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Insurance: NDIC develops methodology for realistic Target Funding Ratio

The Nigeria Deposit Insurance Corporation (NDIC), has said that it will scale up the deposit insurance framework, provide timely support to insured institutions as and when required, ensure faster and orderly resolutions of liquidated insured institutions as well as continue to assist the Central Bank of Nigeria in promoting the stability of the banking system.

Addressing participants the 18th edition of the workshop for Business Editors and Finance Correspondents Association of Nigeria (FICAN) on Wednesday at Ibadan, Managing Director/Chief Executive, Nigeria Deposit Insurance Corporation (NDIC), Mr. Bello Hassan, said that considering the importance of the optimum Funding Ratio in deposit insurance, it is developing an effective methodology for determining a realistic Target Funding Ratio for the Corporation and has commenced the review of our approach to the determination of premium by banks to make it more risk-based, such that, the probability of the risk crystallizing, becomes a major factor in the pricing methodology of our premium going forward.

He said: “The choice of the theme of this year’s workshop: “Enduring Extreme Disruptions: Resilience & Reinvention for Banking System Stability & Deposit Insurance” was apt. As economies across the globe continue to grapple with the devastating impact of the COVID-19 pandemic, it has become expedient and highly desirable for supervisors to come up with appropriate strategies that are required to build resilience into our financial system as we seek to provide the much-needed support to the Federal Government’s economic recovery agenda. The workshop theme, as well as the papers to be deliberated upon along with the quality of the resource persons, were carefully selected to achieve the same objective.

“Permit me to reiterate the determination of the current management of the NDIC, to work harmoniously with all stakeholders, to enhance the capacity of the Corporation in the discharge of its statutory obligations towards the fulfilment of the public policy objectives for which it was established.

“Our key focus is, therefore, to scale up the deposit insurance framework; provide timely support to insured institutions as and when required; ensure faster and orderly resolutions of liquidated insured institutions; as well as continue to assist the Central Bank in promoting the stability of the banking system.

“In the area of Deposit Insurance, as a key mandate of the Corporation, we have evolved a strategy which accentuates our existing framework. The initiative strives to ensure that the insurance cover is adequate to support this objective within the banking sector. In addition, considering the importance of the optimum Funding Ratio in deposit insurance, we are developing an effective methodology for determining a realistic Target Funding Ratio for the Corporation. Additionally, we have commenced the review of our approach to the determination of premium by banks to make it more risk-based, such that the probability of the risk crystallizing becomes a major factor in the pricing methodology of our premium going forward.”

He added: “Furthermore, there have been recent calls on the Corporation to enhance the provision of support, to insured institutions that are facing financial difficulties. To this end, we have identified the need to reconsider our framework, to provide realistic terms and conditions that will enable qualifying insured financial institutions promptly access technical and or financial support, in line with S.(2)(1)(b) of the NDIC Act, whilst also protecting the Corporation from possible downside risks.

“We are equally collaborating with relevant stakeholders, to ensure that the Corporation discharges its responsibilities efficiently without hindrances, following revocation of licenses of any insured institution by the CBN. This has become more important to us, giving the need to improve on our processes in resolving liquidated financial institutions. Some of the obstacles bedevilling the efficient and timely resolutions of liquidated institutions, such as slow recovery and realization of assets, as well as litigation by erstwhile shareholders and creditors of closed banks can only be addressed through effective collaboration.

“In all these collaborative efforts, the media, the civil society groups, along with the insured financial institutions that are represented at this workshop, will remain the most strategic and critical stakeholders that we cherish the most. Through a better understanding of our programmes and policies, it is hoped that you will not only be better informed in the coverage of our activities but also be well-equipped to contribute to our advocacy and mobilization for a resilient financial system. I, therefore, call on you, to continue to support the Corporation in its resolve to fully deliver on its core mandates. On our part, we promise to keep our doors open to your suggestions and observations, while partnering with you on capacity building and other areas of mutual benefit.”

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