The Senate of Nigeria recently passed the Nigeria Deposit Insurance Corporation (NDIC) Act (Amendment) Bill, 2024, making significant changes to the original law to ensure the safety of depositors’ funds, strengthen the country’s banking system, and restore key powers to the president. This bill, sponsored by Senator Adetokunbo Abiru (from Lagos East under the APC party), was presented for a third reading in the Senate. Abiru is also the Chairman of the Senate Committee on Banking, Insurance, and other Financial Institutions.
The purpose of the amendment is to improve the effectiveness of the NDIC, make it more independent and autonomous, and align its practices with current realities in the financial world. This change is being made to help the NDIC better protect depositors, maintain the stability of Nigeria’s financial institutions, and increase trust in the country’s banking system.
Key Changes Introduced in the Bill
One of the most important changes in the bill involves the restoration of the president’s power to appoint the managing director and executive directors of the NDIC. Prior to this amendment, the NDIC Act of 2023 had limited the president’s power, saying the President could not directly appoint these top officials. Instead, they were to be recommended by the Governor of the Central Bank of Nigeria (CBN). The new amendment brings the NDIC Act in line with the Nigerian Constitution, which grants the president the authority to make such appointments. The bill now allows the president to appoint the Chairman and other board members of the NDIC, with these appointments subject to Senate confirmation.
The amendment also stipulates that the Chairman of the NDIC should not be the same person as the permanent secretary of the corporation. This provision was introduced to ensure clearer separation of roles and prevent any overlap in authority within the NDIC.
Another significant part of the bill addresses the issue of vacancies within the NDIC. The amendment now mandates the establishment of an Interim Management Committee within 30 days after the expiration or termination of the tenure of the board. This move aims to avoid a repeat of situations where the NDIC struggled to operate effectively due to the absence of a functioning board.
Enhancing Protection for Deposit Holders
The bill also includes provisions that will increase the amount of money that depositors can receive in the event of a bank failure. Previously, depositors were insured up to a maximum of N200,000, but this amount has now been increased. If a bank’s operating license is revoked or it stops paying depositors, the NDIC will pay up to N5 million to depositors of regular banks. However, depositors of microfinance banks will receive up to N2 million. This new insurance amount will help provide greater financial protection for Nigerians who have their money in banks, especially during times when banks fail.
Importantly, the amendment also gives the NDIC the authority to adjust this payout amount periodically based on the current economic situation. This will allow the NDIC to keep up with inflation and changing financial conditions, ensuring that the amount of compensation for depositors remains relevant over time.
NDIC’s Power to Take Over Rights and Assets
The bill also amends Section 62 of the original Act to give the NDIC more power when it intervenes in a failed bank. Under the new amendment, the NDIC will have the right to assume all the rights, titles, and privileges associated with an insured institution, including those belonging to shareholders, depositors, and directors of the bank. However, there are exceptions to this provision. For instance, the NDIC will not take control of the money received by the bank from public offerings, such as application fees for shares or securities, before they are officially allotted.
This change ensures that the NDIC can efficiently handle the assets of a failing bank, but it also ensures that certain funds, like money from public offerings, are not mixed with other deposits. This distinction is important because it prevents any confusion regarding the funds that are considered protected deposits and those that belong to the bank for other uses.
Why These Changes Matter
The amendments to the NDIC Act are being seen as a necessary step to modernize Nigeria’s deposit insurance system. By restoring the president’s power to appoint key NDIC officials, the bill ensures that the country’s top leadership has more control over the corporation, which can be important for both governance and accountability.
At the same time, the changes are designed to address some of the challenges that have arisen in the past when the NDIC has faced difficulties operating without a full board. The establishment of an Interim Management Committee is a forward-thinking measure to make sure the NDIC can continue functioning smoothly even during times of leadership transition.
The increase in the amount of insurance available to depositors will help build more confidence in the banking system. Nigerians will be better protected in the event that their bank fails, which should encourage people to continue trusting and using formal banking services. This could also reduce the number of people who turn to informal financial systems, which often lack the protections and stability offered by regulated banks.
The changes also ensure that the NDIC has the necessary powers to manage failing banks more effectively. By enabling the NDIC to take over all rights and assets of an insured institution, the bill allows the corporation to step in and take control in a way that minimizes disruptions to the financial system. The careful handling of assets, such as ensuring that funds from public offerings are not mixed with depositor funds, is crucial to maintaining the integrity of the banking system.
Looking Ahead
The passage of the NDIC Act (Amendment) Bill, 2024 is a significant step forward in improving the country’s financial safety net. It strengthens the NDIC’s ability to protect depositors, ensures that its operations are not hindered by leadership vacancies, and gives it more flexibility to adjust to changing economic conditions.
By restoring presidential appointment powers, increasing depositor insurance limits, and giving the NDIC more authority over failed banks, the Nigerian government is taking proactive steps to create a more secure and stable banking environment. These reforms will help ensure that the banking system remains resilient and trustworthy, even in times of crisis.
As the bill moves closer to becoming law, there is hope that these changes will have a lasting positive impact on the financial system, giving Nigerians greater confidence in their banks and the government’s ability to safeguard their hard-earned money. It is also a sign that the government is committed to keeping pace with global best practices in banking and financial services, further strengthening the Nigerian economy for the future.
