AMAKA  OBIEFUNA
Sixty four percent of operating Mortgage banks in the country have defaulted in meeting their premium payment obligations for deposit insurance.

The Nigeria Deposit Insurance Corporation,NDIC, Managing Director/Chief Executive, Alhaji Umaru Ibrahim who disclosed this in Lagos at a sensitisation workshop for operators of primary mortgage banks, MPBs, said: “Our records indicate that 15 out of 42 PMBs are yet to meet their premium obligation” and appealed to them to pay their premium promptly.

Ibrahim said the recent increase in the maximum insured deposit of PMBs was aimed at bridging the dichotomy between them and commercial banks and engender public confidence in the mortgage bank sub-sector.

The MD who was represented by the Executive Director, Corporate Services, Omolola Abiola-Edewor, said the need to complement this decision and boost risk management practices in the sub-sector, prompted the Corporation to deploy Differential Premium Assessment System (DPAS) in pricing the deposit premium of PMBs.

He said: “The creation of Nigeria Mortgage Refinancing Company (NMRC) as a wholesale funding window which refinances mortgage portfolios of PMBs and Deposit Money Banks (DMBs) is targeted at providing a robust Liquidity for the sub-sector.

NMRC and Other Lenders could only continue to play their statutory role in a space where the Operators’ exhibit market discipline as specified in the banks’ Enterprise Risk Management Framework (ERMF).
“On its part, NDIC as a risk minimizer obtained the approval of the Honourable Minister of Finance on the 4th august, 2016 for the deployment of DPAS in computing the deposit insurance premium of PMBs to encourage market discipline.

“DPAS speaks to strong ERMF. The computation trajectory incorporates sound strategic planning and transformative business model. It also implicitly addresses the issue of moral hazard which guarantees caution and avoidance of excessive risk taking in the interest of both operators and subscribers.

“To the operators in particular, the Risk Based Premium System (DPAS) allows the institution to pay much less premium than would have been the case had the alternative, flat rate system, been adopted. Little wonder that many jurisdictions have opted for DPAS in Deposit Premium Pricing. “In most jurisdictions that practice explicit Deposit Insurance Scheme, the starting point for deposit insurance system pricing is usually the Flat Rate approach before migration to the DPAS.

However, the Flat Rate method failed to compensate for effective Risk Management and engenders moral hazard. On the other hand, DPAS incorporates the benefits of effective risk management.

“From the forgoing, DPAS compensates the Mortgage Sector since PMBs’ with better Enterprise Risk Management pay less premium, while, PMBs with weak risk practices pay more. The major benefits of implementing the DPAS are fair pricing of insurance premium and reduction in premium.”

NDIC insures depositor’s money in commercial banks, mortgage banks and microfinance banks. Each insured institution is mandated to pay an annual deposit insurance premium to the corporation.

The NDIC on the other hand pay depositors of liquidated insured institutions the stipulated Maximum Insured Deposit (MID), which is presently N500, 000 for depositors of commercial banks and mortgage banks.