Breaking News
Translate

Banks pay 35% less for deposit insurance

By Babajide Komolafe

Banks paid 35 percent less for deposit insurance premium in 2008 owing to the new system of deposit insurance pricing introduced by the Nigeria Deposit Insurance Corporation (NDIC).
Under the new system known as Differential Premium Assessment System (DPAS) assess the premium paid by banks on the basis of their risk profile and hence banks pay different deposit insurance premium. Previously, the Corporation charges all the banks a flat rate of 15/16 of one per cent.

The immediate impact of the implementation of the DPAS was a reduction of about 35 per cent in the total premium collected from insured universal banks when compared with the total amount that would have been collected under the flat rate method, said the Corporation in its 2008 annual report.

Explaining the rationale for the new system, the corporation said, “Following the development and approval of differential premium assessment system (DPAS) in 2007, 2008 marked the first year when the new system was implemented. Prior to 2008, the Corporation had operated a flat rate method of premium assessment. The DPAS was introduced in consideration of many factors. First, it was introduced to differentiate premiums paid by insured institutions on the basis of their riskprofiles. Second, it was to promote sound risk management in insured institutions. Third, it was also aimed at ensuring fairness in deposit insurance pricing. Finally, the framework was adopted to reduce the overall premium burden on banks. The design and implementation was made possible with the enactment of the ND1C Act No. 16 of 2006 which legally empowered the Corporation to vary the premium rate and base as well as the method of premium assessment as and when necessary.

The DPAS adopted in 2008 had a base premium rate of 50 basis points payable by all insured universal banks and a range ol add ons, subject to a maximum of 30 basis points for the most risky banks. In 2008, all the 24 universal banks were assessed based on the DPAS. Thus, at the end of the perioc under review, the maximum rate paid by ar insured bank was 74 basis points. That was significantly lower than the 94 basis point; payable under the flat rate system and alsc lesser than the 80 basis points, representing the maximum rate payable under the DPAS

The minimum paid by the least risky bank in the system was 54.50 basis points whilst the mean rate for all the banks in 2008 was about 62 basis points.

Thus, the adoption of the DPAS had, achieved the objective of reduction of premium burden on the insured banks, amongst others. A basic challenge in the implementation of the new method was the need for banks to render timely, complete, reliable and consistent information and data that would enable the Corporation to adequately measure the risk posed to the system in order to enable the Corporation take appropriate intervention measures.


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.