The Nigerian Deposit Insurance Corporation (NDIC) was established in 1989 mainly to resolve issues resulting from bank distress and failures. As part of activities marking its 25th anniversary, its managing director and chief executive, Alhaji Umaru Ibrahim (mni) spoke with Economic Confidential on successes and challenges the institution has faced over the years.
What is the significance of the 25th anniversary for NDIC?
Anniversaries of organizations just like birthdays of individuals are celebrated not just for the fun of it but are also used as moments of reflection and review of how well the organizations have fared in the discharge their mandates.
It is also an opportunity present NDIC’s scorecard in the last 25 years of its existence as an institution established to manage deposit insurance system in Nigeria.
Our 25th anniversary is indeed a great occasion for us at NDIC, particularly the founding fathers, some of whom are late, the pioneer staff including my humble self and all the staff that are alive to witness this moment of joy. I want to specially remember and pay tribute to the pioneer Chairman of the Board of Directors of the NDIC and also the then Governor of the Central Bank of Nigeria, Alh. Abdulkadir Ahmed of blessed memory under whose leadership the Corporation was established with clear mandate and strong foundation. In the same vein, I also wish to remember the pioneer Managing Director/CEO of NDIC Mr. J. U. Ebhodaghe of blessed memory, who was not only the first staff of this great institution but also served on the committee that designed the type of deposit insurance system we operate in Nigeria. As a result of the wonderful work he and other committee members did the NDIC and indeed the deposit insurance system in Nigeria becomes not only the leader in Africa but also the envy of other countries.
As a pioneer staff, could you give us a brief account of how it all started?
This child called the NDIC was born in March 1989 following the promulgation of Decree No. 22 of 1988 now repealed and replaced with NDIC Act 16 of 2006. Its Vision is to be one of the leading deposit insurers in the world while its mission is 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. It was established to provide a further layer of protection to depositors and complement the role of prudent bank management as well as the Central Bank of Nigeria’s supervisory activities in ensuring a safe and sound banking system.
The NDIC was established as a risk-minimizer with the mandate of deposit guarantee, supervision, distress resolution and bank liquidation. It is worthy of note that under the guidance and leadership of its successive board of directors and executive managements as well as the services rendered by its selfless and dedicated past and present staff, the corporation had in the last 25 years, achieved reasonable degree of success in the discharge of its mandate and satisfaction of the expectations of its stakeholders.
In concrete terms, can you mention some specific achievements of the corporation in terms of its mandates in the last 25 years?
Thank you. In the area of deposit guarantee, which is a key and distinct role of the corporation, NDIC as a deposit insurer 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. The NDIC had successfully responded to economic realities and yearnings of depositors by periodically increasing the coverage levels in order to enhance the confidence of the public in the Nigerian financial system. The maximum deposit insurance coverage was increased from its set level of
N50,000 at inception to N200,000 in 2006 and subsequently to N500,000 and N200,000 in 2010 for DMBs. Deposit insurance was extended to Microfinance Banks/Primary Mortgage Banks in 2006 with a coverage level of N100,000, which was increased to N200,000 in 2010.
The deposit insurance system in Nigeria covers all deposit taking financial institutions licensed by the Central Bank of Nigeria which include Deposit Money Banks (DMBs), Microfinance Banks (MFBs), Primary Mortgage Banks (PMBs) and the recently licensed Non-Interest Bank (NIB) in the country. Accordingly, the NDIC, currently provides deposit insurance cover to the 24 DMBs, 880 MFBs, 77 PMBs and one NIB in operation in the country.
You will also recall the roll out of the Regulatory Framework for Mobile Payments Services in Nigeria which aimed at revolutionizing the Nigerian payment system in tune with global developments as well as facilitating financial inclusion in the country. The development has led to the licensing of 24 Mobile Money Operators (MMOs). In order to engender confidence of the public in subscribing the products of the MMOs, the NDIC has considered as imperative the extension of deposit insurance to the individual subscribers of the MMOs in the form of pass-through deposit insurance. The framework for making the pass-through insurance scheme operational is currently being finalised by the corporation.
In the area of supervision, NDIC collaborates with CBN so as to protect depositors, foster monetary stability, promote an effective and efficient payment system, and promote competition and innovation in the banking system. We have continued to perform this function through off-site and on-site surveillance. Over the years, this has led to a reduction in the examination cycles of banks and it had also facilitated proactive measures taken to address detected aberrations in the system with minimal disruption to the payment system as well as minimal material and resource losses.
The most profound success of the corporation in this area included: the introduction of risk-based supervision framework in the supervisory process, 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 the institution of a framework for the provision of financial and technical assistance to deserving insured institutions to alleviate the constraints of funding faced by MFBs and PMBs, amongst others.
NDIC also partnered the CBN in the development of framework for consolidated supervision and many other frameworks, guidelines and code that help in strengthening of supervisory process in our system.
And in the area of failure resolution, the corporation has continued to ensure that failing and failed institutions are resolved in a timely and cost effective manner. In this regard, the corporation again stood up to challenges as they emerged and took proactive steps which profoundly contributed to the stability of the system and the maintenance of public confidence in the industry. Over the years, NDIC adopted various failure resolution options in addressing the failures of the 48 deposit money banks, 186 microfinance banks and 25 primary mortgage banks that failed in the last 25 years. The options used were: Open Bank Assistance, Deposit Payout, Purchase and Assumption, and Bridge Bank. Of these options, Bridge Bank was the latest used by the NDIC. It is a novel approach to failure resolution, where three Bridge Banks were established to take-over the assets and they assume the liabilities of three distressed banks, namely: Afribank (now Mainstreet), Bank PHB (now Keystone) and Spring Bank (now Enterprise). The positive impact of that feat need not be over-emphasized as jobs were saved and no depositor lost money, amongst other benefits.
The corporation appears to have done much but is that all?
No of course not! Another contribution to failure resolution by the NDIC is in its contribution to the Financial Stability Fund by the downward review of premium payable by banks through a reduction of the assessment rate from 50 to 40 and further to 35 basis points. That was done to encourage banks in their contribution to the Financial Stability Fund and reduce the cost of funds by deposit money banks.
Significantly, we also successfully released the funds and branches of Savannah Bank plc following the restoration of its banking license. The bank’s funds and branches had been held by the corporation on behalf of the bank after its closure to enable the bank reopen its business and meet obligations to its depositors. The sum of US$1,069,439.00 and ₦280,492,024.27 as well as their branches were released to Savannah Bank in 2012.
Many customers of liquidated banks complain that they have not been able to get their trapped deposits many years after. Why is this?
The corporation has a lot of achievements in ensuring that depositors of liquidated banks suffer as little loss or pain as possible. Following the revocation of the operating licences of insured DMBs in 1994, 1995, 1998, 2000, 2003 and 2006, as well as the 103 MFBs in 2010, 83 in 2013 and 26 PMBs, the NDIC ensured the prompt payment of insured sums and dividends to uninsured depositors and other eligible claimants. A cumulative amount of ₦6.825 billion was paid to 528,277 insured depositors of the 48 DMBs in-liquidation as at August 31, 2014. While for the 186 closed MFBs, the cumulative amount of N2.756 billion had been paid to 80,059 verified depositors as at 31st August, 2014.
The corporation also introduced the use of agent banks for payments to claimants to ensure that pay-out processes are further eased and periods shortened.Reconciliation of accounts of liquidated banks are undertaken monthly, to serve as internal control and ensure that funds of liquidated banks are accounted for by each bank.
Still on failed banks issue, does it mean that once a bank fails its debtors are automatically left off the hook?
No, the system does not work that way. In order to provide up to date information to stakeholders in the financial services sector, particularly sister regulatory agencies, the board and management approved the development of an electronic database on debtors of failed banks. The database is regularly updated by the relevant departments to enable the Insurance and Surveillance Department (ISD) respond to status enquiry requests by other regulatory agencies like Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), National Pension Commission (Pencom), Corporate Affairs Commission (CAC), etc. Further to the processes put in place, and in order to remove the complexities in the debt recovery process, which had hindered improvements in the recovery of debts owed to failed banks, the board approved a revised Debt Recovery Policy which decentralized the approval of debt waivers by establishing appropriate limits to be considered by the Board, Management and the newly established Debt Recovery Committee respectively.
Following the approval of the Board in 2010 for the appointment of Debt Recovery Agents to recover debts owed to DMBs in-liquidation, 91 accounts were assigned to 60 Debt Recovery Agents, while 81 Micro-Finance Banks were assigned to 46 Debt Recovery Agents. Also, as part of efforts to realize the assets of failed financial institutions under liquidation, the sale of some delinquent bank loans to AMCON in order to clean up the balance sheets and settle depositors of the affected failed institutions was approved and undertaken.
There has also been the establishment of a Special Purpose Vehicle (SPV) to assume the assets and arrange for their disposal on behalf of the NDIC. It is pertinent to state that arrangements for the incorporation of the SPV have reached advanced stage.
There are also other stakeholders like uninsured depositors, creditors and shareholders. What happens to them after a bank is liquidated?
The payment of liquidation dividends to the uninsured depositors of the closed DMBs was undertaken at different times in the last 25 years of NDIC’s engagement as a liquidator of banks in Nigeria. The cumulative sum of
N93.646 billion was paid as liquidation dividend to 250,497 depositors as at August 31, 2014. It is gratifying to note that the NDIC had declared a final dividend of 100 percent of total deposits in respect of 14 closed banks as at December 2013, indicating that all depositors (insured and uninsured) in those banks had fully recovered their deposits. Furthermore, the sum of N1,728.4 million was declared as dividends to 699 creditors of the nine banks. Out of that amount, the NDIC had paid the sum of N1,191.54 million to 424 creditors who filed their claims as at August 31, 2014. Similarly, the corporation paid liquidation dividend to 453 shareholders of Alpha, Pan African and Nigeria Merchant Bank, which stood at ₦2.031 billion as at 31stAugust, 2014.
In order to enhance the liquidation process, the NDIC developed a software called Financial Institution Liquidation Management Software (FILMS). The software is currently being enhanced to make it web enabled.
Would you say the press has been a partner in progress?
Yes. I want to commend the Nigerian media for their commitment and interest in identifying with the Corporation especially in its drive towards consumer protection and ensuring the stability of the banking system in Nigeria.
How have you engaged the media in your public enlightenment strategies?
The Corporation had engaged in serious media broadcast of some key activities and programmes for effective communication and dissemination of information on its programmes. These included various newspaper publications calling on debtors of closed banks to settle their indebtedness, the appointment of debt recovery agents and agent banks, payment of liquidation dividends and disposal of assets of banks in-liquidation, among others.
Are the board and management of NDIC satisfied with the image and projection of the corporation in the eyes and mind of the public or are there efforts to improve on it?
Our survey indicates that the Nigerian public holds us in high esteem but we are still desirous of improving on this. It is in light of this that the corporation recently embarked on rebranding project. The rebranding was part of the board and management’s initiatives intended to make the NDIC more responsive in the discharge of its mandate and in tune with global best practices. The rebranding strategy was also a deliberate effort to stamp in the minds of all its stakeholders the distinct identity of the corporation through the strap line on its new logo: “Protecting your bank deposits”. The rebranding was to enhance our service delivery in order to achieve the NDIC’s vision of being among the leading deposit insurers in the world. In that regard, the NDIC evolved new core values with an acronym HRDPP (Honesty, Respect and Fairness, Discipline, Professionalism & Team Work and Passion) in order to achieve the desired objectives. Furthermore, the corporation organised a town-hall meeting to sensitise internal stakeholders on the essence of the new brand and launched a new corporate identity in October 2013 pledging its renewed commitment to efficient service delivery.
Some people will actually conclude by this testimony that NDIC has indeed gone a long way in realising the objectives of its founding fathers. What tools have been deployed in attaining these successes?
Over the years, the corporation embarked on aggressive human capacity development through re-positioning of the Human Resource Department, establishment of a training school, quality recruitments, getting technical assistance from the United States Department of Treasury and embarking on capacity building for operators of MFBs and PMBs.
In addition, NDIC created a Non-Interest Deposit Insurance Fund (NIDIF) for non-interest banks; adopted the Concept of Target Fund Ratio to ascertain the adequacy of its funds to meet its obligations when they crystallize; and continued public awareness initiatives including the printing of NDIC stickers, which are now pasted at conspicuous entry points in all insured financial institutions across the country. We also printed public awareness materials, which are translated into the three major Nigerian languages and distributed them across the six geo-political zones in the country; while also sponsoring television and radio programmes tagged NDIC Calling.
The corporation has conduct various research studies and projects aimed at gathering information, proffering solutions or sharing knowledge on certain issues and developments in the financial services sector and the economy as a whole.
How can poor depositors get in touch with NDIC especially those living in towns and villages far from your branches?
The realisation that it is not every stakeholders that can have direct access to our offices made us to establishment a robust 24-hour Help Desk kitted with Toll Free line 0800063424357. It was part of the initiatives to promote protection of depositors and other stakeholders. Help Desks were set up in the head office and relevant departments in our Lagos Office, namely Bank Examination and Special Insured Institutions Departments. The Help Desks had been receiving calls and emails from depositors and the general public on complaints and clarification of issues relating to insured institutions and closed DMBs, MFBs and PMBs.
NDIC is a government owned institution and so may not be bothered with giving back to the society or are you?
On the contrary, NDIC despite being a public owned institution is fully aware of its social responsibility and has always given back to society. In discharging our Corporate Social Responsibility, the corporation has supported various projects through granting of financial assistance to several educational institutions in the country to improve their learning facilities. The corporation also made donations to victims of natural disaster and violence in the country, as well as sponsorship of sporting activities across the country to promote and develop sports at the grassroots.
It appears that the corporation is always having a smooth sail in the discharge of its functions. Are you sometimes confronted with challenges?
Now, let me indicate that, despite these achievements, the corporation faces a lot of challenges in the areas of liquidation activities, legal and judicial process and inadequate public awareness.
In liquidation activities, our staff sometimes are unable to locate some of the closed PMBs whose licenses were revoked by CBN. We also suffer debits to the corporation’s account with the CBN on account of Garnishee Order, Nisi, served on CBN. Work is also bogged down by litigations from erstwhile shareholders of closed banks and creditors of the closed banks. And quite often, MFBs render unsatisfactory returns.
It is also of note that there exist a lot of delays in the legal and judicial process in relation to failed banks cases. Up to date, Peak Merchant Bank one of the 36 banks closed between 1994 and 2003 (and) is still contesting the withdrawal of its licence in court while Savannah Bank is yet to resume operation after court had passed judgement in its favour, hence innocent depositors of the two banks could not have access to their trapped funds.
It is also regrettable to say that despite concerted efforts, awareness about the corporation’s activities remains. A recent survey on public awareness commissioned by the corporation, which is carried out at two-year interval indicated that the level of awareness was about 40 percent.