Managing Director, NDIC, Alhaji Umaru Ibrahim
There can be nothing soothing to a depositor of a failed bank than to guarantee payment of his or her hard earned money trapped in the affected bank. A two-time former British Prime Minister, Sir Winston Churchill (1940-45 and 1951 – 55) once observed: “There is no finer investment for any community than putting milk into babies”. The same goes for a depositor of a failed bank. This is so because bank failure leaves a tale of anguish and distress trailing any depositor. Consequently, the only soothing balm that can calm the depositor’s strained financial nerves is paying his or her trapped fund in a failed bank and doing so promptly. This brings to the fore the role of the Nigeria Deposit Insurance Corporation (NDIC) as enshrined in the NDIC Act No. 16, 2006 (formerly NDIC Decree No. 22 of 1988).
In recent times, some stakeholders have expressed divergent views on whether or not the Corporation has been living up to its expectation in the discharge of its mandate, particularly in the areas of prompt payment of guaranteed sums to depositors and orderly resolution of failed insured financial institutions. For instance, the Chairman of Independent Shareholders Association of Nigeria (ISAN), Mr. Sunny Nwosu was recently quoted by Daily Champion newspaper to have accused the NDIC of “woeful performance”. He listed the inability of NDIC over the years to effect timely refund of guaranteed sums to depositors of closed deposit money banks (DMBs) and microfinance banks (MFBs) among the major areas of its woeful performance. The paper also quoted the National Chairman of Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie who said that NDIC had failed to rise up to its responsibilities, particularly on early refund to depositors of failed DMBs and MFBs. He also blamed the NDIC for lack of thorough examination of banks. If the corporation was effective in its supervision, according to him, that would assist its management to detect early signs of distress and guard against it.
As a financial expert and regular reader of the NDIC’s research publications and annual reports, I consider the criticisms against the corporation very unfair and too grave to ignore, given its landmark achievements on its strategic mandate of depositor protection and its continuous efforts toward orderly resolution of failed insured institutions and contribution toward the safety, soundness and stability of the nation’s financial system.
Available NDIC statistics indicated that out of the total insured deposits of N17.873 billion of 48 deposit money banks (DMBs) in-liquidation since 1994, a cumulative sum of N6.682 billion had been paid to 528,204 insured depositors by the NDIC as at December 31, 2012. Similarly, a cumulative sum of N2.50 billion had been paid to depositors of the 103 microfinance banks (MFBs) which were closed in 2010.
Bulk of depositors who have not claimed their deposits have since abandoned their accounts even before the liquidation of the banks, which is a phenomenon called: Dormant Accounts. It is therefore unfair to blame the Corporation for the attitude of such depositors who in any case have very small balances of less than 5,000.00. This situation is similar to that of protracted cases of unclaimed dividend which the shareholders association has not been able to assist in resolving.
In the area of bank liquidation, which is one of the key functions of the corporation involving realisation of assets from debt recovery and sale of physical assets of closed banks, the NDIC had realised a cumulative sum of N19.56 billion from the sales of physical assets which was appropriated to various depositors of 45 closed DMBs as at December 31, 2012. In a similar exercise, the sum of N1.98 billion was realized in respect of the 103 closed MFBs during the same period. The Corporation had also raked in N24.68 billion out of N178.92 billion debts owed the closed 45 DMBs and N42.63 million recovered from the 103 closed MFBs in-liquidation at December 31, 2012. From these proceeds, the corporation had paid N83.45 billion as liquidation dividend to depositors whose claims were in excess of the insured sums and N1.122 billion to 421 creditors of closed DMBs. Shareholders of some banks (in liquidation) had also been paid various liquidation dividends.
That was not all, 14 of the 34 which were liquidated banks prior to 2006 bank consolidation regime had declared 100 percent over and above their insured deposits (liquidation dividend), indicating that all their depositors and creditors had fully received all their claims. The 14 affected banks are ABC Merchant Bank Ltd, Alpha Merchant Bank Plc, Amicable Bank of Nigeria Plc, Commercial Trust Bank, Continental Merchant Bank Ltd and Co-operative and Commerce Bank. The rest are ICON (Ltd) Merchant Bankers, Ivory Merchant Bank, Kapital Merchant Bank, Merchant Bank of Africa, Nigeria Merchant Bank Plc, Pan African Bank Ltd, Premier Commercial Bank Ltd and Rims Merchant Bank Ltd.
Therefore, it is unfair and baseless for anyone to accuse NDIC of not being pro-active towards the payment of guaranteed sums to depositors of the failed banks. Besides, the NDIC Act requires the Corporation to effect the payment of insured sums to depositors of any failed bank within 90 days of the revocation of the bank’s operating licence by the CBN. Till date, the corporation has kept pace with this provision of its Act and even beat the deadline in some cases except in situations where shareholders of the affected bank challenged the CBN’s revocation of the bank’s licence in court.
The corporation had since 2006 reviewed the insured coverage limits for depositors of DMBs from N50,000 per depositor per bank to N500,000. Similarly, depositors of MFBs who hitherto were paid N100,000 each now receive N200,000 per depositor per MFB which covers over 90 per cent of the affected depositors This was in response to the yearnings of the depositors for more “protection”, especially in the wake of the frightening banking crises of 2008/2009.
The NDIC has equally been pro-active in the orderly resolution of failed insured institutions. To say that the corporation has performed woefully in this regard is mind boggling. For instance, following successful conduct of the outright liquidation of the 35 banks that failed pre-consolidation (1994 – 2003), the NDIC adopted the novel initiative of Purchase & Assumption (P&A) in 2006 to resolve the failure of thirteen (13) banks that could not meet the CBN N25billion minimum capital requirement for Money Deposit Banks (DMBs) under the 2006 consolidation policy.
The corporation demonstrated its proactiveness with the establishment of three bridge banks namely: Mainstreet Bank Limited, Keystone Bank Limited and Enterprise Bank Limited on August 5, 2012 to assume the assets and liabilities of the defunct Afribank, BankPHB and Spring Bank respectively. The three (3) defunct banks had failed to pass the CBN/NDIC joint stress test conducted on the 24 DMBs in August 2009 consequent upon which the CBN revoke their banking licences. According to the NDIC: ‘’the bridge bank option was adopted in the interest of depositors and to prevent outright liquidation, which would have had dire consequences for depositors, employees of these banks and thus undermine public confidence in the banking system’’. It is instructive to state that the NDIC’s intervention facilitated the take-over of the assets and assumption of their liabilities by the three new (bridge) banks. In addition, it safeguarded the banks’ total deposit liabilities of N809.4 billion and 6,667 jobs in the affected banks.
Another wild accusation was that the NDIC’s management was unable to separate itself from the CBN as an autonomous legal entity. However, it is imperative to state that no deposit insurance organisations anywhere in the world operate in isolation of the Central Bank, hence the NDIC has continued to collaborate with the CBN in the effective discharge of its mandate of depositor protection and its contribution towards the safety, soundness and stability of the financial system. This collaboration does not in any way undermines NDIC’s operational autonomy. NDIC’s bank examiners are known to be very honest, professional and value creating.
It is understandable why the so called representatives of shareholders association were hostile to NDIC. Instead of blaming the supervisory authorities for the recklessness and irresponsible behaviours of their past bank management, which resulted in the demise of their banks, they are advised to eschew bitterness and face the reality of the market and contribute to the strengthening of corporate governance in the entities in which they invested. They should stop chasing shadows.
While it should be acknowledged that NDIC, like any other institution, has its own challenges, it is not only unfair but also unwarranted to dismiss the corporation’s ingenuity and pro-activeness in discharging its mandate. Despite such uncomplimentary remarks, I believe the NDIC will continue to remain focused and committed to its mandate of deposit guarantee, effective banking supervision, distress resolution and liquidation of failed banks in a manner that will promote safety, soundness and stability of the financial system in Nigeria.
Akanji is a Lagos-based financial analyst