Innovictor
New Member
Have you ever wondered what would happen if your bank suddenly goes burst in an unlikely event of folding up? You probably have some of your business funds, life savings, and money set aside for specific targets such as tuitions and a new car domiciled in your account. Hence, you might end up with less than nothing, if your bank should go Bankrupt.
However, as hard is it to imagine a bank going broke, a bank like any other business could lose money and go bankrupt. Banks are mainly in the business of taking money from you (your deposits) on which they technically pay you an interest, they then lend out the money out at a higher interest rate. The difference between the interest rate at which they hold your deposits and the interest rate at which they lend out the money is their profit.
Banks trust that not all depositors will come to the bank at the same time to request their money; hence, they are able to trade with your money through deposit and withdrawal cycles. However, a bank might find it hard to honor a request to withdraw part/all of your deposits if it lends out more money than is deposited, if it has a large number of bad debts or frozen credits or if all the depositors come to be bank to withdraw their funds.
Hence, insurance coverage for financial institutions such as banks ensures that depositors are still able to obtain their money in the worst-case scenario.
Insurance for Nigerian Banks
The Nigeria Deposit Insurance Corporation (NDIC) is an independent agency of the Federal Government of Nigeria. The objective of the NDIC is to protect depositors and guarantee payment of insured funds in the event of failure of insured institutions.
How Does the NDIC Work?
The NDIC uses its deposit insurance system to protect depositors against the loss of their money that is lodged in the account of an insured bank in the unlikely event that the bank is unable to return funds to depositors. The deposit insurance system ensure that you do not lose all your money because the NDCI will return insured funds up to the maximum insured amount if your bank folds up.
What is the NDIC Necessary?
The deposit insurance offered by the NDIC maintains financial stability in the Nigerian financial landscape by maintaining depositor confidence in the banking sector. The NDIC maintains stability and order by protecting depositors and ensuring that the failure of a single bank does not trigger a bank run that would have everybody running to the banks to request withdrawals because they are afraid that their bank might also close shop.
Is My Bank Insured by the NDIC?
All deposit-taking financial institutions that are licensed by the Central Bank of Nigeria are under obligation under the NDIC Act No 16 of 2006 to be insured by the NDIC. Hence, all Universal Banks (deposit money banks), Microfinance Banks (MFBs) and Primary Mortgage Institutions (PMIs) are insured by the NDIC.
However, to be doubly sure that your bank is insured, you may want to watch out for the NDIC sticker displayed in the head office or branch offices of your bank.
How Much of My Deposit in Insured with the NDIC?
Currently, each depositor with a Deposit Money Bank is insured to the tune of five hundred thousand Naira (N500,000) and each depositor with a Microfinance Bank is insured to the tune of two hundred thousand naira (N200,000). Hence, if your deposit does not exceed the maximum insured amount, you can expect to receive the full value of your money from the NDIC if your bank should go out of business.
However, if your deposit exceeds the maximum insured amount, you will share on a pro-rata basis, in any proceeds from the liquidation of the bank’s assets with other general creditors.
Image Credit: www.iadi.org