NDIC: 30 years of protecting depositors’ funds

Nigeria Deposit Insurance Corporation (NDIC) is 30 this month.

It’s time for celebration because, without any fear of contradiction, NDIC has, in the past 30 years, meticulously carved for itself a positive reputation founded on integrity and reliability in the banking and financial industry of Nigeria. This is no mean an achievement considering that sound and safe banking system can only be achieved and sustained in an atmosphere of uncompromising ethical, professional and moral ethos.

This was achieved from years of hard work of the founding fathers; through the dedication of the board, management and staff of the corporation; and through careful planning predicated on sound managerial principles shaped by an ambitious vision to excel; a lofty mission to achieve and robust core values that stand the test of times to guide the journey.

“To be the best deposit insurer in the world by 2020” is vision of NDIC. While this may sound overtly ambitious, it should be noted that in strategic planning, vision is not something an organization can achieve on their own. It is something that guides them in their work and which they believe can be achieved if other relevant organisations share the vision and work towards it. And NDIC has a shared vision with all its stakeholders—CBN, Ministry of Finance, the SEC, etc. All are working towards making Nigeria great among the comity of nations.

If the vision is ambitious, the mission to achieve it must be lucidly articulated. It should describe, in line with standards in mission statement drafting, what NDIC does, with whom it does it and broad terms how it does it. The NDIC mission says:

“To protect depositors and contribute to the stability of the financial system 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”.

How NDIC does carry its work to achieve its mission? There are four key results areas one need to study closely to comprehend how this highly diligent corporation work and achieve the fantastic results it flaunts at this juncture of its history. The areas are: Deposit Guarantee; Banking Supervision; Failure Resolution and Banking Liquidation. Of course there are other areas, such as its institutional growth and development and its corporate social responsibility activities that add density to the colours of NDIC’s portrait. It is indeed a colourful portrait of 30 years of great achievements.

Let’s look at the four key result areas one after the other.

Deposit Guarantee

This is a key and distinct mandate of the Corporation. As a deposit insurer, the NDIC guarantees the payment of deposits up to a maximum limit in accordance with its statute in the event of failure of an insured financial institution. The deposit insurance system in Nigeria covers all deposit taking financial institutions licensed by the Central Bank of Nigeria. These include: Deposit Money Banks (DMBs), Microfinance Banks (MFBs), Primary Mortgage Banks (PMBs), Non-Interest Banks (NIBs) and subscribers of Mobile Money operators. Accordingly, the NDIC, currently provides deposit insurance cover to the 27 DMBs, 888 MFBs, 38 PMBs and 1 (One) NIB in operation in the country.

The NDIC periodically reviews its coverage level for all insured financial institutions in Nigeria taking into consideration the macroeconomic environment, the deposit structure of the industry, the size of the deposit insurance fund (DIF), amongst others. In the last 30 years the NDIC has increased the maximum deposit insurance coverage twice, from N50,000.00 per depositor per deposit money bank (DMB) at inception, to N200,000.00 2006 and N500,000.00 in 2010. Similarly, maximum coverage per depositor of PMBs/MFBs increased from N100,000.00 in 2006 to N200,000.00 in 2010. Coverage per depositor per PMBs had since been increased to N500,000.00 to reflect the increased deposit structure in the sub-sector.

Banking Supervision

Supervision guarantees stability, integrity, soundness and efficiency in the banking system. Therefore, NDIC, as a risk minimizer, collaborates with the CBN to supervise banks to ensure that the institutions remain healthy at all times. The supervision role helps detect problems and addressed promptly. As a depositor insurer, NDIC also employs banking supervision as a major tool for the protection of depositors’ interest. The supervisory activities of the corporation are carried out through a combination of on-site examination and off-site surveillance. The collaboration between the CBN and NDIC over the years has reduced bank examination cycle, enhanced monetary policy, promoted safe and sound banking practices as well as assisted distress resolution, particularly in the last 10 years.

The current management of the Corporation under the leadership of its managing director and CEO, Malam Umaru Ibrahim, has deployed an appropriate policy framework which has produced great results in the interest of the banking industry, including the following:

•        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

•        institution of a Framework for the Provision of Financial and Technical Assistance to deserving insured institutions.

These efforts have been recognised globally. For example, on Monday, May 21, 2018 the world came to know that Nigeria Deposit Insurance Corporation (NDIC) under the leadership of its Director General and CEO Malam Umaru Ibrahim, has earned three certifications from British Standards Institution (BSI) on Information Security Management System ISO/IEC 27001:2013, IT Service Management System ISO/IEC 20000-1:2011 and Business Continuity Management System, ISO 22301:2012. On that day NDIC was handed over the prestigious awards on behalf of the BSI by the British High Commissioner to Nigeria.

Failure Resolution

Ensuring that failing and failed insured institutions are resolved in a timely and efficient manner, and without disruption to the payment system in the country is one area in which the NDIC had demonstrated great ingenuity and sagacity. It is worthy to note that the Corporation was established when the banking system was already in distress. As a matter of fact, there were about seven technically insolvent state-owned banks in the system in 1988. The Corporation had to grapple with the resolution of bank failures at an early stage of its existence.

It garnered invaluable experience in this regard over the years. Depending on the severity and peculiarity, NDIC, in collaboration with the CBN, adopted different options in the past to resolve failures in the system. The options ranged from Open Bank Assistance (OBA), Purchase and assumption (P & A), Bridge Bank, Asset Purchase and reimbursement (payout) of Insured Depositors.

Furthermore, a novel 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 risk management, in addition to weaknesses in corporate governance. In the discharge of its statutory role under Section 39 (i) of the NDIC Act 16 of 2006, and in consultation with the Federal Government, CBN and Ministry of Finance (MOF), the Corporation adopted the Bridge Bank mechanism to resolve the failure of three (3) DMBs namely Afri Bank, Spring Bank and BankPHB, which transformed into Mainstreet Bank, Enterprise Bank and Keystone Bank respectively. 

Again in 2018, the same mechanism was used to resolve the failure of Skye Bank Plc, which transformed to Polaris. In all the cases where the bridge banking option was adopted, NDIC intervention safeguarded 12,667 jobs, protected deposit liabilities of over N 1.759 trillion, prevented the systemic repercussions of the failure of the banks on the entire financial system, thereby engendering macro-economic stability, sustained daily operations of the failed banks including meeting maturing obligations and enhanced depositor and other stakeholders confidence in the banking system.

Bank Liquidation

Although Deposit Insurance is remedial in nature, it is also a preventative mechanism in terms of building confidence in the system and entrenching accountability.

Bank liquidation is another key result area of NDIC operations. In this aspect, the Corporation has recorded giant strides and made tremendous achievements in ensuring that depositors of liquidated banks suffer as little loss or pain as possible. Between 1994 and date, a total of 53 DMBs, 325 MFBs and 51 PMBs were liquidated without disruption to the payment system.

However, the NDIC opted for Purchase and Assumption (P & A) approach to resolve the problems of 13 banks closed by the CBN in 2006 as a result of their inability to meet the Consolidation/Recapitalization requirement of N25 billion.

NDIC’s liquidation activities also involve recovery of debts and realization of assets of closed banks. Accordingly, a cumulative amount of ₦29.01 billion was recovered from debtors of DMBs in-liquidation as at 31st December, 2018. With regards to MFBs in-liquidation, a total of ₦125.84 million was realized from debtors as at 31st December, 2018. Debt recoveries from PMBs stood at N290.43 million as at 31st December, 2018.

A cumulative sum of ₦21.396 billion was realized from the disposal of physical assets of closed DMBs as at 31st December, 2018. While cumulative sums of N391.25 million and ₦78.17 million were realized in respect of MFBs and PMBs respectively. 

These recoveries culminated in the payments of ₦116.258 billion as liquidation dividends to Depositors, Creditors and Shareholders of closed DMBs, MFBs and PMBs in 2018.

It is important to stress that through sustained and diligent liquidation activities, the NDIC has realized assets to pay, in full, the 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) that were erstwhile trapped in those banks.

It all sound incredible, but that is the turf for gold medalists—earners of deservedly golden medal of integrity and reliability.

As the NDIC marks the milestones of the past three decades, it has shown a remarkable capacity  not only to sustain the high standard recorded in banking supervision in the recent past, but to raise its bar in line with their core values of Honesty, Respect & Fairness, Discipline, Professionalism and Team Work.

Hassan, a financial analyst, writes from Abuja

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