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Dead banks and living deposits

By Babajide Komolafe

It used to be a major fear among bank customers. The fear of losing money, in case your bank closed shop or the operating licence got  revoked by regulatory authorities. The fear was very strong in the 1990s and early 2000s, when news of bank closure was the order of the day.

The situation is better now, and the regulators are wiser but the truth is that  bank failure is something that cannot be completely eliminated. Banks have failed and they would still fail because the human beings running them would make mistakes. Hence, even as people invest their money in bank deposits, there is still the fear of losing their money should the bank collapse.

One of the reasons why this fear persists is that most people that put their money in banks seem not to be aware that there is insurance for bank deposits too. It is called Deposit Insurance. It was one of the measures introduced to address the fear and impact of losing money due to failure or closure of a bank.

It works this way. Every money people put in banks is insured up to a particular amount called the Maximum Insured Deposit. Presently in Nigeria, the maximum insured deposit is N500, 000 for banks, and N200,000 for microfinance banks  and mortgage banks. This implies that if you deposit N1 million in a bank, N500, 000 is insured and will be  paid to you, in the event that the bank folds up.

For this purpose, each bank is charged what is called ‘insurance premium’, which is paid into a fund called Deposit Insurance Fund (DIF) in the case of banks, and Special Institutions Insurance Fund (SIIF) for microfinance banks and mortgage banks. The Fund is used to pay for the maximum insured deposit whenever a bank fails.

The organisation that manages the Deposit Insurance Scheme and Fund in Nigeria is called Nigeria Deposit Insurance Corporation (NDIC).  In 2012, the Corporation collected and paid into the Deposit Insurance Fund N62.3 billion as insurance premium from banks, microfinance banks and mortgage banks. At the end of the year, total money in the Deposit Insurance Fund for banks, and Special Institution Insurance Fund stood at N565 billion.

On the other hand, between 1994 and 2012,  NDIC paid the sum of N6.82 billion to 528,212 insured depositors of 48 closed banks in-liquidation. Similarly, in 2012, it paid N2.505 billion was paid as insured deposit to 75,322 verified depositors of 94 microfinance bank that closed shop.

But there is still N1.9 billion of insured deposits in the 48 banks,  that are yet to be collected by the owners. It is either the owners are dead, or believe that their money died with the banks. Irrespective of the reasons, the fact is that the money is their waiting for them.  (To be continued next week).



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