The Nigeria Deposit Insurance Corporation (NDIC) is rooting for stringent sanctions against banks with weak or poor corporate governance to discourage bankers from greedy behaviours
Its Managing Director/Chief Executive, Alhaji Umaru Ibrahim, who spoke while reviewing the various laws governing banking operations in Nigeria, that is, the Banks and Other Financial Act (BOFIA) 1991, the Companies and Allied Matters Act (CAMA), the NDIC Act, the CBN (Central Bank of Nigeria) Act and the Failed Banks Act, expressed the need for more stringent sanctions to serve as deterrent to irresponsible behaviours.
He cited the recent move by the regulatory authority in the United Kingdom (UK) to enhance supervision and management of banks with emphasis on personal responsibilities of directors.
In this regard, both the UK companies Acts 2006 and the recent tough new banking rules are compelling some bank directors to rethink their suitability and competence to remain as bank directors. Some directors actually resigned.
The NDIC chief noted that to establish a robust and stable financial system to promote national development, supervisory and regulatory authorities also accorded priority attention to sound corporate governance in their own operations.
Already, some of the initiatives put in place by the NDIC to promote sound corporate governance, Ibrahim said: “included adoption of a charter and code of corporate governance for its Board, compliance with the code of corporate governance for all regulators under the auspices of the Financial Services Regulation Coordinating Committee, code of conduct for its bank examiners and compliance with provisions of relevant Acts of Federal Government on disclosure and accountability.”
With these initiatives at hand, Ibrahim charged stakeholders in the banking sector to pay greater attention to sound corporate governance practices to prevent systemic crisis in the sector.
Ibrahim gave the charge while delivering an address at the Executive Breakfast Meeting of the Society for Corporate Governance, where he identified the failure of sound corporate governance as one of the factors responsible for the 2009 Nigerian banking crisis.
He recalled that the special examination on the 24 banks by the CBN and NDIC revealed that 10 of the 24 banks were distressed as a result of many factors among which was poor corporate governance.
“The special examination revealed that boards and executive managements in some banks were not equipped to run their institutions as their ineffectiveness manifested in the form overbearing influence of some board members, ineffectiveness of board committees; non-adherence to the CBN code of corporate governance and weak ethical standards amongst others,” he said.
A statement from the NDIC endorsed by its Head, Communication and Public Affairs Mallam Hadi Birchi explained that the NDIC chief said the problems of the affected banks informed the comprehensive reform embarked upon by the CBN which emphasised financial stability and ensuring that the financial sector contributes to the real economy.
The Nigeria Deposit Insurance Corporation (NDIC) is advocating for stringent sanctions against banks with weak or poor corporate governance to discourage bankers from greedy behaviours
A statement from the NDIC said the Managing Director/Chief Executive of the NDIC Alhaji Umaru Ibrahim while reviewing “the various laws governing banking operations in Nigeria i.e the Banks and Other Financial Act 1991, the Companies and Allied Matters Act, the NDIC Act, the CBN Act and the Failed Banks Act expressed the need for more stringent sanctions to serve as deterrent to irresponsible and greedy behaviours.”
The statement from the NDIC signed by Mallam Hadi Birchi, Head, Communication and Public Affairs said Umaru Ibrahim “cited the case of the recent move by the regulatory authority in the United Kingdom to enhance supervision and management of banks with emphasis on personal responsibilities of directors. In this regard, both the UK companies Acts 2006 and the recent tough new banking rules are compelling some bank directors to rethink their suitability and competence to remain as bank directors. Some board directors actually resigned.”
Ibrahim noted that in their bid to establish a robust and stable financial system to promote national development, supervisory and regulatory authorities also accorded priority attention to sound corporate governance in their own operations.
Already, some of the initiatives put in place by the NDIC to promote sound corporate governance, Ibrahim said, “included adoption of a charter and code of corporate governance for its Board, compliance with the code of corporate governance for all regulators under the auspices of the Financial Services Regulation Coordinating Committee, code of conduct for its bank examiners and compliance with provisions of relevant Acts of Federal Government on disclosure and accountability.”
Alhaji Umaru Ibrahim gave the charge while delivering an address at the 2015 Executive Breakfast Meeting of the Society for Corporate Governance in Nigeria, where he identified the failure of sound corporate governance as one of the factors responsible for the 2009 Nigerian banking crisis.
Ibrahim recalled that the special examination conducted on the 24 banks in Nigeria by the Central Bank of Nigeria (CBN) and NDIC revealed that 10 of the 24 banks were critically distressed as a result of many factors amongst which was poor corporate governance.
According to him: “the special examination revealed that boards and executive managements in some banks were not equipped to run their institutions as their ineffectiveness manifested in the form overbearing influence of some board members, ineffectiveness of board committees; non-adherence to the CBN code of corporate governance and weak ethical standards amongst others.”
THE Nigeria Deposit Insurance Corporation (NDIC) said it has paid N97billion to 528,500 depositors of 14 banks and 103 Micro-finance Banks (MfBs) liquidated between 1991 to date.
Its Head, Media and Public Relation, Alhaji Hadi Sule Bauchi who spoke to newsmen shortly after a day training to over 2000 National Youth Service Corp (NYSC) members at Ge Yakubu Gawon Orientation Camp in Dutse, Jigawa State.
He said as the primary responsibility of the NDIC is to provide safety and guaranty to bank depositors.
According to him, despite its existence for over 23 year and its achievements, majority of Nigerians are not aware of its existence or the services it provides.
“Due to the fear of risk of collapse many Nigerians are very hesitant to open account for depositing their money in the banks.
“Base on this, we chose those over 2000 corp members who are under going orientation in this Gen Yakubu Gawan NYSC orientation camp, for a special sencitaisation workshop on the Activities of NDIC.”
Meanwhile, the corporation yesterday gave a clean bill of health to the banking sector, decalaring all the licenced banks in the country healthy and operating in line with global standards.
Its Executive Director, Research, Malam Hashim Ahmad who spoke in Paiko, Paikoro Local Government Area of Niger State after a sensitisation seminar for Batch A Stream II members of the NYSC at the Niger State Permanent Camp in Paiko, said the lenders are healthy.
Ahmad said: “Our banks are relatively healthy in line with global standards. We don’t normally announce the healthy status of our banks in the public but we normally say in aggregate and I think our annual report will soon be released and be made available to the public.
“The annual report normally summarises the health status of the industry but aggregatively all the banks in the country are relatively healthy.”
Ahmad said the NDIC undertakes proper supervision of banks in the country as insurer to ensure they remain healthy.
“We undertake supervision of the banks as insurer, as you know, no insurer will sit back and allow his risk to crystalize before he wakes up. We embark on the supervision of banks to ensure they remain safe and sound,” he said.
The Nigerian Deposit Insurance Corporation (NDIC), Liquidator of Gulf Bank Nigeria Plc, has urged the Federal High Court to enlist its suit against Presidential Aide, Doyin Okupe and two others as undefended.
NDIC instituted the suit in 2007 against Okupe, Value Trust Investment Limited and the firm’s director, Ray Ahazie.
The liquidator claimed that as chairman of Value Trust, Okupe and the other respondents borrowed money to execute a project for the Bayelsa State Government from the defunct Gulf Bank.
In its statement of claim filed before the Federal High Court sitting in Lagos, on July 10, 2007, the claimant, through its lawyer, Dr. Abiodun Layonu, averred that the defendants were granted a credit facility by the bank to finance the importation of 10,000 metric tones of rice for onward delivery to the Balyesa state government vide an offer letter dated October 27, 2000.
The NDIC claimed that the terms and conditions of the offer and acceptance were later formalised in a memorandum of agreement duly signed and stamped between the bank and the defendants.
The claimant averred that the respondents were in debt of N34.2 million, being outstanding balance on the loan they collected before the bank was wound up.
The NDIC is also claiming the interest on the said sum at the rate of 21 per cent per annum from May 2007, until the final liquidation of the said sum.
In securing the facility, the NDIC alleged that the defendants and Balyesa state government through its banker, Societe Generale Bank, granted a bank guarantee in the contract sum of N500 million in favour of Gulf Bank.
The claimant said Okupe and Ahazie also entered joint and several guarantees to the full amount granted in favour of Gulf Bank to further secure the facility.
It further claimed that when the ship carrying the 10,000 metric tones of rice arrived the Nigerian territorial waters on December 28, 2000, it could not berth at the Apapa Port until January 03, 2001.
The claimant further stated that as a result of congestion, the ship arrived Port-Harcourt territorial waters on July 26, 2001, but refused to berth on grounds that the shipping agency fee of $155,000, (about N18.6 million) had not been paid
Upon enquiry from the local representative of the shipping company, Koda International Nigeria Limited, the claimant said the Gulf Bank was informed that a bill of $155,000, had been sent to the first defendant -Value Trust Investment Limited, for settlement as per the agreement between the investment company and the Oversea Supplier Luck Rice International, of which it (claimant) had no prior knowledge of.
It also claimed that upon further inquiry by Gulf Bank, Koda International Nigeria Limited disclosed that the $155,000, was for port dues harbour, conservancy and anchorage fees.
After reviewing the Charter Party agreement between Value Trust investment Limited and Lucky Rice International under “Clause 28”, the NDIC said it discovered that the liability for the payment of shipping fees was actually for Value Trust International.
It averred that when the investment company could not come up with the $155,000, representing the shipping agency fees, Gulf Bank decided to pay the fee to Koda International Nigeria Limited.,
The Bayelsa state government rejected the rice
NDIC further averred that when Balyesa state government reneged on its promise to take the rice, Gulf Bank was forced to commence an open market sale of the rice, by which time some of the bags were damaged, culled or lost on board.
It stated that the realities affected the amount realised from the sales, adding that only N454,574,150 was deposited in the account, leaving a disparity of N70, 425,850 between the initial overdrawn position of N525 million in Value Trust Investment Limited account, which has attracted interest since 2001.,
NDIC also claimed that in a bid to resolve the issue, it had a meeting on September 21, 2005 at the Ikoyi office of Economic and Financial Crime Commission (EFCC), where it was agreed that N196,642,996.08 be waived from the outstanding N240,811,060.59.
The claimant alleged that the defendants were to pay the bank the sum of N44,168,064.51, out of which they only paid N10 million.
It averred that the defendants have since refused, neglected and failed to liquidate their indebtedness despite repeated demand and their admittance through a letter dated February 15, 2006.
At the resumed hearing before Justice Saliu Saidu, counsel to NDIC, Oburume Ayeteno, told the court that it has filed an application to place the suit on undefended list and was ready to argue it.
Okupe’s lawyer Yemi Gbonegun, however objected to the claimant’s application, stating that the defence had filed its statement.
He claimed that the said statement of defence cannot be traced in the court’s file, and prayed for time to regularise its processes before the court.
The judge adjourned to July 8, 2015 to enable the Counsel file his defence.
The Nigeria Deposit Insurance Corporation (NDIC) said it is seeking an amendment to its enabling law because the body lacks the powers to enforce some of its decisions.
NDIC Head of Communication and Public Affairs, Hadi Sule Birchi, said the challenge reached a head, “particularly in the area of bank liquidation and pay out, “ adding that it was the desire to address these issues that prompted the Corporation to send the proposed amendments to the National Assembly, “ to strengthen its capacity to effectively discharge its mandate”.
He told The Nation that the proposed amendments are in line with the International Association of Deposit Insurers’ (IADI) core principles for effective deposit insurance systems.
“It is instructive to note that the Corporation has not made any new proposal on its functions or powers, but simply re-echoed what has been its mandate and powers since its inception in 1988, aimed at ensuring safety, soundness and stability in the banking system,” he stressed.
Bjrchi pointed out that there is nothing in the amendments that portrayed the NDIC as seeking to license banks the same way the Central Bank of Nigeria (CBN) does.
“It is noteworthy that the proposed amendments do not contain such proposal,” he said, stressing: “the power to license banks in Nigeria is strictly within the purview of the Central Bank.”
Birchi, however, expressed NDIC’s frustration in tracing the locations of some CBN licensed Micro Finance Banks, as well as Primary Mortgage Banks, a situation, he said necessitated the Corporation’s request that it be taken into confidence during the registration and licensing of these entities. This is with a view to protecting depositors’ funds, he said.
He continued: “The Corporation had observed that banks, particularly microfinance banks (MFBs) and primary mortgage banks (PMBs) could not even be located at their last known addresses after taking away depositors money. Even the promoters could not be traced by both the NDIC and CBN. In practice, therefore, the Corporation is desirous of being involved in the process of licensing the banks, particularly in the area of carrying out “fit and proper persons test”to forestall the reoccurrence of events where promoters disappeared with depositors money.”
The NDIC spokesman said the NDIC Act, 2006 gave it enough powers in Sections 27-31 to examine banks and issue reports and such reports are exchanged between the two institutions. He said the Corporation would rather that the independence of both the NDIC and CBN be maintained, as enshrined in its enabling law, as against the practice instituted in 2009, when the the immediate past CBN Governor, Mallam Sanusi Lamido Sanusi, requested that the NDIC and CBN should jointly examine banks and issue joint reports. “The NDIC was of the view that we should revert to the status quo to maintain our operational independence,” Birchi said.
He pointed out that insinuations making the rounds that NDIC is seeking amendments to its Act to terminate the insurance status of any licensed bank were not true, adding that the provision is in its 1988 enabling law. He said the only amendment the Corporation seeks to make on this provision, in the light of the observation by the CBN, is to substitute the word ‘‘notification’’ with ‘‘consultation.’’
He said the power by NDIC to to appoint self as liquidator,was a joint agreement by both the CBN and the Corporation,to cater for situations where insured institutions, such as primary mortgage banks (PMBs)and microfinance banks (MFBs) would have closed shop for long periods and the CBN had not revoked their licences.
He said the provision is not misplaced, since both the CBN and NDIC share responsibility for failure resolution.
Birch said it should not be construed that the Corporation through the proposed amendment, among others, is seeking to be a parallel or coordinate regulator for banks.
The Corporation as a responsible member of the financial safety-net in Nigeria, will continue to collaborate with CBN and other critical stakeholders to ensure the safety, stability and soundness of the financial system, he pledged.
The Central Bank of Nigeria (CBN) is against the planned amendment of the Nigeria Deposit Insurance Corporation (NDIC) Act 2006, claiming that it will hurt the financial system stability. CBN has accused NDIC of seeking the power to license banks and liquidate them without recourse to it. But NDIC says CBN is crying wolf where there is none, writes COLLINS NWEZE.
The stability of the banking system should be of primary concern to every regulator. It is for this reason that the Central Bank of Nigeria (CBN) is worried that the proposed bill to repeal the Nigeria Deposit Insurance Corporation (NDIC) Act 2006 and enact NDIC Act 2014 will hamper the stability of the financial system and put depositors’ funds at risk.
Speaking at a public hearing on the bill organised by the Senate Committee on Banking, Insurance and Other Financial Institutions, CBN Deputy Governor, Operations, Alhaji Suleiman Barau said several clauses in the proposed Act, sought to confer coordinate functions and powers of the apex bank on the NDIC.
Insisting there cannot be two captains in a ship, he faulted plans to make the NDIC a parallel/coordinate regulator for banks as CBN; confer conflicting supervisory functions and powers on NDIC over banks; and create overlapping regulatory responsibilities for the corporation.
The powers that the corporation sought to assume and exercise include the authority to licence banks, supervise banks without reference to CBN, determine the licences of banks, and appoint itself as liquidator.
The apex bank explained that it wasn’t selfish to have thought it wise to request for the establishment of NDIC, adding that the bulk of the older staff of the corporation were from CBN and had been working harmoniously together.
NDIC’s requests
According to the apex bank, the corporation’s plan to license banks was evident in its position that applicants for banking licences should simultaneously submit to the CBN and the NDIC, their applications for licences. This, the corporation said, would enable it determine whether or not it would; grant Deposit Insurance status to the bank, if and when licensed.
“This position, which the corporation claims to have dropped, following our engagement with it, appears to still form the bedrock of some of its proposals on the amendments and is the basis for some of the powers that it seeks to exercise. In this regard, it is the corporation’s position that since it is not involved in the licensing of the banks but is compelled to insure them, it should be bestowed with the power to determine their deposit insurance status with a mere notification in writing to the CBN,” the apex bank said.
The CBN also said the corporation’s determination to supervise banks without reference to the apex bank is evidenced by its written request to the CBN that banks in the financial system be equally shared between both organisations with each party able to exercise regulatory and supervisory powers over its “share” without reference to the other.
“It is in this regard that the corporation proposed to examine banks and issue reports thereon without reference to the CBN. Also, the corporation seeks to remove board and management based on the report of its examinations on these banks. Furthermore, the corporation has sought powers to carry out the consolidated supervision of banks subsidiaries, associates and affiliates without due regard for the sector regulators of such entities,” the apex bank added.
The CBN also accused the corporation of wanting to also determine the licences of banks. This, it based on the proposed amendment to NDIC Act which will empower the corporation to terminate the Deposit Insurance Status of a bank with a mere notification in writing to the CBN. “The corporation also seeks the power to appoint itself as liquidator meaning that should its proposal receive a favourable consideration, it would licence, supervise, insure and resolve a bank,” the CBN told the Senate.
Continuing, the apex bank told the senators that all the above powers, which the NDIC seeks to assume and exercise, are ostensibly to ensure that it carries out its function as a risk minimiser and that depositors of distressed banks and other deposit taking financial institutions are paid in good time to avoid delays.
The CBN, however, said while it supports the desire to pay depositors of distressed institutions in good time, the proposal to make NDIC “the judge and juror” in cases involving banks is fraught with dangers and is a recipe for financial instability.
“It is indeed the ingredient for chaos and anarchy and is not practised in any financial system in the world. There is also the moral hazard of the NDIC as a deposit insurer that charges premium on the basis of the riskiness of an institution which it supervises without recourse to the CBN to rate such institutions as riskier than they actually are in order to enhance the premium charged to bolster the deposit insurance fund. Consequently, it is essential that the NDIC must flow from its primary function, which is the basis for its establishment, that is, Deposit Insurance. Then and only then, will its role in the financial system as it relates to banks and other deposit taking financial institutions be properly defined,” it said.
According to the apex bank,the NDIC’s responsibilities were aptly couched under Section 2 (1) of its enabling Act as insuring all deposits liabilities of licensed banks and such other deposit taking financial institutions operating in Nigeria within the meaning of sections 16 and 20 of this Act so as to engender confidence in the Nigerian banking system. The corporation is also meant to give assistance to insured institutions in the interest of depositors, in case of imminent or actual financial difficulties particularly where suspension of payments is threatened to avoid damage to public confidence in the banking system among other functions.
NDIC reacts
NDIC Managing Director, Alhaji Umaru Ibrahim
NDIC Managing Director, Alhaji Umaru Ibrahim said the corporation wants to promote transparency, accountability and probity. He said the proposed NDIC Act wants the representatives of the CBN and the Ministry of Finance on its Board to be amended from directors to Deputy Governor and Permanent Secretary, to achieve a higher level co-ordination in banking policy formulation and implementation.
He explained that banks have become conglomerates, having established a number of subsidiaries. Therefore, to prevent such subsidiaries being used as vehicles to circumvent banking laws, rules and regulations or as avenue through which depositors’ funds are dissipated, the NDIC argued that “it is imperative that the Corporation through the auspices of the Financial Services Regulation Coordinating Committee (FSRCC) have access to the books and affairs of all the subsidiaries of insured banks to enable it assess on-going transactions between them.
The proposal, he added, would ensure that consolidated supervision of banking groups is carried out effectively but the piece of proposed amendment does not sit pretty with the CBN.
Secondly, following the bank consolidation in Nigeria, the asset base of Deposit Money Banks (DMB) have grown so large that failure of any one of them could pose a serious threat to the Deposit Insurance Fund (DIF). Consequently, the NDIC is concerned that “there is the need for a statutory contingency plan to address open bank resolution to prevent failure as much as possible. There is the need to set up an Insured Institution Resolution fund that would be used to address distress on a going concern basis. We therefore propose the establishment of such a fund in a new Subsection (3) of the extant section 37,” said the NDIC boss.
Equally, the Banking and Other Financial Institutions Act (BOFIA) has a provision empowering the Corporation to assume control of certain category of failing banks but the NDIC Act has no provision stipulating the status of the corporation in such circumstances. Based on this disparity, the NDIC wants its status to be linked to that of a conservator.
Speaking further, Ibrahim said that whenever the revocation of the license of a bank and the corporation’s status as provisional liquidator is being challenged in court, several other suits are also instituted by landlords, judgment creditors, and other claimants against the failed bank and the NDIC. The suits invariably drag the corporation to defend the failed bank even when it’s status is tenuous. As a result of this, NDIC is seeking for an amendment to the existing laws “to ensure that all such suits abate pending resolution of the winding up petition” among other requests.
Global best practices
While the CBN agreed that in the United States of America (USA), the Federal Reserve shares supervisory and regulatory responsibilities for domestic banking institutions with the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS).
But at the federal level, and with the banking departments of the various states, the primary supervisor of a domestic banking institution is determined by the type of institution that it is and the governmental authority that granted it permission to commence business (commonly referred to as a charter).
The CBN said banks that are chartered by a state government are referred to as state banks, while banks that are chartered by the OCC, which is a bureau of the Department of the Treasury, are referred to as national banks.
Also, the Federal Reserve has primary supervisory authority for state banks that elect to become members of the Federal Reserve System (state member banks). State banks that are not members of the Federal Reserve System (state non member banks) are supervised by the FDIC. In addition to being supervised by the Federal Reserve or FDIC, all state banks are supervised by their chartering state. The OCC supervises national banks. All national banks must become members of the Federal Reserve System.
The FDIC, which insures the deposits of banks and savings associations up to certain limits established by law and as the insurer, has special examination authority to determine the condition of an insured bank or savings association, for insurance purpose.
“It is also important to note that, the USA banking system can hardly be used as an example of best practice as the dual federal-state banking system evolved partly out of the complexity of the U.S Financial system, with its many kinds of depository institutions and numerous chartering authorities,” the CBN argued.
The CBN said the corporation by this proposed provision arrogated to itself the power to withdraw the Deposit Insured Status of any Financial Institution under certain circumstances, a position that is inconsistent with the statutory requirement for providing insurance.
The apex bank told the Senate that the amendments being sought by the NDIC are the very ingredient for chaos and anarchy, and will threaten the fabric of our financial stability, which, ironically, the corporation claims, it is seeking to ensure. Rather, in the interest of financial stability, we propose that this opportunity be used to review the corporation’s enabling Act to focus it on its essence, which is deposit insurance, in line with best practices.
Other stakeholders speak
At the end of arguments by both sides, Managing Director, Financial Derivatives Company Limited, Bismark Rewane, cautioned them to bear in mind that delays in settling depositors’ claims on time means that the amount involved for every individual would have lost its value as well as being eroded by inflation. He opted for a speedy payment of the claims of depositors of failed banks and financial institutions so the victims do not suffer unnecessarily.
The Chairman, Senate Committee on Banking, Insurance and Other Financial Institutions, Senator Bassey Edet Otu, said the position of the CBN as the prime regulator in the financial system cannot be disputed.
According to him, the committee was committed to ensuring the safety of financial deposits of Nigerians and as such would not support a Bill capable of compromising the powers of both the CBN and the NDIC.
The Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) have adopted a new banking supervision model.
Banking supervision will, henceforth, be risk-based, according to NDIC Managing Director Alhaji Umaru Ibrahim.
In a report obtained from the corporation’s website, Ibrahim said risk-based supervision would enable CBN and NDIC to evaluate banks’ areas of risks, focusing on critical areas while evaluating the risk management models deployed to achieve business plans.
He said the corporation has developed frameworks for Early Warning Signals (EWS), identified and measured Systemically Important Banks (SIBs), whose failure could trigger crisis in the economy.
NDIC, he noted, has been complementing CBN in many areas, particularly in banking supervision and distress resolution in the last 26 years. Ibrahim said the banking supervision and failure resolution functions, which have been part of NDIC’s core functions, cannot be in doubt many years after.
The corporation, he said, is seeking amendment of its law to enhance its operational performance and ensuring that it has powers to pay depositors after a reasonable time between 30 and 90 days after the bank closes its premises, following revocation of its licence or because of the court case.
“A situation where depositors have their money trapped in failed banks without access to such funds should not be encouraged. That is the global best practice which must be allowed in Nigeria. That is the power being sought by NDIC,” he said.
The NDIC boss said cases of failed institutions without succour for depositors abound in commercial banks, microfinance banks and primary mortgage institutions. He said the amendment will enable the corporation to discharge its core mandate in line with best practices.
The corporation, he added, continues to seek consultation, collaboration, partnership and cooperation with the CBN as well as other members of financial stability groups.
He said the core mandate of the NDIC as explicit deposit insurance firm are deposit guarantee, banking supervision, failure resolution and bank liquidation.
“The NDIC serves as a lifeline to Depositors through the Deposit Guarantee scheme. The NDIC deposit guarantee payment to depositors up to the maximum insured limit in accordance with its statutory mandate in the event of failure of an insured financial institution. This distinct role allows the NDIC to continue to discharge its mandate and bolster the confidence of depositors in the banking system,” he said.
From its initial guarantee of N50,000 per depositor of Deposit Money Banks (DMBs) at inception, the maximum deposit insurance coverage was increased to N200,000 in 2006 and N500,000 in 2010.
“As for the MFBs and PMBs from N100,000 in 2006, the coverage level was increased to N200,000 in 2010. At the moment, the Corporation provides deposit insurance cover to the all eligible CBN licensed 24 deposit money banks (DMBs), 880 microfinance banks (MFBs), 77 primary mortgage banks (PMBs) and one non-interest bank (NIB) operating in the country,” he said.
Ibrahim said the NDIC, as the third pillar of the financial safety-net, collaborates with the CBN to conduct risk based banking supervision in line with global best practice.
“It also protect depositors and assist to promote an effective and efficient payment system by encouraging healthy competition and innovation among the insured deposit taking financial institutions through off-site and on-site supervision,” he said.
The Management of Aso Savings and Loans Plc has been advised to ensure sound corporate governance as it takes-over Union Homes Savings and Loans (UHSL) Plc.
A statement from the Nigeria Deposit Insurance Corporation (NDIC) said the Managing Director/Chief Executive of NDIC Alhaji Umaru Ibrahim gave the management of Aso Savings and Loans Plc the advice when the Management team of Aso Savings and Loans Plc visited him in Abuja.
A sound corporate governance initiative if launched by Aso savings, Ibrahim said, “would not only give all depositors and staff of the UHSL Plc a new lease of life, it would also go a long way to promote public confidence in the banking system.”
According to the NDIC boss, ”the task before the management is to maintain the confidence reposed in them by their board, shareholders and the supervisory authorities by ensuring higher performance and quality service.
Alhaji Ibrahim enjoined the mortgage bank to embark on a process of effective communication of its turnaround plan with a view to promoting confidence and trust of its depositors.
He also advised Aso Savings to establish a toll free help desk and other effective communication channels such as radio and television jingles and talk shows to reach out to existing and prospective customers in order to overcome potential risks of rumours which may harm both Aso Savings & Union Homes.
After what appeared to be a major confrontation between the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) over some amendments to the NDIC Act, the agencies have agreed to collaborate to ensure financial stability, reports COLLINS NWEZE.
It is not in the interest of the banking system to see two key regulators at daggers drawn. That explains the concerns over the regulatory faceoff between the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) over banking supervision.
The war between the CBN and NDIC dates back to 1997 when the NDIC was accused by the CBN of taking over its regulatory roles. By 1998, however, the CBN was able to retain its regulatory position.
Currently, the NDIC wants the representatives of the CBN and the Ministry of Finance on its Board to be amended from directors to Deputy Governor and Permanent Secretary, respectively, to achieve a higher level co-ordination in banking policy formulation and implementation.
Besides, the NDIC Managing Director Alhaji Umaru Ibrahim wants to deepen the corporation’s commitment to transparency, accountability and probity. All employees and board members are required to exhibit high level of professionalism and ethical conduct. This is in line with the standards being demanded from all members of the deposit insurance system worldwide.
Issues at stake
Firstly, Nigerian banks have become conglomerates, having established a number of subsidiaries. In order to prevent such subsidiaries being used as vehicles to circumvent banking laws, rules and regulations or as avenue through which depositors’ funds are dissipated, the NDIC argued that “it is imperative that the Corporation through the auspices of the Financial Services Regulation Coordinating Committee (FSRCC) have access to the books and affairs of all the subsidiaries of insured banks to enable it assess on-going transactions between them. The proposal seeks to ensure that consolidated supervision of banking groups is carried out effectively.” This piece of proposed amendment however, does not sit pretty with the CBN.
Following the bank consolidation in Nigeria, the asset base of Deposit Money Banks (DMB) have grown so large that failure of any one of them could pose a serious threat to the Deposit Insurance Fund (DIF). Consequently, the NDIC is concerned that “there is the need for a statutory contingency plan to address open bank resolution in order to prevent failure as much as possible. There is the need to set up an Insured Institution Resolution fund that would be used to address distress on a going concern basis. We therefore propose the establishment of such a fund in a new Subsection (3) of the extant section 37,” said the NDIC boss.
Equally, the Banking and Other Financial Institutions Act (BOFIA) has a provision empowering the Corporation to assume control of certain category of failing banks but the NDIC Act has no provision stipulating the status of the Corporation in such circumstances. Based on this disparity, the NDIC wants its status to be linked to that of a conservator.
“Accordingly, a bank which the Corporation has assumed control of should be protected from attachment of its assets to assist the Corporation restructure the bank successfully. In addition, there is need to prohibit attachment on assets of the Corporation for liability of a failed bank because it is acting as conservator of such bank,” Ibrahim explained.
Speaking further, Ibrahim said that whenever the revocation of the license of a bank and the Corporation’s status as provisional liquidator is being challenged in court, several other suits are also instituted by landlords, judgment creditors, and other claimants against the failed bank and the NDIC. The suits invariably drag the corporation to defend the failed bank even when it’s status is tenuous. As a result of this, NDIC is seeking for an amendment to the existing laws “to ensure that all such suits abate pending resolution of the winding up petition.”
Ibrahim equally told the Senate that the requirement for payment of insured deposit only in the event of revocation of an Insured Institution’s operating license poses restraint on the Corporation’s ability to effectively carry out its mandate.
“Experience has shown that an insured institution may actually be insolvent and not merely illiquid and therefore suspends payment or is quite unable to meet its obligations to its depositors thereby causing hardship to those depositors even when it’s operating license has not been revoked,” he said.
This proposed amendment he said “therefore seeks to expand the crystallisation of the Corporation’s liability in the payment of insured deposit in Insured Institutions beyond revocation of license to include suspension of payment and inability to meet up with obligations to depositors as a result of insolvency in such institutions. The proposed amendment also seeks to put a time limit on the period of suspension of payments and further reduce the period within which the corporation is obliged to make reimbursement from 90 days to 30 days to its depositors, either by- cash, electronic transfer, negotiable instrument.”
The NDIC put up a strong argument that “there is the need for the corporation to have powers that would enable it pay insured depositors of failed banks even in the face litigation challenging revocation of the failed institutions operating license. This will reduce the extent to which depositors are subjected to untold hardship anytime litigants institute action the corporation to forestall liquidation of a failed bank.”
Section 40(7) does not actually prevent the filling of the application for an injunction preventing payment of insured deposits. The amendment proposed here will enable the Corporation pay insured deposit irrespective of the filing of such application in court as payment of insured deposit will be statutorily obligatory. In the event that the license of the institution is restored, the Corporation would have a right of subrogation.
The proposed amendments also seeks to incorporate provisions aimed at enhancing the legal framework for the Corporation to effectively carry out liquidation activities or non interference from the courts and other challenges. The powers expected, “include acting as liquidator upon the revocation of license of a failed bank, ensuring payment of deposits to depositors but it’s license has not been revoked, prohibition on the attachment of the assets of the corporation when acting as liquidator in respect of liability of a failed bank and enhanced debt recovery provisions to enable the Corporation recover debts owed to failed banks promptly.”
However the NDIC got a bashing when it asked for “provisions limiting the powers of courts whose effect is to prevent or frustrate the Corporation in performing its statutory obligation and carrying out its mandate.” To this request, lawyers to on the side of the CBN and a Senator who is a lawyer of over 30 years standing in the bar argued against any laws limiting the powers of the courts in any way manner or form.
To the NDIC, “it is most important to note that the above powers proposed were adopted from the laws governing the operations of the Federal Deposit Insurance Corporation in the United States of America along which lines the Nigeria Deposit Insurance Corporation was fashioned. The Corporation is therefore not re-inventing the wheel but is merely adopting best practices that have proved successful over time.”
CBN speaks
CBN Deputy Governor Operations Alhaji Suleiman Barau argued that following the decision of the NDIC to amend its 2006 Act, the CBN held various meetings to review the proposals to ensure consistency with the goals of financial system stability.
He drew the attention of the NDIC to several objectionable clauses in the proposed Act, which at the least sought to confer coordinate functions and powers on the NDIC. Specifically, the attention of the Corporation was drawn to the implications of the enactment of the Act as proposed as it would make the NDIC a parallel/coordinate regulator for banks as CBN; confer conflicting supervisory functions and powers on NDIC over banks; and create overlapping regulatory responsibilities for the NDIC.”
Barau and the CBN argued that the powers that the Corporation sought to assume and exercise and the consequences include: Power to Licence Banks: Power to Supervise Banks without Reference to the CBN: Power to Determine the Licences of Banks and Power to appoint itself as Liquidator.
Barau argued that “all the above powers, which the NDIC seeks to assume and exercise, are ostensibly to ensure that it carries out its function as a risk minimiser and that depositors of distressed banks and other deposit taking financial institutions are paid in good time to avoid delays. While the CBN supports the desire to pay depositors of distressed institutions in good time, the proposal to make NDIC “the judge and juror” in cases involving banks is fraught with dangers and is a recipe for financial instability.”
NDIC roles
Then and only then, the CBN insisted “will its (NDIC) role in the financial system as it relates to banks and other deposit taking financial institutions be properly defined. The founding fathers of the NDIC, he noted, must have had this in mind in setting up the Corporation, as its responsibilities were aptly couched under Section 2 (1) of its enabling Act as follows: “the Corporation shall have responsibility for- insuring all deposits liabilities of licensed banks and such other deposit taking financial institutions (hereinafter referred to as “insured institutions”) operating in Nigeria within the meaning of sections 16 and 20 of this Act so as to engender confidence in the Nigerian banking system.
The NDIC is also expected to give assistance to insured institutions in the interest of depositors, in case of imminent or actual financial difficulties particularly where suspension of payments is threatened to avoid damage to public confidence in the banking system among other roles.
The above responsibilities, the CBN argued, should form the basis of the mandate of the Corporation, because it does not differ from those in other jurisdictions including Canada, Malaysia, and Japan. “Consequently, the new powers that the Corporation seeks to assume and exercise are not only difficult to subsume under its responsibilities as detailed above, but are alien to deposit insurance practices in those jurisdictions.
Other jurisdictions
The CBN Deputy Governor emphasized that “the USA banking system can hardly be used as an example of best practice as the dual federal-state banking system evolved partly out of the complexity of the U.S. Financial system, with its many kinds of depository institutions and numerous chartering authorities. It has also resulted from a wide variety of federal and state laws and regulations designed to remedy problems that the US commercial banking system has faced over its history.
The US financial system is therefore unique and not replicated anywhere in the world; hence our concern at the constant reference to the system as “best practice” by the NDIC. Certainly, a country from where the global financial crisis started cannot be cited as an example for the rest of the world to follow.”
Other stakeholders speak
At the end of both sides’ arguments, Managing Director, Financial Derivatives Company Limited, Bismark Rewane cautioned both parties to bear in mind that delays in settling depositors claims on time means that the amount involved for every individual would have lost its value as well as being eroded by inflation. He opted for a speedy payment of the claims of depositors of failed banks and financial institutions so the innocent public does not suffer unnecessarily.
The Chairman, Senate Committee on Banking, Insurance and Other Financial Institutions, Senator Bassey Edet Otu says that the position of the CBN as the prime regulator in Nigeria’s financial system cannot be disputed. According to him, the committee was committed to ensuring the safety of financial deposits of Nigerians and as such would not support a Bill capable of compromising the powers of both the CBN and the NDIC.
The Federal Executive Council (FEC) yesterday approved contracts totalling N48.7 billion for the construction of new corporate offices of the Nigeria Deposit Insurance Corporation (NDIC) in Abuja and Lagos.
The Minister of Culture and Tourism and outgoing Supervising Minister of Information, Edem Duke, told reporters at the end of the FEC meeting that the corporate head office annex of NDIC in Abuja would cost N14.7billion; Lagos office will cost N24.7billion; while its training centre in Lekki, Lagos would be constructed at a cost of N 9.3billion.
He said a N472.5 million contract was also approved for the purchase and distribution of tricycles (keke) to beneficiaries in Benue West Senatorial District, as a constituency project.
The Minister of Works, Mike Onolomemen said FEC approved N23.6 billion contract for the dualisation of Suleja- Minna road in Niger State while another contract for rehabilitation of Oshogbolu -Oweto in Benue State at a cost of N7.9billion was also approved.
He said another contract of N7.1 billion for the reconstruction of Ningi – Mata road was also approved by FEC.
