Nigerian Deposit Insurance Corporation (NDIC): Committed to Depositor Protection
Published by Henley Media Group Ltd in association with the Commonwealth Secretariat
Nigerian Deposit Insurance Corporation (NDIC): Committed to Depositor Protection The NDIC is an independent agency of the Federal Government of Nigeria. The purpose of the deposit insurance system is to protect depositors and guarantee the settlement of insured funds when a deposit-taking financial institution can no longer repay their depositors, thereby helping to maintain financial system stability. The NDIC Act No 16, 2006 (which replaced the NDIC Decree No 22 of 1988), established the Corporation as a corporate body with perpetual succession and a common seal. The Corporation commenced operations in 1989.
Mission Statement “To protect depositors and contribute to the stability of the financial system through effective supervision of insured institutions, provision of financial and technical assistance to eligible insured institutions, prompt payment of guaranteed sums and orderly resolution of failed financial institutions.”
Vision Statement “To become one of the leading Deposit Insurers in the world”
Public Policy Objectives The NDIC aims at meeting the following public policy objectives: · Protecting small, uninformed and less financially sophisticated depositors by providing an orderly means of compensation in the event of either failure of their insured financial institutions or the inability of their insured institutions to make payments on deposits. · Contributing to the financial system stability by making bank runs less likely; · Enhancing public confidence and systemic stability by providing a framework for the resolution and orderly exit mechanism for failing and failed insured institutions.
Functions of the Corporation Section 2 of the 2006 NDIC Act stipulates the following functions for the Corporation: • Insuring all deposit liabilities of licensed banks and such other deposit-taking financial institutions operating in Nigeria as to engender confidence in the Nigerian banking system; • Giving assistance in the interest of depositors, in case of imminent or actual financial difficulties of banks particularly where suspension of payments is threatened; and avoiding damage to public confidence in the banking system; • Guaranteeing payments to depositors, in case of imminent or actual suspension of payments by insured banks or financial institutions up to the maximum amount provided for in Section 26 of the Act; • Assisting monetary authorities in the formulation and implementation of banking policies so as to ensure sound banking practice and fair competition among banks operating in the country; • Pursuing any other measures necessary to achieve the functions of the Corporation provided such measures and actions are not repugnant to the objectives of the Corporation.
Governance The Corporation is governed by the Board of Directors. NDIC Act No. 16 of 2006, Sections 5 to 7 provide for the constitution of the Board of the NDIC as well as indicate its powers. As the highest governing body, the Board has responsibility for the overall policy formulation, general administration, management and superintendence over the affairs of NDIC. The Board is the approving authority for administrative matters, such as recruitment and remuneration of employees as well as fundamental operational matters such as the termination of a bank’s insured status, review of DIS design features, supervisory intervention and failure resolution options. The NDIC Board is composed of 12 members as follows: a part time Chairman, the Managing Director/CEO, two Executive Directors, a representative each of the Central Bank of Nigeria and the Federal Ministry of Finance not below the rank of a Director, and six other members, one each from the six geo-political zones of the country. The NDIC’s enabling Act requires that the Board be appointed by the President, Commander-in-Chief of the Armed Forces of Nigeria, subject to the confirmation of the Senate and is also expected to meet at least once quarterly.
The day-to-day activities of the Corporation are the responsibility of the Managing Director who is assisted by 2 Executive Directors. The 3 of them constitute the Executive Committee (EXCO) of the Board. Apart from the EXCO, the NDIC Board has five other Committees, which are to assist the Board in the discharge of its duties. The Committees are: the Finance and General Purpose Committee, the Corporate Strategy Committee, the Debt Recovery Committee, the Audit Committee, and the Establishment Committee.
Core Values and Beliefs
To be effective in the discharge of its mandate, the Corporation is guided by the following core values and beliefs:
Professionalism The Corporation requires its staff to demonstrate a high level of ethics and professionalism in performing their duties. Accordingly, NDIC staff are expected to: · Seek knowledge to improve their skills and performance; · Seek innovative and creative solutions to problems; · Abide by all codes of conduct and professional ethics/good corporate governance at all times; · Be objective and factual in their work presentation and constructive in their criticisms.
The Corporation is committed to doing what is right and just at all times. Thus, NDIC employees are required to: · Adhere to the highest ethical standards in performing their duties; · Act and negotiate in good faith and in the best interest of the Corporation; · Display the highest level of integrity.
Conscious of the demands of the environment in which it operates, the Corporation charges its employees to: · Work willingly as a team and engage in collaborative efforts; · Acknowledge the contributions of others; · Provide and solicit support to, and from colleagues.
Respect and Fairness Management partners with staff to ensure that: · Employees treat each other with mutual respect; · Employees are given equal opportunities and treated with fairness; · Career advancements are based on merit; · There is a conducive work environment.
Funding · The deposit insurance fund (DIF) is generated from the 6
failed institutions with minimum disruption to the banking system, cost-effective realisation of assets and settlement of claims to depositors, creditors and where possible, shareholders.
Membership Amb (Dr) Hassan Adamu, Wakilin Adamawa, Chairman, NDIC Board
Mr. Umaru Ibrahim, mni Managing Director\CE
periodic premium paid by insured institutions. The fund is used to pay the guaranteed sum if an insured institution fails. · The operations of the Corporation are solely financed from the interest earned from the investment of the DIF in government securities such as Treasury Bills (TBs). The Corporation does not get government subvention for its operations.
Mandate and Powers The deposit insurance scheme (DIS) being implemented by the NDIC was designed as a Risk Minimiser, with the following mandates:
Deposit Guarantee This is perhaps the most significant and distinct activity of the Corporation. As an insurer, NDIC guarantees the payment of deposits up to the maximum limit in accordance with its statute in the event of failure of an insured financial institution.
Banking Supervision The Corporation supervises banks so as to protect depositors, foster monetary stability, promote an effective and efficient payment system, and promote competition and innovation in the banking system. Banking supervision is an essential element of the Nigeria deposit insurance scheme as it seeks to reduce the potential risk of failure and ensures that unsafe and unsound banking practices do not go unchecked.
Failure Resolution One of the primary roles of NDIC is to ensure that failing and failed institutions are resolved in a timely and efficient manner.
Bank Liquidation Bank liquidation is adopted by the Corporation and the CBN for banks that fail to respond to failure resolution measures. The liquidation process involves orderly and efficient closure of the 5
Statutorily, participation by all deposit-taking financial institutions is mandatory. Accordingly, member institutions are all deposit-taking financial institutions licensed by the Central Bank of Nigeria. These are all universal banks (deposit money banks), microfinance banks (MFBs) and primary mortgage institutions (PMIs). For ease of identification of members, watch out for the NDIC Decal displayed in the head offices and branches of all insured institutions.
Scope and Level of Coverage NDIC insurance covers all types of deposits received at an insured institution such as Current Account deposits, Savings Account deposits, Time and Term deposits and Foreign Currency deposits. NDIC insurance covers the balance of each depositor’s account up to the insurance limit, including principal and accrued interest up to the date of the insured institution’s closure. However, NDIC insurance does not cover money invested in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if these investments were bought from an insured institution. In the same vein, NDIC does not insure Federal Government Treasury bills, bonds or notes. These are backed by the full faith and credit of the Federal Government of Nigeria. NDIC insures eligible deposits in universal banks up to N200,000.00 per depositor per insured bank. This new coverage level represents an increase of 300 per cent over the previous coverage level of N50,000.00 per depositor per insured universal bank. For PMIs and MFBs, NDIC insures eligible deposits up to N100,000.00 per depositor per insured institution. At N200,000 and N100,000 levels of coverage for universal banks and other deposit-taking financial institutions respectively, over 90 per cent of depositors in these institutions are fully covered.
The Corporation had paid a total of N6.8 billion insured deposits out of N11.7 billion total insured amount as at September 2010, which represented about 58.1 per cent of total insured claims to the depositors of 41 closed banks. This achievement had contributed immensely towards engendering confidence in the nation’s banking system.
In respect of the 13 banks whose licences were revoked in 2006, private sector deposits were guaranteed 100 per cent under the Purchase & Assumption (P&A) transaction. Such deposits are being paid by the acquiring banks. On the other hand, public sector deposits of the 13 failed banks were guaranteed up to the maximum deposit insurance limit. Payment of their uninsured deposits and claims of other creditors are being paid from the proceeds of the sale of fixed assets of the failed banks and recoveries made from their debtors on a pro-rata basis. So far, the cumulative insured deposits paid out in respect of the affected 13 banks amounted to N3.50 billion, while the cumulative uninsured deposits paid out stood at N63.3 billion. So far, 11 out of the 13 failed banks whose private sector deposit liabilities amounted to N73.4 billion had been sold to acquiring banks. In other words, under the P&A transaction, private sector deposits worth N73.4 billion had been assumed by healthy banks, thus enabling the depositors to have unimpeded access to their funds. In order to further enhance confidence in the banking system, the NDIC Act of 2006 had increased the coverage level from N50,000 to N200,000 per depositor per insured universal bank in the event of failure of any of them. The review represents an increase of 300 Per cent. The coverage level for depositors of MFB’s and PMI’s was fixed at N100,000.00 per depositor per insured MFB/PMI. Furthermore, following the on-set of banking crisis in 2009, the Corporation carried out an upward review of the coverage level from N200,000.00 fixed in 2006 to N500,000 per depositor per insured universal bank and from N100,000 to N200,000 per depositor per MFB/PMI in 2010. The recent increase in the coverage level ensures that over 95 per cent of accounts/depositors are fully covered. The increase would take effect from January 2011. The increase was done to sustain public confidence in the banking system.
Insurance Activities Under its insurance activities and in line with the trend in other jurisdictions, the Corporation developed a framework for Differential Premium Assessment System (DPAS) in the country, which commenced in 2008. With the new framework, premium assessment now focuses purely on the risk profile of individual banks, as opposed to the flat rate system that the Corporation adopted right from its inception.
Bank Supervision The Corporation continues to carry out its on-site and off-site supervisory activities of insured institutions with great care. The onsite examination and off-site surveillance of the financial institutions have helped in no small measure in promoting safe and sound banking practices in the country, and also have engendered depositor confidence in the system. Following the licensing of MFBs and PMIs, the Corporation extended the deposit insurance coverage to them. It would be recalled that the Corporation had earlier, established the Special Insured Institutions Department (SIID) to supervise their activities. Each depositor in those special financial institutions is insured up to a maximum amount of N100,000.00 with effect from January 2008.
Microfinance Banks (MFBs) Consequent upon numerous petitions received by both the CBN and NDIC from depositors complaining about the inability to access their funds in some MFBs and other reports indicating that some MFBs had closed their doors, both the CBN and NDIC had, in February 2010, embarked on a Target Examination of all the licensed MFBs in the country in order to determine their health status. The target examination revealed that 224 (27 per cent) of existing MFBs were ‘terminally distressed’ and/or ‘technically insolvent’, while many of them were said to have closed shop for at least six months. The unsoundness of the MFBs were attributable among other factors to: High level of non-performing loans resulting in high portfolio at risk (PAR), gross undercapitalisation in relation to the level of operations; poor corporate governance and incompetent boards, high level of non-performing insider-related credits and other forms of insider abuse, heavy investments in the capital market. In the light of that development, the operating licences of the affected 103 were revoked by the CBN pursuant to S.12 of BOFIA 1991 (as amended) while the remaining distressed MFBs that had re-capitalised were re-issued provisional operating licences. Consequently, in line with the Corporation’s mandate as a deposit insurer, members of staff of NDIC were deployed to the affected MFBs as a prelude to the eventual liquidation of the MFBs. The Corporation has since concluded the field work and preparations have reached advanced stage to commence payment of insured depositors.
In an effort geared towards reducing the premium burden on insured banks, the Board of Directors of the Corporation, with effect from 2007, excluded Inter-bank Takings from banks’ premium assessment base. 6
Universal Banks The Corporation continued to handle the liquidation of failed financial institutions in the most orderly and cost-effective manner. The bank consolidation programme initiated by the CBN in 2005 resulted in the failure of 13 banks, which could not meet the prescribed minimum capital of N25 billion. It is worthy of note that the Corporation, with the active collaboration of the CBN, demonstrated great professionalism in winding up the 13 banks. The 13 failed banks were: 1) African Express Bank PLC 2) All States Trust Bank PLC 3) Assurance Bank PLC 4) City Express Bank Ltd 5) Eagle Bank PLC 6) Fortune International Bank PLC 7) Gulf Bank PLC 8) Hallmark Bank PLC 9) Lead Bank PLC 10) Liberty Bank Ltd 11) Metropolitan Bank Ltd 12) Trade Bank PLC 13) Triumph Bank PLC
In order to ensure that depositors of those banks did not lose their funds, CBN and NDIC adopted a novel failure resolution option known as Purchase and Assumption (P&A). The P&A strategy required healthy banks to bid for the assets and assume deposit liabilities of the failed banks. Under the arrangement, acquiring banks were chosen through a competitive bidding process. The choice of the P&A was based on some public policy considerations among which were: • P rivate sector depositors would not lose any of their deposits, thus sustaining public confidence and encouraging savings; • The branch network and most of the assets of the failed banks would be kept within the banking system through acquisition by banks that survived the banking sector reform agenda; • It was designed to bring about a much faster payment to depositors, which would afford them the opportunity to continue banking relationships with the acquiring banks if they so wished. In July 2008, the Corporation obtained Final Court Orders to liquidate 11 of the failed banks. Provisional Court Orders were also obtained in respect of two other banks namely, Fortune Bank PLC and Triumph Bank PLC. The NDIC had been able to sell 11 of the failed banks to acquiring banks. Table 1 below shows the acquired banks and their acquirers under the P&A failure resolution option. Table 1: Failed banks sold to acquiring banks under the purchase and assumption (P&A) transaction
S/N BANKS IN LIQUIDATION
Payment of Liquidation Dividend to General Creditors
Ecobank Nigeria Plc
As at the end of September 2010, six banks had declared dividends to their General Creditors. The banks were Alpha Merchant Bank Plc, Amicable Bank Ltd, Nigeria Merchant Bank Ltd, Pan African Bank Ltd, Rims Merchant Bank Ltd and Eagle Bank Ltd. Consequently, out of N760.64 million declared, the Corporation had paid the sum of N681.43 million to 665 creditors who filed their claims.
2 3 4 5 6 7 8 9 10 11
All States Trust Bank Plc African Express Bank Ltd Assurance Bank Nigeria Ltd City Express Nigeria Ltd Eagle Bank Plc Gulf Bank Plc Hallmark Bank Plc Lead Bank Plc Liberty Bank Ltd Metropolitan Bank Ltd Trade Bank Plc
United Bank for Africa (UBA) Plc Afribank Plc UBA Plc Zenith Bank Plc UBA Plc Ecobank Plc Afribank Plc UBA Plc UBA Plc UBA Plc
Payment of Liquidation Dividend to Depositors In addition to the payment of insured depositors of the closed banks, more and more uninsured depositors have continued to be paid liquidation dividends. At the end of September 2010, the Corporation had declared an aggregate dividend of N12.01 billion for 34 banks in liquidation, while a total of N6.15 billion had been paid to depositors of those banks. It is heart-warming to state that 11 of the banks had declared a final dividend of 100 per cent of total deposits, indicating that all their depositors had fully recovered their deposits. The affected banks were: 1) ABC Merchant Bank Limited (in-liquidation; 2) Amicable Bank of Nigeria Limited (in-liquidation); 3) Alpha Merchant Bank Plc (in-liquidation); 4) Continental Merchant Bank Plc (in-liquidation); 5) ICON Limited (Merchant Bankers) (in-liquidation) 6) Kapital Merchant Bank Ltd (in-liquidation); 7) Merchant Bank of Africa (in-liquidation); 8) Nigeria Merchant Bank Ltd (in-liquidation); 9) Pan African Bank Ltd (in-liquidation); 10) Premier Commercial Bank Ltd (in-liquidation); 11) Rims Merchant Bank Ltd (in-liquidation) Apart from the 11 failed banks that had declared 100 per cent dividend to their depositors, many depositors of the remaining banks in liquidation had recovered as much as 90 per cent of their trapped deposits in some of the other closed banks.
Debt Recovery Initiatives Apart from the basic deposit insurance coverage limit, protection by the Corporation can be expanded beyond the limit by the payment of liquidation dividends. However, the quantum of liquidation dividend that can be paid by the Corporation is largely dependent on the volume of the failed banks’ assets that can be successfully realised. The Corporation has to successfully realise the assets of closed banks, the bulk of which is in risk assets (outstanding loans and advances) to enable it pay liquidation dividends to the uninsured depositors and other creditors. The total loans and advances in all liquidated banks at closure stood at N178.92 billion while total recoveries as at September 2010 stood at N20.786.56 billion thereby leaving a book balance of N158.133 billion as at September 2010. It was therefore in an attempt to re-invigorate the recovery process that the Corporation had been embarking on a number of aggressive debt recovery initiatives aimed at enhancing liquidation dividend being paid to depositors and other eligible claimants thereby boosting public confidence in the banking system. In furtherance of this, the Corporation carried out the following debt recovery initiatives: • C ompletion of the segregation of all accounts with outstanding balances of N100 million and above (250 in all) which would be off-loaded to AMCON as soon as it takes off; • Completed plans to assign all accounts with balances of between N50 million and N100 million (205 in all) to lawyers (Debt Recovery Agents) due to potentials of litigation so as to expedite the process of recovery through the court; • Finalised plans to assign all accounts below N50 million to non-legal Debt Recovery Agents recently appointed by the Corporation; • Already pursuing the recovery of other debts through the use of relevant law enforcement agencies like EFCC and Police; • Finalised plans to publish the names of significant debtors in some national newspapers. These steps are with a view to enhancing the quantum of liquidation dividends paid to depositors. 6
Disposal of Physical Assets An important aspect of bank liquidation includes taking inventory of all assets of a failed financial institution. The Corporation usually adopts systematic and orderly marketing and disposal strategies in respect of all assets of closed banks. Well-articulated laid down guidelines are followed in assets valuation and often professionals are engaged to ensure the need for efficient asset disposal. As at December 2009, the Corporation had realized N19.24 billion from the disposal of assets of banks in liquidation.
Preparation for Extension of Deposit Insurance System to Non-interest Bearing Banks As part of preparations by the Corporation for the extension of Deposit Insurance System (DIS) to non-interest bearing banks, NDIC Board members and some staff paid a visit to Malaysia Deposit Insurance Corporation (MDIC), which has a very rich experience in Deposit Insurance for Islamic banking products. A visit was also paid to Bank Negara Malaysia, the institution in charge of the development and supervision of Islamic Banks in Malaysia. Based on the experience gained during the visit, the Corporation developed a draft Framework that would enable it extend DIS to non-interest/non-profit financial institutions that would be licensed in due course by the CBN. As a way of exposing stakeholders to the rudiments of Islamic Banking a Sensitisation Workshop was organized on Islamic Banking in November 2010.
Enhancing Public Awareness About NDIC’s Activities The management of the Corporation took several steps during the period to promote public understanding of banking policies by providing financial information and analysis of insured banks to the general public. The dissemination of financial information was done through the Corporation’s Annual Reports; the NDIC Quarterly and other publications, which are made available to the public free of charge. In addition, the Corporation organised annual workshops for Business Editors and Finance Correspondents Association of Nigeria to improve their understanding and reportage on the Deposit Insurance Scheme and other activities of the Corporation. Furthermore, nation-wide media campaign in three major local languages and Pidgin English to raise public awareness in the system had been embarked upon. 5
Other initiatives undertaken to enhance public awareness by NDIC included: · Development of a new robust and interactive Website; · Production of various hand-bills (and translation of same into 3 Nigerian major languages) on the mandate, operation, achievements and challenges facing NDIC and circulation of same to various stakeholders; · Development of help-desk facility to enhance communication between NDIC and its stakeholders especially depositors, as well as to provide an effective grievance redress mechanism. · Pasting of enlarged NDIC logo on entrances of bank head offices and branches for easy visibility.
Review of NDIC Act, 2006 As part of the strategies for strengthening regulatory capacity for sustained economic growth, the Corporation is making efforts to review its enabling act. The proposed review will provide the Corporation with more enforcement powers that will enhance its ability to discharge its mandate very effectively. The NDIC Act, currently with the National Assembly, is being reviewed in the following areas, among others: · G ranting powers to NDIC to pay insured amount to depositors in the event of imminent or actual suspension of payment by an insured institution, even before revocation of license. That power would facilitate prompt depositor reimbursement and would reduce their pain as a result of bank failure; · Having powers to review the books of subsidiaries of universal banks so as to minimise the possibility of risk transfer and/or risk warehousing; · Seeking independent enforcement powers to deal with erring banks and their directors/officials; · Protection of Corporation’s assets against creditors who obtain judgment against closed insured institutions.
Enterprise Risk Management System (ERMS) The Corporation proactively established an Enterprise Risk Management (ERM) Unit in February 2009 as a means of adequately capturing and effectively managing the risks inherent in its activities. The Corporation in developing a framework that would facilitate the process of identifying, assessing, managing, monitoring and controlling on an enterprise-wide basis, those risks that could impede the achievement of the Corporation’s mandate.
Challenges/Problems Facing Contact Details the Corporation Head Office In spite of the above achievements, the operation of the deposit insurance scheme in Nigeria had not been without some constraints and challenges. Some of the challenges of the Corporation during the period under review included: • • • •
Poor/Limited understanding of deposit insurance; Weak corporate governance by insured institutions; Implementing Risk Based Supervision (RBS); Unwillingness of debtors to honour obligations and large volume of unsecured or fraudulently granted loans; • Difficulty in realising collaterals held by banks-in-liquidations as well as recovery of debts owed to such banks; • Cumbersome judicial process. In addition to the above challenges, the NDIC’s compliance with the Fiscal Responsibility Act (FRA) of 2007 has impaired the growth of its General Reserve Fund and by extension, the growth in the fund available for failure resolution. The FRS requires the Corporation to remit 80 per cent of its operating surplus to the Federation Account. In 2007 and 2008, the Corporation remitted the sum of N1.8 billion and N4.4 billion, respectively. It is instructive to note that the Deposit Insurance Fund for Universal Banks stood at N293.95 billion as at June 20120 while Insured Deposits for the corresponding period stood at N1,389 billion, indicating a gross shortfall if the Corporation were to be effective in the discharge of its mandate. Similarly, the Special Insured Institutions Fund, maintained to resolve problems of MFBs and PMIs, stood at N10.17 billion, while the insured deposits of the sub-sector, as at June 2010 stood at N55.19 billion. That also indicates a shortfall. There is therefore the need to exclude the Corporation from the burden imposed by the FRA in order to rapidly build its funds as done in other jurisdictions with explicit DIS.
Conclusion Over the years, the Corporation recorded notable achievements in the protection of depositors and promotion of safe, sound and stable banking system in Nigeria. There is ample evidence that through careful and logical formulation and adoption of appropriate strategies, the Board, Management and staff of the Corporation are committed to ensuring that the Corporation fulfils its statutory mandate.
Plot 447/448 Constitution Avenue Central Business District, P.M.B. 284 Abuja Nigeria Tel: 09-460 1380 – 9; 09 – 617 1380 – 9 Fax: 09 – 628 5717 E-mail: email@example.com Website: www.ndic-ng.com Lagos Office Mamman Kontagora House 23A Marina, P.M.B. 12881 Lagos Nigeria Tel: 01 – 264 7810 – 847 Fax: 01 – 264 7848 Zonal Offices Bauchi No. 3 Ahmed Abdulkadir Road, Bauchi P. M. B. 0207 Tel: 0709 810 0030, 0709 810 0037 Benin 28A & B Benoni Hospital Road Off Airport Road, G.R.A. P.M.B. 1034 Benin Benin City Tel: 052 – 253183, 257079, 254246, 052 – 877165, 876693, 876692 Fax: 052 – 253183 Enugu 10 Our Lords’ Street Independence Layout P.M.B. 1210, Enugu Tel: 042 – 457292, 455325, 456101 Fax: 042 – 456770 Ilorin No 12A Sulu Gambari Road, Ilorin Tel: 031 – 810789, 0709 870 5709 Kano Plot 641, Mohammed Street Hotoro, G.R.A. Kano Tel: 064 – 662469, 662471 Fax: 064 - 533521 6
Credits Editor: Sylvia Powell for Henley Media Group Ltd. Research: Dr. Jacob Ade Afolabi for NDIC