50% Cost-to-income Policy Weakens Deposit Insurance Fund, Says Corporation

The managing director/chief executive of the Nigeria Deposit Insurance Corporation (NDIC), Thompson Oludare Sunday, has raised concerns over the federal government’s 50 per cent cost-to-income ratio policy, warning that it poses operational constraints on the corporation and weakens its capacity to build a robust Deposit Insurance Fund (DIF).

Sunday said the policy, which requires significant deductions from the corporation’s earnings, limits NDIC’s ability to accumulate sufficient funds needed to respond effectively to bank failures and promptly reimburse depositors.

He spoke during a courtesy visit to the managing director/chief executive of the Ministry of Finance Incorporated (MOFI), Dr Armstrong Takang, in Abuja.

According to Sunday, while NDIC fully complies with the cost-to-income ratio policy, its implementation affects the corporation’s core mandate of depositor protection. He explained that a strong Deposit Insurance Fund is critical to ensuring financial system stability, particularly in times of banking sector distress.

Sunday noted that global standards, as outlined in the Core Principles for Effective Deposit Insurance issued by the International Association of Deposit Insurers (IADI), require deposit insurers to maintain adequate funds to reimburse depositors without recourse to government support in the event of bank failure.

He disclosed that NDIC is therefore seeking an exemption from the policy to strengthen its financial capacity in line with international best practices.

Despite the challenges, the NDIC boss reaffirmed the corporation’s strict adherence to fiscal and financial regulations, including the Fiscal Responsibility Act (FRA) 2007.

He stated that the NDIC had consistently remitted the required portion of its earnings to the Federal Government, either through the payment of 20 per cent of gross earnings or 80 per cent of net surplus, as applicable, while also submitting its financial statements ahead of statutory deadlines.

He described MOFI as a critical stakeholder, noting that the federal government, through the agency, holds a 40 per cent equity stake in NDIC.

The NDIC boss emphasised that sustained collaboration with MOFI is crucial to enable the corporation to fulfil its statutory obligations while effectively safeguarding depositors’ funds and promoting confidence in the banking system.

In his response, Dr Takang commended NDIC for its compliance with fiscal regulations and its collaborative approach to stakeholder engagement. He assured that MOFI would continue to interface with the Federal Ministry of Finance on NDIC’s concerns, adding that a strong and well-capitalised NDIC is vital to sustaining confidence in Nigeria’s financial system.

Both institutions reaffirmed their commitment to continued cooperation, transparency and accountability, with NDIC restating its resolve to balance regulatory compliance with its overriding mandate of depositor protection and financial system stability.