Failed Banks: Why We Chose Purchase & Assumption Option – Ganiyu Ogunleye NDIC Boss

Holding down the Managing Director of NDIC, Ganiyu Ogunleye, for an interview is a task more difficult than liquidating a failed bank. Getting him to speak is like passing a camel through the eye of a needle. Ogunleye, OFR, has come to be known as Mr. Liquidator or better still Mr. Purchase & Assumption, a model currently being used by the corporation to dispose failed banks to stronger banks. With a wealth of experience unparallel in the banking industry, the NDIC under the leadership of Ogunleye is to banks what Ribadu’s EFCC is to corrupt governors.
What informed the establishment of NDIC?
With the adoption of the Structural Adjustment Programme in 1986, it became necessary to have an explicit arrangement for resolution of failures of financial institutions and also for strengthening the financial safety net. It was during this period in 1988 that the NDIC was established. When it was established its primary functions were mainly to insure the deposit liabilities of banks and also to guarantee payments to depositors in the event of suspension of payments or imminent collapse of a financial institution.
What other assistance it provides?
The corporation also provides financial assistance to financial institutions as well as to make input into implementation of monetary and banking policies by the monetary authorities. These were the main functions when NDIC was established. And in the course of insuring financial institutions, NDIC needs to know the state of health of the institutions and therefore the corporation also has powers to supervise our financial institutions that we insured. If for any reason a financial institution can no longer remain in business, NDIC over the years has been appointed liquidator of such institution. The NDIC has taken the contingent liability of resolving financial institutions’ failures away from the government. At the time government was doing it, it was finding resources to meet such obligation. But, because NDIC insured such institutions by the corporation collects premium, which is put into a Deposit Insurance Fund (DIF). The DIF is the main source of meeting obligation in the event of either failure or financial assistance. The NDIC has relieved the Federal Government of that contingent liability.
What would you say have been the achievements of NDIC since establishment?
NDIC’s achievements can also be looked at in terms of its core competence. Like I said earlier we insured financial institutions and in the course of insuring institutions when banks failed we apply to meet our obligations. First, we pay an insured deposit, which is a legal obligation by NDIC, but in the course of liquidation we also realised assets of failed institutions and the proceeds from sale of assets, which are used to pay uninsured deposits by way of liquidation dividend.
What is the position of recovery of depositors’ funds?
I can tell you that presently, 11 banks have declared 100 per cent dividends in favour of depositors, which means full recovery for those depositors. And in some other banks, we have declared dividends as high as 93 per cent. The dividend payment varies from bank to bank in the sense that it depends on how much of assets you are able to realise. But in terms of bank responsibility, the NDIC has been appointed as liquidator of the banks which licences were revoked by the Central bank of Nigeria. Some of the banks have gone to challenge the revocation of their licences by the CBN in courts, but those that we don’t have any constraint with we have made significant progress in resolving their failures. What is remarkable is that NDIC has handled multiple liquidations of banks since 1998. We had 26 banks having their licences revoked in one day in 1998, and also in January 2006, 14 banks had their licences revoked in one day. Those two events will give you 40 banks. The real issue is if we are able to handle multiple liquidations without disruption of the payment system or erosion of public confidence, we have been living up to our mandate of promoting public confidence in the banking system. That is one of the achievements.
How much of the insured deposits has so far been paid?
At least as of now N3.3bn out of the N5.2bn insured deposits of 34 out of the 36 banks that failed before bank consolidation, had been paid, leaving a difference of N1.9bn. Apart from insured deposits, NDIC had declared liquidation dividend to the tune of N10.9bn in favour of uninsured depositors out of which N6.1bn had been paid to uninsured depositors. It is on record that depositors of 11 of the 34 banks have received 100 per cent liquidation dividends, which indicate full recovery of their funds. In some of the other banks, liquidation dividends as much as 90 per cent have been declared in favour of their depositors. However, payments to depositors of Savannah Bank and Peak Merchant Bank that failed in 2002 and 2003, respectively, were suspended due to the lawsuits instituted by the shareholders and directors of the two banks. The owners/directors of the two banks should be held responsible for the agonies of their depositors.
Is there any major crisis from the banking reform?
We have not had any systemic crisis as a result of bank failures. We have powers to supervise banks and because we are supervising banks we have been very professional the way we conduct our affairs. And we maintain a policy of zero tolerance for professional misconduct or unethical behaviour. Through our findings, there have been cases where we have bank’s board members or executive management removed to sanitise the system. Through our efforts some of those banks were able to overcome their difficulties. And I can give you example like National Bank. The bank had its problem over the years and through our own support and assistance it was able to overcome its problem. National Bank today is part of Wema Bank. You have ACB International Bank, which is now part of Spring Bank and you will have New Nigeria Bank and Bank of the North, which are part of Unity Bank. These are some of the banks, which we have assisted to overcome their difficulties. So, our role is just not liquidation. When banks have difficulties the first is to see how best we can assist them to overcome their problems. It is only when such efforts fail that we apply liquidation as last resort.
How many private deposit liabilities you have resolved?
The corporation has resolved the private deposit liabilities of seven failed banks to the tune of N64bn. This was achieved through the corporation’s Purchase and Assumption (P and A) arrangements. The P and A, also known as “cherry-picking”, is a resolution transaction in which a healthy bank acquires some or all the assets of a failed bank and assumes some or all of the liabilities, including all insured deposits.
Do you have new initiatives in this direction?
Apart from those, we are also taking new initiatives. For example, with the failure of these 14 banks after consolidation rather than adopt the pay out approach whereby we just pay insured depositors, we introduced the purchase and assumption resolution method. Through the P&A, like I said, depositors of the failed banks have continued to have access banking services. This ensures confidence and promotes financial stability. Right now in some of the cases that we have concluded, substantial payments have been made to depositors who decided to withdraw their money. But, they have a choice of becoming customers and continue to transacting business. With that respect, Ecobank has paid as much as N15 billion to depositors of Allstates Trust Bank, which it acquired; UBA which acquired Trade Bank paid about N4 billion to the depositors of the acquired bank, while Afribank which acquired Assurance and Lead Banks paid about N2 billion to their depositors. That gives confidence to depositors and there is no cause for panic and anxiety as to how they can have access to their funds. So, these are some of the major achievements of the corporation.
What is the ratio of the resolution?
The resolved private deposit liabilities accounted for 74 per cent of the N84bn private deposit liabilities of the 13 banks, excluding Societe Generale Bank, which had been out of business before December 2005. You should know that CBN guarantee under the bank consolidation programme, covered only private-sector deposits.
What are some of the challenges you face presently?
Although the corporation had been appointed liquidator of 10 of the 14 banks, the lawsuits filed by the shareholders/directors of four out of the 14 banks were frustrating the NDIC from resolving the liabilities of the four banks. Nothing could be done until the cases in court were determined.
Are you on the verge of amending the law that establishes NDIC?
And with regards to our own enabling environment, we also initiated the process of amending our law and we ended up with a new Act, NDIC Act 2006. Under this new Act, some of the problems we have had over the years were addressed. Under 1988 Act, the way the act was drafted the provisions were very rigid. For us to take care of the inadequacies we needed to have the law amended. For example under that, it says premium coverage shall be N50,000. For this to be altered we need to get the law amended. And in regard to the premium, it is already fixed at 15/16 of one per cent. For you to change this, you have to get the law amended. So, such rigid provisions did not give room for opportunity to respond to developments in the financial services industry. Apart from that we also have other provisions. For example, the procedure for appointing NDIC as liquidator is now clearly enshrined in the new NDIC Act 2006. Once licence of a failed bank is revoked, NDIC is authorised to serve as provisional liquidator and we now go to the Federal High Court to seek to be appointed as liquidator. We also have cases of people going to file cases for injunctions and all others, we also have a provision that any motion for injunctive relief will have to be filed at the Court of Appeal for determination. We believe matters would get fairer treatment at the Court of Appeal where you panel of judges. Under the new Act too, NDIC officers and directors will now have legal protection clearly stated in the law. Before then, it was not clearly stated for whatever acts or actions taken by NDIC officers or directors in good faith in the normal course of business.
Banks That Met N25 Billion Minimum Capital Requirement
1.Access Bank
2. Afribank  
3. Diamond Bank 
4. Ecobank
5. Equitorial Trust Bank
6. First City Monument Bank
7. Fidelity Bank
8. First Bank Plc 
9. First Inland Bank
10. Guaranty Trust Bank                        
11. IBTC-Chartered Bank
12. Intercontinental Bank 
13. Nigeria International Bank
14. Oceanic Bank                                                     
15. Platinum Bank
16. Skye Bank
17. Spring Bank
18. Stanbic Bank
19. Standard Chartered Bank
20. United Bank of Africa
21. Sterling Bank 
22. Union Bank
23. Unity Bank
24. Wema Bank  
25.Zenith Bank Plc
14 Failed Banks 
The 14 banks, which failed to realise the N25 billion minimum capital requirements during the consolidation exercise and therefore set for liquidation, include:
1. African Express (Afex) Bank,
2. Allstates Trust Bank,
3. Assurance Bank,
4. City Express Bank,
5. Eagle Bank,
6. Fortune International Bank,
7. Gulf Bank,
8. Hallmark Bank,
9. Lead Bank,
10. Liberty Bank,
11. Metropolitan Bank,
12. Societe Generale Bank of Nigeria,
13. Trade Bank and
14. Triumph Bank.
Failed Banks Acquired by Stronger banks through Purchase & Acquisition 
Ecobank acquired All States Trust Bank and Hallmark Bank
United Bank for Africa (UBA) acquired Trade Bank Plc and City Express Bank
Afribank of Nigeria Plc acquiredAssurance Bank Plc
Other banks taken over are Lead Bank Plc and Metropolitan Bank Plc

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