DIS COVERAGE

NOVEMBER 2023
 OUTLINE

 Introduction
 Basic Concepts and Rules
 Scope and Level of Coverage
 Factors Affecting the Determination of the Coverage Level
 NDIC Experience
– Financial Regulatory Framework
– Legislative Changes
– New Coverage Level, Quantitative Study & Findings
 Conclusion
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INTRODUCTION

 A key feature of deposit insurance is its coverage level, which refers

to how large a deposit balance is guaranteed by the DIS.
 Three main types of coverage:
– Limited coverage
– Full Coverage
– Blanket Coverage

 Coverage level should be set to:

– promote confidence and financial stability
– prevent depositor runs

 Function achievable by
– Covering fully most depositors, especially those most in need of protection
– Ensuring depositors are informed on coverage level and scope
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REQUIREMENTS FOR SETTING COVERAGE LEVEL
 The coverage level should maintain depositor confidence and
enhance the macroeconomic and financial stability of the
banking system.

 The level of coverage and cost of premiums should not unduly

burden the banking system, nor should deposit insurance be
subsidized by public funding.

 Coverage should protect the majority of depositors.

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 CORE PRINCIPLE ON COVERAGE

Policymakers should define Coverage should be limited, Credible

clearly the level and scope of and cover the large majority of
deposit coverage. depositors but leave a substantial
amount of deposits exposed to
market discipline.

Core Principle 8

Deposit insurance coverage should be consistent with the

deposit insurance system’s public policy objectives and related
design features.
criteria

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CORE PRINCIPLE ON COVERAGE: ESSENTIAL CRITERIA

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CORE PRINCIPLE ON COVERAGE: ESSENTIAL
CRITERIA CONT’D

 Foreign currency deposits should be insured if widely used

in a jurisdiction. To avoid foreign exchange risk, holders of
foreign exchange deposits should only be compensated in
local currency in the event of bank failure.
 Coverage limits should be reviewed on a regular basis.
Factors like public-policy objectives, inflation, composition
and size of deposits should be considered.
 The public should be informed in advance on coverage
limits and how those limits will be applied.

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FACTORS AFFECTING THE DETERMINATION OF THE
COVERAGE LEVEL

Available funding for Stage of economic Jurisdictional history of

payouts, etc development banking crisis

Coverage levels in Financial System

Economic Environment
neighboring countries Environment indicated
indicated by Income
particularly where flow by Deposit Structure,
level and income
of funds among the Developments of
distribution
countries is easy. financial instruments,

Lessons of experience
from many jurisdictions
Need to cover majority
with similar economic Inflation
of depositors – 90-95%
and financial systems’
developmental phases.

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NIGERIA EXPERIENCE IN THE DETERMINATION OF
DEPOSIT INSURANCE COVERAGE

 Coverage limit of N50,000 fixed in 1989

– Achieved through study
– Up to 85% of depositors in insured banks were 100%
covered then
– Findings on factors affecting the coverage limit of
N50,000.00
o Inflation -75.7%
o Exchange rate depreciation – 87.9%
o Size of average deposit – 60.8%
o GDP per capita – 50%

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NIGERIA EXPERIENCE IN THE DETERMINATION
OF DEPOSIT INSURANCE COVERAGE CONT’D
Reasons for Adjustment
 Past concerns on the alleged inadequacy of the insurance
coverage of N50,000, fixed by law in 1989 at inception of the
Corporation.
 Public comments and agitation for an increase of the coverage
level
 Research department’s findings due to changing environment
and as directed by the Board of NDIC
– Coverage limit for DMBs was increased to N200,000 in 2004.
– Coverage limit for MFBs and PMIs fixed at N100,000 in 2004.

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DEPOSIT INSURANCE COVERAGE DURING THE 2007
– 2009 CRISIS
 The 2007-09 financial crisis led to a re-evaluation of deposit
insurance coverage.
 The crisis has led to enhanced depositor protection and
increased coverage levels
– USA increased coverage level from $100,000 to $250,000
– UK increased insurance coverage to £50,000.00 from a maximum
of £35,000.00. EU increased its coverage from €20,000.00 to at
least €50,000.00 initially, then ultimately to €100,000.00.
– Blanket coverage was introduced on a temporary basis in many
jurisdictions including Iceland, Ireland, Greece, Denmark, Austria,
Portugal, Singapore, Australia, Germany, Taiwan and Malaysia.
– Coinsurance was abolished in the UK and other jurisdictions.

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 NIGERIA EXPERIENCE IN THE DETERMINATION OF DEPOSIT
INSURANCE COVERAGE: IMPACT OF 2007-09 FINANCIAL CRISIS

 Nigeria was not immune from the catastrophic impact of the 2007-09
Global Financial Crisis
 Special examination of all the 24 universal banks in Nigeria in 2009 revealed
that 10 were critically distressed
 Market Share of 10 intervened Banks as at September 2009
- Total Asset ₦4,955.81 billion (33.50%)
- Total Deposits ₦3,361.63 billion (33.65%)
- Total Credit ₦3,519.10 billion (57%)
- Branch Network 2,410 Branches (47.49%)
- Insured Deposits ₦955.91 billion (60.12% of ind insured dep)
- DIF ₦226.05 Bn
 Government injected N620 billion (about US$4 billion) into these banks in
the form of a subordinated loan
 The NDIC reviewed the Coverage Level due to this finding
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 NIGERIA EXPERIENCE IN THE DETERMINATION OF DEPOSIT
INSURANCE COVERAGE: 2010 STUDY
Reasons for Adjustment Contd
 Another study in 2010, fixed coverage limit for DMBs at
N500,000 and N200,000 for MFBs/PMIs per depositor per
bank. How?
– NDIC Act 2006 gave the Board the discretion to vary the
coverage level from time to time
– Using both Primary and Secondary Data
– Survey seeking breakdown of deposits and number of accounts
administered on
– All 24 Universal banks (18 responded)
– 100 special institutions, ie MFBs & PMIs, (74 responded, 2 PMIs
and 5 MFBs out of those that responded represented 64.35%
and 60.52% deposit liabilities of PMIs and MFBs, respectively)

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DISTRIBUTION OF NUMBER OF DEPOSIT ACCOUNTS OF
RESPONDENT UNIVERSAL BANKS AT VARIOUS LEVELS OF
MDIC: 2010 STUDY
MDIC NUMBER OF ACCOUNTS
LEVEL TOTAL CUMMULATIVE CMMULATIVE (%) NUMBER OF ACCOUNTS
(N’000) PARTIIALLY COVERED

200 19,843,181.00 19,843,181.00 85.18 3,453,693.00

300 1,423,757.00 21,266,938.00 91.29 2,029,936.00

400 289,352.00 21,556,290.00 92.53 1,740,584.00

500 429,281.00 21,985,571.00 94.37 1,311,303.00

600 197,794.00 22,183,365.00 95.22 1,113,509.00

700 171,140.00 22,354,505.00 95.95 942,369.00

800 66,558.00 22,421,063.00 96.24 875,811.00 14

DISTRIBUTION OF NUMBER OF DEPOSIT ACCOUNTS
OF RESPONDENT MFBs AND PMBs AT VARIOUS
LEVELS OF MDIC: 2010 STUDY

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 UNIVERSAL BANKS:
FINDINGS OF THE 2010 STUDY
 The proportion of the total accounts that is fully covered continues
to rise as the MDIC level increases.
 Marginal rise in the proportion of accounts that is fully covered
appears to stabilize when the MDIC level is increased to the range of
between N500,000 and N1,000,000 and above.

 The average deposit per account in the respondent banks was about
N250,000. At that amount,
– over 90 percent of accounts fully covered
– less than 20 percent of total volume of deposits would
be fully covered

 Optimal coverage level is therefore between

N500,000 to N1,000,000
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DISTRIBUTION OF NUMBER OF DEPOSIT ACCOUNTS OF
RESPONDENT MFBS AND PMIS AT VARIOUS LEVELS OF
MDIC: 2010 STUDY
MDIC LEVEL NUMBER OF ACCOUNTS
(‘000)
TOTAL CUMMULATIVE CUMMULATIVE No OF ACCOUNTS
(%) PARTIALLY COVERED

100
473715 473715 91.06 46510
150
16231 489946 94.18 30279
200
5822 495768 95.30 24457
250
4727 500495 96.21 19730
300
4191 504686 97.01 15539
350
2850 507536 97.56 12689
400
2697 510233 98.08 9992
450
1816 512049 98.43 8176
500
2184 514233 98.85 5992
Above 5000
5992 520225 100.00 0
TOTAL
520225
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DISTRIBUTION OF NUMBER OF DEPOSIT ACCOUNTS
OF RESPONDENT MFBS AND PMIS AT VARIOUS
LEVELS OF MDIC: 2010 STUDY

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 MFBs & PMIs:
FINDINGS OF 2010 STUDY

• Average deposit per account in the respondent banks is about

N41,231.79.
– 90 % of accounts would have been fully covered
– 32 % of total volume of deposits would be fully covered.

• at below N100,000, over 91 % of the accounts in the

respondent financial institutions fully covered. A this range
– over 40 % of the deposit fully covered,
– About 95 % of the accounts would also be fully covered.

• Optimal coverage level is therefore between N200,000 to

N300,000
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REVIEW OF THE COVERAGE LEVEL: 2015

• As enabled by the NDIC Act 2006 and based on a study on the

appropriate coverage level, the Board of Directors in 2010
increased the coverage limit for
– DMBs from N200,000 (US$1,379) to N500,000 US$3,436) and
– from N100,000 (US$690) to N200,000 (US$1,379) for MFBs and
PMBs per depositor per bank.
• Coverage levels are subjected to adjustments periodically to
reflect the dynamics of the environment:
– changes in deposit structure, income level and exchange rate have
been identified to erode previously set coverage levels and often
make them inadequate.
– the Corporation’s Management directed the Research Department
to conduct a study to assess the adequacy of the existing coverage
limit of N500,000 for DMBs and N200,000 for MFBs and PMBs, and
recommend an appropriate level(s) if found inadequate.
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 REVIEW OF THE COVERAGE LEVEL:
2015 SAMPLE SIZE
 A survey instrument was designed to obtain some necessary
information for the review of coverage levels for the DIS in Nigeria.
 The survey solicited information on the deposit structure of the
DMBs, PMBs and MFBs in the country.
– All the 24 DMBs and 100 special insured institutions (76 MFBs & 24
PMBs) were enumerated.
– At the end of the field work, all the 24 DMBs responded to the
questionnaire, which represented 100 per cent of the DMBs in the
system.
– For the PMBs & MFBs, the sample size was considered sufficient
considering the fact that the banks that responded to the survey had
71% of total insured deposits of the sectors.
 In addition to the information from the Survey, insured deposits and
composite risk-rating for each bank (DMB, MFB and PMB) from
Insurance & Surveillance Department and Special Insured
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Institutions Department were used for sophisticated value-at-risk
 REVIEW OF THE COVERAGE LEVEL:
2015 METHODOLOGY
 IADI suggested that a variety of techniques can be used:
– ranging from a rule of thumb (covering for example, five or six
small banks or several medium-sized banks) to
– more sophisticated techniques based on value-at-risk (VaR)
and the probability of failure.
 We adopted the sophisticated VaR as well as the Rule-of-Thumb
approaches to review the appropriate MDIC.
 We also considered IADI’s suggestion that states “if deposits are
normally distributed, a jurisdiction might set a target coverage
level of 90-95 % of the number of total depositors.
 If the distribution of deposits was skewed, with a small number of
depositors holding a very high value of total deposits, a higher
target coverage level might better ensure that the majority of
depositors were protected.” 22
 REVIEW OF THE COVERAGE LEVEL:
2015 FINDINGS
 The results of the survey showed that the average deposit
per account of respondent DMBs stood at about N234,551.
 The study revealed that the MDIC of N500,000 for DMBs
covering fully 94% of all depositors, is adequate.
 Sophisticated value-at-risk (VaR) as well as the Rule-of-
Thumb approaches all support retaining the MDIC at
N500,000 for DMBs. The approaches showed that the DIF is
adequate to bail out any non-SIB (Systemically Important
Bank) when bank failure occurs.
 The average deposits for PMBs and MFBs was N277,104.01
and N2,036.31, respectively. The combined average
deposit for MFBs and PMBs stood at N 8,600.65.
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REVIEW OF THE COVERAGE LEVEL:
2015 FINDINGS
Cumulative Number Of Accounts for DMBs

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REVIEW OF THE COVERAGE LEVEL:
2015 FINDINGS

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REVIEW OF THE COVERAGE LEVEL:
2015 FINDINGS

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REVIEW OF THE COVERAGE LEVEL:
2015 FINDINGS

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 REVIEW OF THE COVERAGE LEVEL:
2015 FINDINGS
 The study also revealed that the Corporation should review the Maximum Deposit Insurance
Coverage (MDIC) for PMBs upwards from N200,000 to N500,000. Increasing the MDIC to
N500,000 implies that 99% of depositors would have been covered.

 Given the skewed nature of the deposits, a higher MDIC is therefore desirable in line with IADI
Core Principles which suggest that a jurisdiction might set a target coverage level of 90
percent or more of the number of total depositors, if the distribution of deposits was skewed,
as in Nigeria.

 VaR and Rule-of-Thumb approaches support upward review of the MDIC to N500,000. The
two approaches show that the SIIF is adequate to support this increase.

 Following the 2015 study, the MDIC was retained at N500,000 for DMBs, reviewed the MDIC
for PMBs upwards from N200,000 to N500,000 and retained the MDIC for MFBs at N200,000.

 As at 2015, when expressed as a proportion of per capita GDP, the MDIC of N500,000
represents about 2.5 times the nation’s per capita GDP. The coverage level compares
favourably well with what obtains in most economies with explicit DIS and as suggested by
most researchers that the MDIC amounted to two times per capital GDP. Assuming the per
capita GDP is $1000 at N200 to $1
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REVIEW OF THE COVERAGE LEVEL: 2020/2021
• In 2020, the Corporation’s Management directed the Research Department to
conduct a study to assess the adequacy of the existing coverage limit of
N500,000 for DMBs/PMBs and N200,000 for MFBs, and recommend an
appropriate level(s) if found inadequate.
• A survey instrument was designed and solicited information on the deposit
structure of the DMBs, PMBs and MFBs in the country.
• There were 29 DMBs, 34 PMBs and 874 MFBs in operation as at 31 December
2020 that were required to complete the survey instrument.
• At the end of the field work, all the 29 DMBs responded to the questionnaire,
representing 100% of the institutions in the system.
• Also, 15 PMBs out of 34 and 85 MFBs of the existing 874 responded to the
questionnaire. The data compiled from the questionnaire includes all the major
PMBs & MFBs for the sub-sector and therefore represents significant
•
share/volume of the total industry figures.
• In addition to the information from the survey, insured deposits and composite
risk-rating for each DMB, MFB and PMB from Insurance & Surveillance and
•
Special Insured Institutions departments were used for value-at-risk analysis.
•

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 REVIEW OF THE COVERAGE LEVEL:
2021 FINDINGS

 Following the 2020/21 study,

 the MDIC was retained at N500,000 for
DMBs and PMBs and
 retained the MDIC for MFBs at N200,000.

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 PASS-THROUGH DEPOSIT INSURANCE

 The NDIC introduced Pass-Through Deposit Insurance (PTDI) for

subscribers of mobile money operators (MMOs) in Nigeria.
 The new insurance scheme seeks to promote financial inclusion,
as well as protect and ensure the safety and stability of mobile
payment system (MPS) in the country.
 With this scheme, subscribers of MMOs are guaranteed the
payment of the sum of N500,000 in the event of a failure of a
DMB where MMOs maintain pool account.

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 PAYMENT SERVICE BANKS

 The NDIC introduced deposit guarantee for Payment Service

Banks (PSBs) in 2020 following their licencing by the CBN.
 The new insurance scheme seeks to promote financial inclusion,
as well as protect and ensure the safety and stability of the
payment system in the country.
 With this scheme, depositors of PSBs are guaranteed the
payment of the sum of N500,000 in the event of a failure of the
PSB.

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SCOPE OF COVERAGE

 The following are deposits of an insured financial institution

covered the under the DIS operated by the Corporation:
o Current account;
o Savings account;
o Time and Term account;
o Domiciliary account;
o Non- interest account;
o Deposits of Subscribers of Mobile Money Operators; and
o Such other deposits as may be specified from time to time by the Board
of the Corporation.

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 SCOPE OF COVERAGE

 The following categories of deposits and instruments are not

covered under the DIS:
o Insider deposits (ie., deposits of staff and directors of the IFI);
o Deposits held as collateral for loans;
o Interbank deposits;
o Investment in Stocks, Bonds, Mutual Funds, Annuities, Commercial
Papers and Debentures;
o Federal Government Treasury Bills, Bonds and Notes; and
o Such other deposits/instruments as may be specified from time to time
by the Board of the Corporation.

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 CONCLUSION
 The review of literature on DIS practices, especially in respect of other
nations with explicit DIS, indicates an acceptable coverage level of at
least 90 percent of depositors.
 According to IADI, this may range upwards from 90–95 % of the number
of total depositors.
 As recommended by IADI, the NDIC consistently set the coverage level
by using the rule of thumb (covering 5 or 6 non-SIBs) and more
sophisticated techniques based on value-at-risk and the probability of
failure.
 Also, and as a common basis for determining/assessing the adequacy of
the MDIC, the coverage levels were related to the per capita GDP of
Nigeria, inflation, exchange rate depreciation as well as average deposit
in the industry.
 The past MDICs and new MDIC of N500,000 for depositors of DMBs,
PMBs, PSBs and MMOs Subscribers as well as N200,000 for MFB satisfy
all the above criteria established by IADI and according to global best
practices. 35
THANK YOU FOR LISTENING!