Non-interest banks to pay premium on contributions

The premium is to protect the investors’ interests in case the banks fold up.

The Nigerian Deposit Insurance Corporation, NDIC, on Wednesday said non-interest deposit money banks would soon begin payment of premium on contributions as a way of protecting investors’ interests in such banks should they fold up.

The Managing Director of Corporation, Umaru Ibrahim, said at the Sensitization Seminar for NDIC solicitors in Abuja, that in the next few weeks, Jaiz Bank, one the country’s leading non-interest banks, would begin paying premium on contributions after one year in business, just as the non-interest window of Stanbic-IBTC Bank.

He, however, said that deposit insurance coverage of the banks is “somewhat different from other conventional banks, since it is governed by non-interest banking philosophy and regulations.”

The MD said the Corporation hopes to make the contributions work in a manner that the monies collected as premium are separated from those collected on interest bearing deposits.

Such monies, he said, would be invested in non-interest bearing instruments that the Debt Management Office, DMO, and the Central Bank of Nigeria, CBN, are floating, so that should such a bank go under, the NDIC would be able to reimburse depositors, adding that whatever monies would be paid would be in compliance with the regulations of non-interest banking operations in the country.

Should any of the banks collapse, he pointed out that depositors’ entitlements shall be within the normal threshold for conventional banks and financial institutions, adding that “if it is a normal interest bearing institution, NDIC would pay N500,000 upfront, if the bank fails, and subsequent payments would be made as the debts are recovered.”

He said if the institution is a microfinance bank or a primary mortgage institution, NDIC would pay N200,000 upfront.

Mr. Ibrahim noted that in more than 20 years of making giant strides towards ensuring that Nigeria develops a formidable Deposit Insurance System in the country, NDIC has been confronted by various challenges, including the problem of excessive litigation, which made it difficult for the corporation to wind up failed banks and settle depositors, and other creditors within reasonable time.

He identified other constraints to include the drive to fulfill its statutory mandate; execution of court judgments against the assets of the corporation as the liquidator of failed banks based on the misunderstanding of the role of NDIC as liquidator, and lack of proper understanding of the distinction in the legal status of NDIC as Liquidator/Deposit Insurer by legal practitioners, the court and the public at large.

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To achieve its mandate, he said the corporation must address the legal challenges by ensuring that solicitors have a full understanding of the issues involved, which he said informed the seminar, as one of the steps to sensitise the lawyers handling cases for the corporation on how to how to discharge their roles effectively.

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