The Nigeria Deposit Insurance Corporation (NDIC) has highlighted some of the biggest constraints hindering the prompt and accurate reimbursements of deposit insurance payouts to failed bank depositors.
The corporation attributed that to lack of early access to accurate depositor information, poor quality of depositor records at banks, and the lack of a bank client unique identifiers to aggregate deposits held by the same person/entity so as to apply the deposit insurance coverage limits.
This disclosure is contained in a presentation made by the Director, Policy and International Relations Department of NDIC, Dr Kabir S. Katata, at an Editors Forum organized by the corporation over the weekend at Ikeja, Lagos.
The forum which has the theme, ‘Stocktaking of Deposit Insurance Practice: Assessing the past, Evaluating the Present and Forecasting the Future,’ had in attendance the Managing Director/Chief Executive of NDIC, Bello Hassan, and some other top management members.
Katata said that other key impediments to timely reimbursement include the difficulty in determining depositors’ claims and related loans/liabilities for complying with netting requirements, the lack of appropriate IT reimbursement systems and reimbursement plans to deal with different sized banks.
How to expedite reimbursement process
Katata in his presentation said that to expedite the reimbursement process, a Deposit Insurance should rely on technology-based systems to process depositor information in a systematic and accurate manner.
He noted that the development of a Single Customer View (SCV) is one important reform that is being implemented in several jurisdictions to expedite the reimbursement process.
Why fast, accurate deposit insurance payout is needed
- To maintain public confidence in the stability of the financial system; If depositors are aware and have confidence that they will be reimbursed promptly and accurately, they are less likely to withdraw their funds from the banking system.
- To minimize the likelihood of contagion; Confidence in the financial system reduces the possibility that the failure of one bank will spread to other banks.
- To minimize disruption for depositors; Prompt payment will enable depositors to meet their financial obligations and reduce the potentiality that problems in the banking sector will spread to other sectors of the economy.
- To maintain the credibility of a deposit insurance protection scheme; Reimbursement delays to insured depositors of failed banks may affect the broader public confidence in both the deposit insurance protection scheme and, by extension, the stability of the financial system.
