Okonjo-Iweala Seeks Review of N50,000 Maximum Coverage
From Kunle Aderinokun in Abuja
Finance Minister, Dr. (Mrs.) Ngozi Okonjo-Iweala, yesterday in Abuja faulted the maximum coverage of depositors in the event of bank failure and called on the Nigeria Deposit Insurance Corporation (NDIC) to consider its upward review.
"This is the biggest complaint that I have heard that the coverage is inadequate. I think that with inflation, with experience and so on, we really need to look at this because many depositors have complained and we are looking at it, " Okonjo-Iweala said. She made the statement at the opening of the International Conference on Deposit Insurance in Africa organized by the Africa Regional Committee of the International Association of Deposit Insurers (IADI).
The NDIC currently pays N50, 000 to depositors of banks in liquidation but a bill, which proposed N100, 000 maximum coverage is before the National Assembly awaiting passage.
Okonjo-Iweala said the perceived inadequacy of the maximum coverage is one of the challenges facing the Corporation in the implementation of the Deposit Insurance Scheme (DIS) despite its achievements. Other problems associated with the scheme, according to her, are poor public awareness, cumbersome judicial process and weak corporate governance in insured institutions.
She maintained that "coverage limit must be credible, internally consistent with other design features and meet the objectives of deposit insurance scheme."
She added, "the relationship between coverage limit and moral hazard should be considered." This, she noted, "is particularly important in Africa, where deposit insurance tends to be confused with conventional insurance, with the result that total coverage is expected rather than the best practice of limited coverage."
While explaining that "coverage limit varies from country to country depending on several factors such as the number of accounts as well as the amount of deposit covered; the prevailing consumer price index; and the country's per capital income, among others, " Okonjo-Iweala said " coverage limit is at the heart of any deposit insurance scheme because it determines the extent of protection the scheme provides."
The finance minister added that funding and investment arrangements are also critical deposit insurance issues. According to her, " a deposit insurance system should have available all funding mechanisms necessary to ensure prompt reimbursement of depositors' claim after a bank failure." "Inadequate funding can lead to loss of credibility of the deposit insurance system."
Similarly, she said public awareness is one area often overlooked in the design of insurance schemes. She said that "no deposit insurance scheme can be effective if the public is unaware of the benefits and limitations of the scheme because unrealistic expectations can undermine a deposit insurance system and contribute to financial instability.
"Public awareness programmes, targeted at the right audience can create an image of solidity, professionalism, public-mindedness and efficiency for the deposit insurer."
In his goodwill message, Governor, Central Bank of Nigeria (CBN), Professor Charles Soludo, said "deposit insurance schemes are capable of stabilizing banks' deposit base and simultaneously discouraging contagious runs on banks to the extent that they offer the assurance of compensation in the event of bank failure."
On the other hand, Soludo added, "deposit insurance schemes could create moral hazard on the part of operators unless they are combined with market and supervisory discipline and good corporate governance."
Therefore, he said, "for deposit insurance scheme to be credible, it must be properly designed, well implemented, complemented with other measures and understood by the public."
Managing Director, NDIC, Mr. Ganiyu Ogunleye stated that the specific objective of the IADI regional conference are to, among others:
_ create awareness about the benefits of the deposit insurance schemes in Africa;
_ strengthen the existing deposit insurance schemes through experience sharing; and
_ assist African countries that are in the process of introducing deposit insurance schemes in the design and implementation of their schemes.
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