Uche Usim, Abuja
Penultimate week, the Nigeria Deposit Insurance Corporation (NDIC) rolled out the drums in celebration of its 30th anniversary.
Speaking at the event, the Managing Director/Chief Executive of the Corporation, Umaru Ibrahim, said there was an urgent need to review the NDIC Act of 2006 as current challenges cannot be effectively addressed with the extant law in use.
He said the Corporation remains resolute to sustaining financial system stability, as he assured Nigerians that its existing partnership with the Central Bank of Nigeria and other stakeholders remains strong.
He spoke extensively on several other issues on the banking industry and Nigeria’s economy at large.
Excerpts.
Banking supervision
The NDIC collaborates with the CBN to ensure that financial institutions remain healthy at all times and when there are problems, they are detected and addressed promptly. Effective supervision guarantees stability, integrity, soundness and efficiency of the banking system and we always employ this strategy for the protection of depositors.
As regulators, NDIC and CBN, proactively respond to developments and challenges in banking operations through appropriate policy framework which have produced great results in the interest of our stakeholders. The success recorded by the Corporation in this area include the Adoption of Risk-Based Supervision Framework, development of framework for early warning signals to detect problem banks, development of framework for the Identification and measurement of Systemically Important Banks (SIBs) and articulation of a framework for the provision of financial and technical assistance to deserving insured institutions.
Failure resolution
This is one area in which the NDIC continues to demonstrate great ingenuity and sagacity. At inception in 1989, the banking system was already in distress with seven technically Insolvent state-owned banks still in existence. The experience garnered by the Corporation in those early years have proved invaluable. However depending on the severity and peculiarity of the distress, NDIC in collaboration with the CBN had adopted multiple resolution options to resolve failures in the system.
The options range from Open Bank Assistance (OBA), Purchase and Assumption (P & A), Bridge Bank, and reimbursement (payout) of Insured Depositors. The NDIC used Purchase and Assumption (P & A) to resolve problems of 13 banks closed by the CBN in 2006 as a result of their inability to meet the Consolidation/Recapitalisation requirement of N25 billion. The P&A option was adopted by the Corporation to resolve the problems of banks affected by the Global Financial Crisis of 2009, which manifested in poor Asset Quality and Weak Risk Management, as well as weaknesses in Corporate Governance within the nation’s banking industry.
Furthermore, in the discharge of its statutory role under Section 39 (i) of the NDIC Act 16 of 2006 and in consultation with the CBN, the Corporation adopted the Bridge Bank mechanism to resolve the failure of three (3) DMBs namely Afribank, Spring Bank and BankPHB in 2011. Similarly, in 2018, that mechanism was used to resolve the failure of Skye Bank Plc. Indeed, the merits of the bridge bank option to the nation’s economy are numerous.
It should interest you to note that the bridge bank initiative safeguarded 12,667 jobs, protected deposit liabilities of over N1.759 trillion which ensured that depositors had uninterrupted access to their funds, and prevented the systemic repercussions of bank failure on the entire financial system. The Bridge Bank option engendered macro-economic stability, sustained daily operations of the failed banks including meeting maturing obligations and enhanced the confidence of depositors and other stakeholders.
Bank liquidation
The Corporation has worked tirelessly over the last 30 years to ensure that depositors of liquidated banks suffered little loss or pain. Between 1994 to date, 53 DMBs, 325 MFBs and 51 PMBs were liquidated without disruption to the nation’s payment system.
Our other achievements include, liquidation activities involved recovery of debts and realisation of assets of closed banks. To date, a cumulative amount of over N29.112 billion was recovered from debtors of DMBs in-liquidation. N129.10 million was realised from debtors of failed MFBs, while recoveries from PMBs stood at N300 million.
So far over N21.502 billion was collected from the disposal of physical assets of closed DMBs, while N404.74 million and N78.17 million were realised in respect of MFBs and PMBs, respectively.
Debt collection and assets sales culminated in the payments of over N116.258 billion as Liquidation Dividends to depositors, creditors and shareholders of closed DMBs, MFBs and PMBs as at today. It is important to stress that through sustained and diligent liquidation activities, NDIC has realised assets to pay in full, deposits of the customers of 17 of the DMBs (in-liquidation). In effect, all the depositors of the 17 defunct banks who came forward to file their claims have been paid all their monies (both insured and uninsured) trapped in those banks.
Deposit guarantee
Deposit Guarantee is a key and distinct mandate of the Corporation. 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 Deposit Money Banks (DMBs), Microfinance Banks (MFBs), Primary Mortgage Banks (PMBs), Non-Interest Banks (NIBs) and subscribers of Mobile Money Operators (MMOs). Accordingly, the NDIC, currently provides Deposit Insurance cover to 27 DMBs, 918 MFBs, 34 PMBs and two NIBs.
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. On average, this is done every five years in line with Global best practice.
To date, the NDIC has paid a cumulative sum of over N8.25 billion as insured amount to 442,999 depositors of closed DMBs; paid over N2.97 billion to 83,415 depositors of closed MFBs, and over N70.53 million was paid to 869 depositors of closed PMBs.
Contemporary developments
The banking system is upwardly dynamic, sophisticated and complex. The dynamism and complexity in the last three decades resulted in the emergence of different operational models, products and services. Inevitably, such developments challenged the Corporation’s capacity to protect depositors in its role as a key member of the Nigerian financial Safety Net. I am happy to note that NDIC was not found wanting in its response to such developments, which include, increase in maximum deposit insurance coverage (MDIC) at various times to ensure coverage of over 95 per cent of Depositors; Creation of Special Insured Institutions Deposit Insurance Fund (SIIF) and extension of Deposit Insurance cover to depositors of MFBs and PMBs in 2006;
Corporation in 1992 spearheaded the issuance of circular on BAs/CPs to DMBs to sanitise credit creation in DMBs, Extension of cover to depositors of Non-Interest Banks (NIBs) through the Framework for Non-Interest Deposit Insurance and creation of Non-Interest Deposit Insurance Fund (NIDIF) for Non-Interest Banks.
Others are the extension of cover to subscribers of Mobile Money Operators (MMOs) through the Pass-Through Deposit Insurance Framework; adoption of Risk-Based Supervision in Banking Examination.
In Collaboration with CBN, the Corporation jointly developed the framework on consolidated supervision for DMBs. Assessment of banks financial condition and performance through Financial Analysis System (FinA). Introduction and Adoption of Differential Premium Assessment Scheme (DPAS) to DMBs and PMBs to strengthen Enterprise Risk Management Framework of DMBs, PMBs and MFBs. Reduction in Premium Assessment rate for DMBs from 50 to 40 and further to 35 Basis Points and 30 Basis points for PMBs as contribution for Financial Stability Fund. In collaboration with CBN, funding the establishment of National Association of MFBs Unified Information Technology (NAMBUIT) for MFBs Digital Financial Services.
Development of Financial Institution Liquidation Management Software (FILMS) to enhance liquidation activities etc.
30th anniversary
The anniversary provides an opportunity to look back and trace our journey over time and shine the light on our contribution to the country’s financial system stability.
Also, the anniversary provides an excellent opportunity to undertake a comprehensive review of our past legacies; a platform to fine-tune our vision and mission and a privilege to cast a searchlight on the future, particularly the challenges and opportunities.
NDIC was established in March 1989 following the promulgation of Decree No. 22 of 1988, now replaced with NDIC Act 16 of 2006, with the objectives of contributing to financial system stability; protecting of small and less financially sophisticated depositors by providing an orderly means of resolution and compensation in the unlikely event of failure of their insured financial institutions.
The Corporation was established to provide a further layer of protection to depositors and complement the role of prudent bank management as well as the Central Bank of Nigeria (CBN) supervisory activities in ensuring a safe and sound banking system.
To give the right impetus to drive its philosophy and operations, the Corporation adopted a propelling vision for itself “To be the best deposit insurer in the world by 2020”.
Its mission was: “To protect depositors and contribute to financial system stability through effective supervision of insured institutions, provision of financial/technical assistance to eligible insured institutions, prompt payment of guaranteed sums and orderly resolution of failed insured financial institutions”.
The NDIC was designed as a “risk-minimiser” with the mandate of deposit guarantee, banking supervision, distress resolution and bank Liquidation.
In the last 30 years, we achieved some milestones in the discharge of its mandate to the satisfaction of our stakeholders.
In terms of deposit guarantee, which is our key mandate, we have guaranteed payment of deposits up to a maximum limit in accordance with stipulated statutes in the event of failure of an insured financial institution. This covers all deposit-taking financial institutions licensed by the CBN. They include Deposit Money Banks (DMBs), Microfinance Banks (MFBs), Primary Mortgage Banks (PMBs), Non-Interest Banks (NIBs) and subscribers of Mobile Money Operators (MMOs). Today, we provide deposit Insurance cover to 27 DMBs, 918 MFBs, 34 PMBs and two NIBs.