Director Highlights NDIC’s Role in Financial Stability at Department of Banking Seminar
The Director of Claims and Payment, Nigeria Deposit Insurance Corporation (NDIC), Mr. Olujide Iyanda, has stated that the corporation has been living up to its responsibility and has re-imbursed depositors one hundred percent in some of the failed bank cases in the country.
Mr. Iyanda, the Guest Speaker at the Town and Gown Seminar of the Department of Banking and Finance, Covenant University, held on Tuesday, February 6, 2018, made the submission while delivering a lecture titled, ‘Deposit Insurance and Financial System Stability’.
While stating that policy makers have been cautioned to be more careful with regards to initiatives in the banking sector, the NDIC Director said that the sector, being a dynamic one driven by globalisation, regulations, competition, macroeconomic circumstances, and consumer requirements is a very volatile and sensitive one that must be guarded at all time, as it can react at the slightest policy blunder.
Mr. Iyanda stated that it was in a bid to ensure the safety of depositors’ funds that the deposit insurance provides succour to depositors when the risk crystallises, thus providing incentives for banking patronage, financial inclusion and ultimately, stability. In his words, “Serious mistakes while reacting to any of these factors could lead the banking industry into distress and consequently, liquidation.”
He posited that while the banking business harbours great risk and play important roles in the promotion of economic growth and the development of any economy, deposit insurance has become an important constituent of the financial safety-net arrangements put in place by governments to cater for the protection of the average wealth of its citizenry as determined through bank deposits.
Mr. Iyanda noted that sometimes, banks lend money that never comes back, and such loss must be borne from the contribution of the promoters and the accumulated profit from previous successful transactions. However, with the assurance of a reasonable reimbursement in the event of failure, depositors are further encouraged to patronise banking services.
The guest speaker was of the view that shareholders’ fund of any bank is small compared to the huge amount of depositors’ funds used to finance bank operations. He said that when losses accumulate over time, it could rise to a magnitude higher than the shareholders’ funds such that the shareholders’ fund becomes eroded.
According to him, the immense role of deposit insurance in the banking sector has over the years increased confidence in the banking industry, which has further boosted the chances of financial inclusion, which in turn has led to the effectiveness of monetary policy instruments and successfully promoted financial stability, as more of the money in circulation will come under the control of the nation’s monetary authority.