NDIC Reforms: Reaping Bountiful Results In A Turbulent Financial Year

The year 2013 was a turbulent year for the banking industry in particular and the financial system in general.  The Central Bank of Nigeria (CBN) centred its monetary policy attention significantly on credit sanctions for all public sector deposits. This imposed on the economy massive liquidity squeeze designed to tame the rampaging inflation and give the naira some breather in the foreign exchange market. The rampage of the naira and “dollarized” posture of the nation’s economy by the politicians and their cronies called emergency contractors continued with their onslaught unabated as a prelude to 2015 elections.
Reserve requirement for public funds was pushed from 50 per cent to 75 per cent, making government deposits practically unreachable for banks for purposes of further lending practices and wealth creation in an economy that is public sector dependant. In other words,  the financial implication of the CBN monetary policy is that any bank that mobilises N100 million in public sector deposit could only lend out N25 million.  The balance of N75 million would be sitting idle in the vault of the apex bank just to reduce liquidity in the system.

It achieved the primary purpose but failed to reduce the pressure on exchange rate. That policy took a toll on banks’ fortune in 2013.  Profit before tax plunged from N525.34 billion in the year ended December 31, 2012 to N419.74 billion as at December 31, 2013.  Despite the drop in profit margin, the industry came out of the turbulent year stronger in terms of the quality and quantity of assets of banks.  The total assets of banks grew from N20.06 trillion in the year ended December 31, 2012 to N22.15 trillion as at December 31, 2013.

The regulators believed that the improvement in the quality of assets of the financial institutions in the banking industry was due to enhanced credit risk management.  Apparently, the banks are falling into line with the strict lending rules set by the regulators of the sector. They all learned to pursue quality credit portfolio. The quality of banks’ assets was declared satisfactory though capital adequacy dropped marginally. In the ultimate, the Nigerian banking industry was declared satisfactory and healthy.

The regulators of the banking sector, the CBN and Nigeria Deposit Insurance Corporation (NDIC), declared nine banks sound, while the financial health of 13 others was considered satisfactory.  Only one bank was listed as marginal and declared terminal or weak. Despite the difficulties encountered by the operators in terms of infrastructural deficiency in the industry during the year, 2013 may go down in history as the best year for the regulators as well as operators in the industry.

Frauds and forgeries in the banking system dropped tremendously from N17.99 billion in the year ended December 31, 2012 to N3.84 billion as at December 30, 2013.  For this feat to be attained seamlessly, the indefatigable scrutiny of the NDIC must be hailed. The Corporation can beat its chest and declare without equivocation that the stringent perusal of banks’ books by its uncompromising examiners, along with other control measures have combined to instil fears into fraudulent bank staff.

At the end of the day, investors would reap the reward of the reduction in frauds and forgeries by way of higher dividends while depositors would no longer worry about their funds disappearing overnight.  Despite the challenges by the liquidity squeeze imposed by the CBN in its anti-inflation fight during the year, the NDIC lived up to its core mandates of deposit guarantee, banking supervision, failure resolution and banking liquidation.

The Corporation’s Bank Examination Department conducted a risk based joint examination of 23 deposit money banks (DMBs) and one non-interest bank with the CBN during the year. The NDIC/CBN also conducted an intensive monitoring exercise of 16 banks with respect to the implementation of recommendations contained in the last Risk Based Supervision (RBS) Examination Reports on the affected banks. Similarly, the NDIC carried out special investigations based on petitions by depositors and other aggrieved customers. A number of DMBs and MFBs were made to refund arbitrary charges and other forms of abuses of consumer protection issues. The Corporation also extended its searchlight to the other troubled financial institutions in the banking sub sector.  A total of 176 microfinance banks and 45 primary mortgage banks were examined in the first and second quarters of 2013.
As a deposit guarantee institution, the NDIC did not disappoint the teeming and anxious bank depositors by its deposit insurance cover.  An additional sum of N123 million was paid to depositors of 48 DMBs in liquidation, raising the cumulative sum so far paid to the 528, 295 depositors to N6.770 billion as at December 31, 2013.

During the year under review, the Corporation also revisited the case of shareholders of the defunct Pan African Bank.  The Corporation declared a dividend of N567.55 million which was meant to be paid to the shareholders of the liquidated bank. The dividend was paid to the governments of Rivers and Bayelsa States, former owners of the defunct bank. Similarly, the Corporation put a smile on the faces of the shareholders of erstwhile Alpha Merchant Bank with a payment of dividend of N3 per share to all its shareholders. Perhaps, it was the payment of depositors of the 103 failed microfinance banks closed by the CBN that received what amounted to a pleasant surprise from the NDIC during the turbulent financial year, 2013.  As at December 31, 2013, a cumulative sum of N2.521 billion was paid to 75,533 depositors of the defunct 103 MFBs.

The payment to the depositors of the closed MFBs could be termed a pleasant surprise because as at the time many of the depositors opened accounts with the MFBs, the sub-sector was not enjoying NDIC’s deposit insurance protection.  The cover was introduced and extended to the sub-sector in 2008, aftermath of global economic meltdown, when liquidity crisis emanating from lack of corporate governance, frauds, misplaced priorities and gross mismanagement by their operators, rocked the sub-sector to its very foundation. The NDIC practically rushed its protective deposit insurance cover to the sub-sector apparently to restore the waning confidence of grassroots depositors.  The sub-sector is still very fragile with some of the MFBs struggling to or unable to pay their deposit insurance premium to the NDIC.

Another serious feature in the banking sub sector in 2013 was the activities of the wonder banks, disguising as MFBs. They disappeared after mobilising deposits from the unsuspecting public; even the regulators are yet to locate the business offices of some of the wonder banks that have mobilized funds from hapless depositors.  However, with Black Africa’s largest deposit insurance scheme (DIS) throwing its weight behind the troubled sub-sector, depositors are assured of a sound bulwark as a fallback position.

In the execution of its function of claim resolution, the Corporation over the years had been facing an uphill task of getting depositors of the closed DMBs and MFBs to file their claims in order to collect their trapped deposits.  Last year, however, the NDIC came up with radical ways of reaching out to the depositors of those closed banks by encouraging them to come forward and collect their trapped funds.

For instance, the direct payment was jettisoned in 1999 for agent banks payment option in order to reduce cost on the claims settlement.  The Corporation is also considering the use of the increasingly popular social media to reach out to depositors of DMBs and MFBs in liquidation for the payment of their insured deposits.

Besides, the NDIC commenced the depositors’ tracers’ approach, where the Corporation staff or appointed agents traced the affected customers based on their last known addresses. The Corporation’s zonal offices would henceforth play a greater role in the deposit tracers’ initiative. The NDIC is not leaving any stone unturned in reaching out to affected depositors in its depositor protection scheme.

The emergence of agent and mobile banking schemes has presented fresh challenges to everyone from the operators to the regulators.  Consequently, NDIC has commenced a pilot survey of the mobile banking programme (electronic wallet) and agent banking schemes operated by First Bank Plc and Zenith Bank Plc.  The survey would enable the Corporation ascertain the mode of operation of the electronic wallet and agent banking practices with a view to extending deposit insurance cover to the new banking models’ customers and their appointed agents.

The issue of debt recovery is also a major challenge to the Corporation.  Many of the defaulting bank debtors regard the loans as their share of the national cake and are therefore reluctant to pay back. The NDIC has also fingered the agonizingly protracted judicial process as a major contributor to slow recovery of debts owed to the failed institutions. This followed the abolition of Failed Bank Tribunals and subsequent transfer of pending cases to Federal High Courts across the nation. During the year under review, the Corporation committed immense resources into organising seminars for judges of states, federal high courts and courts of appeal on deposit insurance laws and practices.

The financial meltdown of 2008 taught everyone from regulators to operators of the banking system a great lesson.  In 2013, NDIC took a proactive step to commence work on the “Early Warning System (EWS) of Bank Distress in Nigeria”.

The aim of the EWS is to develop a robust early warning system that would ensure prompt corrective measures in line with best practice through the early identification of ailing banks in the industry. The EWS also enables supervisors to take proactive and speedy actions to mitigate such problems. The final output of the study had been circulated to the Federal Ministry of Finance and CBN for comments.

The year 2013 was quite eventful for the NDIC. The Corporation was rebranded during the year through a total overhaul of its procedures, processes and systems. A new logo with the new slogan: “Protecting your bank deposits” which clearly distinguished the NDIC from conventional insurance companies was also unveiled. The rebranding initiative was also a deliberate effort by the NDIC to raise its performance index towards achieving higher quality service delivery to all its stakeholders. In this regard, the Corporation developed new core values using an acronym: HRDPP to guide employees as they strive to fulfil the Corporation’s vision and mission as follows:
(i)     Honesty
(ii)    Respect and Fairness
(iii)    Discipline
(iv)    Professionalism and teamwork
(v)    Passion
In a bid to sharpen the skills of staff to enable them perform their functions more effectively and efficiently, the NDIC conducted a public presentation of the first 20 of its staff being sponsored on the Masters Degree programme. The Chartered Banker/MBA (CBMBA) programme was designed in partnership with the Chartered Institute of Bankers of Nigeria (CIBN) and the Bangor University, Scotland.

There is no doubt that banking remains a very volatile business and most highly regulated industry in the economy. Banking also thrives on safety, soundness and stability of the financial system. However, with the experience, versatility and resilience of the NDIC as a deposit insurer, Nigerian depositors are sure of a formidable fallback position.

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