…It’s a mixed bag of achievements and failures – Barr. Nzeako


Last month, the Nigeria Deposit Insurance Corporation (NDIC), celebrated its 30th anniversary, with a resolve to work towards prompt reimbursement of depositors of failed banks under its cover among other target areas of improvement in its future outlook.

Ahead of the anniversary, the corporation had disclosed that it had set aside the sum of N258.767 billion in the 2019 fiscal year for the reimbursement of depositors in the unlikely event of closure of licensed banks.

Giving a breakdown of the funds at the corporation’s 2019 budget estimates before the House of Representatives, the managing director and chief executive officer, Mr. Umaru Ibrahim, said N109.686 billion was provided for depositors of Deposit Money Banks (DMBs), while N149.081 billion was set aside for depositors of Primary Mortgage Banks (PMBs) and Micro Finance Banks (MFBs).

It was therefore expected when at the 14th Abuja International Trade Fair; the NDIC said it had commenced payment to depositors of 154 MFBs which the Central Bank of Nigeria (CBN) revoked their operating licences in 2018 due to insolvency.

However, analysts and the banking public have their reservations in the size of compensation and the risk management capacity of the agency at the moment. For them, while the N50, 000 the NDIC pays to failed bank victims is grossly inadequate, the agency should enhance its risk management skills in line with the sophistication of the financial system of the day.

The importance of a stable banking system to an economy cannot be overemphasized, hence the implementation of various initiatives over time to foster financial system stability in Nigeria.

One of such initiatives was the establishment of a Deposit Insurance System (DIS), to curtail economic disruptions that typically follow bank failures. The history of Nigeria shows that economic crises tend to follow financial crisis

Deposit insurance is a system established to protect depositors against the loss of their insured deposits in the event that a bank is unable to meet its obligations to the depositors. It provides a financial guarantee which ensures that depositors do not lose all their funds in the event of a bank failure.

The history of NDIC has its origin in the report of a committee set up in 1983 by the Board of Central Bank of Nigeria (CBN), to examine the operations of the banking system in Nigeria.

The committee in its report recommended the establishment of a depositors’ protection fund. Consequently, the NDIC was created through the NDIC Decree No. 22 of 1988 (now repealed and replaced with NDIC Act No. 16 of 2006).It commenced operations in March 1989.

The corporation is equally assigned the role of fostering monetary stability, promotion of efficient payment system, competition and beneficial innovation in the Nigerian banking industry.

This was part of the economic reforms in the 1980s taken by the then government to strengthen the safety net for the banking sector following its liberalization policy and the introduction of the 1986 Structural Adjustment Programme (SAP) in Nigeria by the CBN.

Deregulation under SAP involved liberalization of banking licensing process which saw a phenomenal increase in the number of banks from 42 in 1986 to 107 in 1990, and 120 in 1992.

Deposit guarantee

The NDIC guarantees payment of deposits up to a maximum limit in accordance with its statute in the event of failure of an insured financial institution.

The DIS covers all deposit-taking financial institutions licensed by the CBN which include DMBs, MFBs, PMBs, NIBs and subscribers of mobile money operators (MMOs).

Findings show that the NDIC currently provides deposit insurance cover to 27 DMBs, 918 MFBs, 34 PMBs and 2 NIBs.

According to Ibrahim, since its inception, the corporation successfully responded to economic realities and yearnings of depositors by periodically increasing the maximum deposit insurance coverage to enhance the confidence of the public in the Nigerian financial system. He said, on average, this is done every five years in line with global best practice.

Addressing a press conference as part of the anniversary, Ibrahim recalled: “The corporation increased the maximum deposit insurance coverage twice, from ₦50,000.00 per depositor per deposit money bank (DMB) at inception, to N200,000.00 in 2006 and N500,000.00 in 2010.

“Similarly, maximum coverage per depositor of PMBs/MFBs was increased from N100,000.00 in 2006 to N200,000.00 in 2010.

“Coverage per depositor per PMB had since been increased to N500,000.00 to reflect the increased deposits structure in the sub-sector and to stimulate mortgage savings.”

However, according to the provisions of the Act, depositors who have funds in excess of the insured limits are paid dividends from the liquidation of failed banks depending on the quality of their assets and the outcome of debt recoveries by the NDIC.

“NDIC is a mixed bag of achievements and failures, depending on the angle from which one is looking at it,” Barrister Fred Nzeako, Lagos lawyer and public affairs commentator told Business Hallmark in a telephone interview.

“It has not really provided enough succour to victims of bank failures. A situation where NDIC pays only N50, 000 to a victim, which is a mere palliatives, in event of failure of an insured bank is not good.

“Anybody who loses a huge sum of many in that circumstance, that N50, 000 cannot make any difference. Therefore NDIC is not a success story.”

Nzeako recalled that initially it was meant to look as if after paying that N50, 000, other things would be worked out subsequently, but regretted that experience has shown that after the N50,000, the victim does not hear anything again about the money.

For Mr. Teslim Shitta-Bey, investment banker and senior researcher at Proshare, the NDIC has fulfilled its mandate as a regulator but should develop extra capacity to face the challenges of a financial system, which he said, has become a lot more sophisticated than it was when the agency was established.

He said, “As a regulator, the NDIC has fulfilled its mandate. However, the financial system is getting a lot more sophisticated than it was when the corporation was established, so NDIC has to grow with time.

“But it appears it is just doing the routine. For a corporation that is dealing with risk management, it should be able to detect potential risks and begin to work ahead to prevent any damage. It should be more proactive than it is.”

Incidentally, Mr. Ibrahim had at the 2019 budget estimates before the House of Representatives stated that in fulfillment of the corporation’s mandate to provide technical assistance to licensed banks, the NDIC in collaboration with the CBN, has invested in the acquisition of a new software called the Integrated Regulatory Solution (IRS) for a more robust surveillance and supervision of insured financial institutions in the country.

According to him, the software would enable DMBs generate real time online data among themselves, help regulators to access data online from the DMBs. Ibrahim also disclosed that the National Association of Microfinance Banks Unified Information Technology Platform (NAMBUIT) was introduced by CBN/NDIC and Association of MFBs to enhance the operational capacity of the MFBs.

The CBN and NDIC are financing the project in the ratio of 60per cent and 40 per cent respectively in view of the importance of the project to the growth of the MFB sub-sector.

On the issue of NDIC’s mandate of providing financial assistance to eligible licensed and insured banks, Ibrahim disclosed that a total of N140 billion was provided for DMBs while the sum of N300 million is provided for MFBs and PMBs . He urged the banks to take the opportunity to access the funds offered by the corporation whenever they are required.

Legal hindrance

Experience has shown that the discharge of NDIC’s duty of ensuring that depositors of failed banks have prompt access to their insured deposits is severely hindered by court cases instituted by owners of the affected banks. This and more informed a Bill for the amendment of the NDIC Act currently before the National Assembly.

Mr. Ibrahim explains further, “The NDIC, like any other organisation, has challenges. We are still operating with an Act, which may not anticipate what will happen in view of the dynamic nature of the financial system.

“One of these is the protracted legal battles and litigations by owners of banks. Remedies have been articulated in the Bill before the National Assembly to address some of these challenges.

“The Bill was with the previous National Assembly, which could not finalise the process for its passage. We hope this current Assembly will be able to do it.”

2018 in numbers

The 2018 annual report of the corporation recently released in Abuja said the corporation would strengthen its supervisory functions by enhancing its skills in stress testing, financial technology, recovery and resolution plans.

On bank failure resolution in 2018, it said that CBN revoked the operating licence of the troubled Skye Bank. but the corporation resolved the problem using a bridge bank mechanism.

It noted that Polaris Bank, acquired by the Asset Management Corporation of Nigeria (AMCON), was established to purchase the assets and assume liabilities of the failed Skye Bank.

The report also said that the operating licences of no fewer than 153 MFBs and six PMBs were revoked by the CBN in the year under review, adding that that the operating licences of 15 MFBs and one PMB were, however, instated during the period.

On deposit guarantee, the corporation said it had paid about N8.25 billion as insured amount to 442,999 depositors of closed DMBs and N2.97 billion to 83,415 depositors of closed MFBs in 2018.

On banks’ liquidation, it said the corporation continued with the liquidation activities of 53 DMBs, 325 MFBs and 51 PMBs. According to the report, a cumulative amount of N29.01 billion was recovered from debtors of DMBs-in-liquidation as at Dec. 31, 2018, compared with N28.48 billion realised in 2017.

On the financial performance, the report said that the total operating income of the corporation increased by 12.77 per cent from N146.48 billion as at 2017 to N165.18 billion in 2018.

The corporation, the report further said, remitted N53.20 billion to the Consolidated Revenue Fund (CRF) of the federation during the year under review.

“The NDIC had in the last one year, recorded notable achievements in the protection of depositors and promotion of safe and stable banking system in Nigeria”, the report noted.

“NDIC remains committed to safeguarding Nigerian financial system, particularly in the area of engendering public confidence and contributing to financial system stability,” it added.






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