NDIC reassures depositors of stronger protection

Unlike before, the fear of depositors of banks losing their hard earned money, even at the time of worse banking crisis, is now reasonably a thing of the past.

This is more so as the Nigeria Deposit Insurance Corporation has assured that depositors of banks should be able to sleep with their two eyes closed and not fear that anything untoward could affect their monies in banks.

By its mandate, the corporation supervises banks so as to protect depositors; foster monetary stability; promote an effective and efficient payment system; and promote competition and innovation in the banking systems.

Reasonably, NDIC has been scored high on these benchmarks as substantially observed during the banking consolidation which led to a remarkable reduction in the number of banks from 89 to 25 in 2005, the most tumultuous time in the banking history of Nigeria and the era of high risk management of Sanusi Lamido Sanusi.

Today, over 90% if not 100% of depositors whose monies were trapped in banks that could not survive the banking consolidation and even the financial crisis of 2007 and 2009 did not lose any penny as over N11.83billion has been paid to 443,949 insured depositors and over ₦101.37 billion to uninsured depositors of all categories of banks in-liquidation.
Reassuring depositors of the safety net that is available to them, NDIC said it was working in the area of scaling-up the deposit insurance framework and ensuring faster and orderly resolutions of liquidated insured institutions, this year, with the active participation of the relevant stakeholders.

“We had developed and deployed the Single Customer View (SCV) platform for the Microfinance and Primary Mortgage Banks in order to strengthen our processes and procedure for data collection”, said NDIC.

Speaking at the 2022 workshop of Financial Correspondents Association of Nigeria (FICAN) in Port Harcourt last week titled, ‘’Boosting Depositors’ Confidence Amidst Emerging Issues and Challenges in the Banking System’’, Managing Director/ Chief Executive, Nigeria Deposit Insurance Corporation, Bello Hassan said the corporation had taken some bold steps to invigorate its processes and procedures, towards a more effective discharge of its depositor protection mandate and some of our landmark achievements.

He noted that despite the fact that the global banking landscape has continued to be defined and challenged by technological disruptions, ‘’innovations and novelties cannot be overemphasized. This reality has not only put a demand on regulators and supervisors in the sector across the world to enhance surveillance, but it has also called for stronger collaborations, in order to deliver services that are laced with constantly improved values to the banking public and the society at large’’.

According to him, ‘’the determination of the management of the Corporation, to work harmoniously with all stakeholders, towards enhancing the effective discharge of our mandate. I also outlined the vision and policy direction of the Corporation under my humble stewardship to include our determination to scale up the deposit insurance framework; the provision of timely support to insured institutions as and when required; to ensure faster and orderly resolutions of liquidated insured institutions; and to continue to assist the CBN in promoting the stability of the banking system. Over the time, we have embarked on series of strategic initiatives to achieve our desired vision.

‘’Our platform would not only ensure availability of quality, timely and complete data to the NDIC, but would eliminate delays often experienced in reimbursing depositors following revocation of institutions’ licenses by the CBN.

‘’In the area of consumer protection, the Corporation has strengthened its complaints resolution platforms, which include the Toll-Free Help Desk, social media handles and Complaints Desks in the Bank Examination, Special Insured Institutions and Claims Resolutions Departments, as well as our Zonal Offices, to receive and process complaints from depositors.

‘’As at June 30, 2022, the NDIC provided deposit insurance coverage to a total of 981 insured financial institutions. The breakdown includes: thirty-three (33) DMBs made up of Twenty-Four (24) Commercial Banks, Six (6) Merchant Banks and Three (3) Non-Interest Banks (NIBs) plus Two (2) Non-Interest Windows; 882 Microfinance Banks (MFBs); 34 Primary Mortgage Banks (PMBs); Three (3) Payment Service Banks (PSBs) and 29 Mobile Money Operators.

‘’The NDIC bank liquidation mandate entails reimbursement of insured and uninsured depositors, creditors, and shareholders of banks in- liquidation. The liquidation activities, as at June 30, 2022, covered a total of 467 insured financial institutions in-liquidation, comprising of 49 DMBs, 367 MFBs, and 51 PMBs.’’

As at June 2022, Hassan explained that the NDIC had cumulatively paid ₦11.83 billion to over 443,949 insured depositors and over ₦101.37 billion to uninsured depositors of all categories of banks in-liquidation.

Also presenting the paper titled Understand The Role of Premium In An Ex Ante Funding of Insurance System, Assistant Director, Insurance &Surveilance Department, NDIC, Dahiru .D. Ahmad who stated the core mandate of the corporation as Deposit Guarantee, Bank Supervision, Distress Resolution and Bank Liquidation explained Some of the policy objectives of a DIS included, Provision of Deposit Protection, Contribution to Financial Stability, Dealing with Problem Financial Institutions, Contributing to An Orderly Payments System, Promoting Competition in Deposit-taking Institutions, Encouraging Economic Growth etc.

Ahmad listed the types of insurance schemes as implicit scheme, Explicit scheme adding that in terms of coverage Maximum insured sum is N500,000 for depositors of DMBs, PSBs and PMBs and Pass through for MMOs while N200,000 for depositors of MFBs.

He said that the need for adequate funding was crucial to the effective implementation of Deposit Insurance System (DIS).

‘’Therefore, the explicit deposit insurance system being administered in Nigeria by the NDIC, adopted an ex-ante funding arrangement, in order to enable it discharge its mandates of protecting depositors by ensuring accumulation and maintenance of  funds to cover deposit insurance claims in event of bank failure’’, he also said.

In his paper titled ‘Rising Ponzi Schemes and Investment scams in Nigeria’, Michael Oladele .O., Director Bank Examination Department, NDIC, listed financial illiteracy, ignorance, greed and desperation as what have sustained as well as increased the existence of Ponzi schemes in Nigeria. Others reasons according to Oladele why Ponzi schemes have persisted are financial hardship, economic cycle, inadequate law enforcement and consequences and refusal to heed warnings.
Oladele further explained that regulatory failures, bullish risk appetite and failure of adequate information have all contributed to burning the itchy fingers of participants in Ponzi schemes.

‘’Regulatory agencies should increase efforts to detect Ponzi schemes by developing effective investigative tools, including red flags that point to investment fraud, tools to facilitate research on the Internet as well as through other mass media, and mechanisms to receive and act on complaints from the public’’

He expressed regrets that, “Completing a full investigation to bring civil, administrative, or criminal charges can take a long time, during which scheme operators or investors’ money may disappear. Once a regulator has reasonable evidence of the existence of a fraud perpetrated via a Ponzi scheme, it should immediately seek emergency restraining orders, such as freezing assets, to protect investors’ interests while the investigation continues

“In many of the cases studied, there was no political—or even popular—support for regulatory action to stop the schemes. Financial regulators need sufficient independence to act without additional approval from the government, even if the schemes have the tacit support of members of the government. And the regulatory framework must protect staff and commissioners against lawsuits arising from the execution of their duties” he added.

As reflected in his paper titled, ‘Deposit Insurance In Nigeria; Beyond Deposit Insurance’, Bashir Nuhu, Director CPAD, NDIC, who stated that NDIC was created by Decree No 22 of 1988 (now repealed) but commenced operation in march, 1989, said its mandates were derived from its functions, which is to insure deposit liabilities, provide financial and technical assistance, Guarantee payment to depositors, distress resolution and assist monetary authority in policy formulation.

Represented by Dr. K.S. Katata the paper emphasized that any effective deposit insurance system must ensure a proper functioning financial safety net.

Katata said Financial Safety Net meant a framework that includes the functions of prudential regulation, supervision, Resolution, lender of last resort and Deposit Insurance. In many jurisdictions, a department of government (generally a Ministry of Finance or Treasury responsible for financial sector policy) is included in the financial safety-net (IADI).

According to him, deposit insurance is a safety net instrument used by governments to ensure the stability of the banking systems and to protect depositors, in full or in part, in the event of bank failure.

He stressed that deposit insurance  (DI) is designed to prevent depositor runs at banks and to protect those most in need of protection if a bank fails (usually small depositors). i.e. reducing the risk of contagion to illiquid but solvent banks and  facilitate the orderly resolution of troubled banks.

Katata explained that the Rationale for establishing DIS could be seen from the Public Policy Objectives (PPO)  of the Scheme across the Globe to include; To protect small depositors in the event of bank failure; To contribute to financial System and macroeconomic stability; To provide formal mechanism for failure resolution; To contribute to orderly payment system; To redistribute the cost of failure and to promote competition amongst deposit-taking financial institutions.
He noted that, Coverage is for all deposit liabilities in Deposit Money Banks (DMBs, including Non-Interest Banks), Microfinance Banks (MFBs) and Primary Mortgage Banks (PMBs), Mobile Money Operators (MMOs)
He reiterated that NDIC mandate, include promotion of financial inclusion and consumer education, consumer protection, Strengthening Cyber security, protection of subscribers of MMOs, encouragement of support of banking practice and education, assisting in the promulgation of banking laws, guidelines and regulations etc.

The Central Bank of Nigeria (CBN) said there’s no plan to introduce N5,000 denominated bank note following the naira redesign.

Ahmed Umar, CBN Director of Currency Operations made the clarification in his paper titled, “Redesign of the Naira: Benefits to the financial system and the Nigerian economy”, in Port Harcourt, Rivers State.

Umar was represented by Amina Halidu-Giwa, Head of Policy Development at CBN Currency Operations Department.

“We are not introducing any new note. Some people have seen one N5000 note that we don’t know about”,he had said.

The official said note restructuring would mean that lower bills like the N100 note would become coin.

Umar added that the focus of the apex bank is printing notes that would replace the currencies to be withdrawn.

“What we are printing is going to be very limited because we want other means of settling transactions to be used,” he explained.

Prior to the establishment of the Corporation, government had been unwilling to let any bank fail, no matter a bank’s financial condition and/or quality of management. Government feared the potential adverse effects on confidence in the banking system and in the economy following a bank failure.

Consequently, the government deliberately propped up a number of inefficient banks over the years, especially those banks in which state governments were the majority shareholders.