the gap of the coverage between the commercial banks and PMBs is now bridged with the envisaged increase in patronage of PMBs,” he said.
He said the DPAS has several implications for PMBs’ soundness and stability adding that in most jurisdictions that practice explicit deposit insurance scheme, the starting point for deposit insurance system pricing is usually the flat rate approach before migration to DPAS.
“However, the flat rate method failed to compensate for effective risk management and engenders moral hazard which the DPAS incorporate the benefits of effective risk management. From the foregoing, DPAS compensates the mortgage sector since PMBs with better enterprise risk management pay less premium, while PMBs with weak risk management pay more,” he said.