As part of deliberate strategies to ensure financial sector stability, the federal government under Gen Ibrahim Babangida established the Nigeria Deposit Insurance Corporation (NDIC). In establishing the NDIC, the corporation, according to its managing director/chief executive officer, Umaru Ibrahim, “was designed as a Risk minimizer” with four key mandates.
These four mandates are deposit guarantee, banking supervision, failure resolution and bank liquidation. After 30 years of it’s existence, how far has NDIC fared in the discharge of its key mandates? Looking back since it’s inception, the corporation has no doubt, contributed immensely to the financial system stability of the country. For Umaru Ibrahim, deposit guarantee is a key and distinct mandate of the corporation as NDIC guarantees payment of deposits up to a maximum limit in accordance with its statue in the event of failure of an insured financial institution. It is worth pointing out that NDIC provides insurance cover to only financial institutions licensed by the Central Bank of Nigeria (CBN). Thus, the corporation is currently providing deposit insurance cover to 27 deposit money banks (DMBs), 918 Microfinance Banks(MFBs), 34 primary mortgage banks (PMBs) and two Non Interest Bank (NIBs).
Since it’s inception, NDIC has paid a cumulative sum of over N8.25 billion as insured amount to 442,999 depositors of closed DMBs, N2.97 billion to 83,415 depositors of closed MFBs as well as over N70.53 million was paid to depositors of closed PMBs. It is also on record that in response to the economic realities, NDIC has periodically increased the maximum deposit insurance coverage in order to enhance public confidence in the Nigerian financial system.
To this end, the corporation has since it’s existence, increased the maximum deposit insurance coverage from N50,000 per depositor for DMBs at inception, to N200,000 in 2006 and to N500,000 in 2010. Similarly, maximum coverage per depositor of PMBs and MFBs was increased from N100,000 to N200,000 in 2010. It is important to note that coverage per depositor in PMBs has since been increased to N500,000 in order to reflect the increased deposit structure in the sub sector and to stimulate mortgage savings.
In the area of banking supervision, NDIC has equally not done badly in the past three decades of its existence as the corporation collaborates with the CBN “to ensure that financial institutions are healthy at all times and where there are problems, such problems are detected and addressed promptly”. According to the MD/CEO of NDIC,
“supervision guarantees stability, integrity, soundness and efficiency in the banking system and is employed by NDIC for the protection of depositor’s interest”.
Umaru Ibrahim noted that the supervisory activities of the corporation are carried out “through a combination of On-site examination and Off-site surveillance”, as depicted by the collaboration between NDIC and CBN over the years. ” It has reduced bank examination cycle, enhanced monetary policy, promoted safe and sound banking practices as well as assist in resolving troubled financial institutions.
Another area that the NDIC has done exceedingly well in its 30 years of existence is in financial institutions failure resolution. It is note worthy that even at the inception of NDIC, the banking sector was already in distress with seven technically insolvent state-owned banks. The corporation’s chief executive said that “depending on the severity and peculiarity, the corporation in collaboration with the CBN developed and adopted multiple resolution options to resolve failures in the system”. The options that has been adopted by the corporation for failure resolution range from Open Bank Assistance (OBA), Purchase and Assumption (P&A), Bridge Bank as well as reimbursement of insured depositors.
The CEO, Umaru Ibrahim said the corporation used the P&A option to resolve the problems of13 banks closed by the apex bank in 2006 as a result of their inability to meet the consolidation/recapitalization requirements of N25 billion capital base. He went further to state that the “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 weakness in corporate governance”. According to the NDIC chief executive, the corporation used the Bridge Bank mechanism to resolve the failure of three DMBs namely, Afribank, Spring Bank and BankPHB.
“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 the failure of the banks on the entire financial system”, the Umaru Ibrahim further stated.
Another area NDIC has done well in its 30 years of existence is in ensuring that depositors of liquidated banks suffered “little loss or pain”. Between 1994 to date, 53 DMBs, 325 MFBs and 51 PMBs were put under liquidation without disruption to the Nigerian financial system. He noted that the corporation has been able to recover N29.112 billion from debtors of DMBs in-liquidati’on while the sums of N129.10 million and N300 million were recovered from debtors of failed MFBs and PMBs respectively.
NDIC has in its 30 years of existence, paid over N116.258 billion as liquidation dividends to depositors, creditors and shareholders of closed DMBs, MFBs and PMBs. The corporation has been able to through sustained and diligent liquidation activities, realized assets to pay in full, deposits of customers of 17 of the DMBs in-liquidati’on. Beyond its core mandates, NDIC has as part of its duties to ensure financial sector stability, responded effectively to contemporary developments in the nation’s banking system. The banking system is upwardly dynamic, sophisticated and complex. Accordingly, the dynamism, sophistication and complexity of the system has made the corporation to develop different operational models to respond to the challenge of protecting depositors in the Nigerian banking system.