NDIC’s scheme does not cover insider deposits — NDIC

By Uthman Salami

The Nigeria Deposit Insurance Corporation (NDIC), says its Deposit Insurance Scheme (DIS) does not cover insider deposits which are made up of deposits of banks’ directors and staff.

The Corporation stated this on its official Twitter handle yesterday.

It said that bank directors and staff not being covered in its DIS was to create incentive for them to manage their institutions in a safe and sound manner.

The Corporation said the decision was also to ensure good corporate governance practices and not to provide incentive for moral hazards.

NDIC via its handle also said that in the event of bank failure, insider deposits would only be paid after all insured deposits had been fully paid.

“If they (directors and staff) know that their deposits are protected, it encourages excessive risk taking on their part.

“On the other hand, knowing that their deposits are not protected reduces excessive risk taking by them.

“Staff entitlements are settled along with creditors of the bank after all insured and uninsured deposits have been fully paid.

“Meanwhile, individual shareholder deposits in the bank are separate from their shareholdings.

“Thus, in the event of a bank failure, those individual deposits are paid as insured deposits while shareholdings are settled after all insured and uninsured deposits, creditors and staff entitlements have been paid in full,” the Corporation said.

According to NDIC, deposit insurance is a system established by the government to protect depositors against the loss of their insured deposits.

The Corporation said that DIS was developed to protect uninformed small depositors from the risk of loss of their deposits.

It was also aimed at protecting the banking system from instability occasioned by runs and loss of depositors’ confidence.