Emele Onu and Kunle Adeorinokun
30 October 2009
Lagos — The Nigerian Deposit Insurance Corporation (NDIC) yesterday admitted that defects on the part of regulation were partly responsible for the crisis in the banking sector.
The Deputy Director, Research, NDIC, Mr. John Afolabi, made this known yesterday in Kaduna at a workshop for financial correspondents and business editors.
Specifically, he said as an institution, the NDIC carried out its mandate of banks' supervision, but that the recommendations from the supervision were either neglected or their implementation delayed by officials within and outside the NDIC who should take actions on them.
"There is for instance CBN/NDIC joint committee on banking supervision. They have a technical team that reports to them. When action is not taken on an examination report, it does not mean work was not done. It can only lead to some of the problems we are having today," he said.
Afolabi, who delivered a paper on "The Role of Deposit Insurance In Promoting Financial Sector Stability", said the NDIC had a contingency framework against bank distress, "but when we make recommendations, they were not carried out."
He also cited weaknesses in the administration of the Expanded Discount Window (EDW) by the Central Bank of Nigeria (CBN) as contributing to the crisis.
He observed that the conditions for accessing funds by banks under the EWS were not specified.
NDIC, he explained, does not "grant financial assistance to an insolvent financial institution. We don't give money to a bank manager that is already running down his institution. Between the CBN and the NDIC, we know a lot of things that have happened".
Also speaking, the Director, Reaserach, NDIC, Mr. J. Donli, said the regulatory and supervisory environment at the time upon which the NDIC operated affected performance.
"Bank examination can be made to achieve a particular purpose as dictated by the environment. An examination might be targeted. It can be standard or routine examination. The success of an examination might depend on the purpose for which it was ordered. For instance, the recent examination of the 24 banks that specifically targeted liquidity, capital adequacy and corporate governance conditions of the banks," he said.
In his paper on the "Current Banking Sector Develop-ments: Causes, Extent and Lessons", NDIC's Deputy Director, Banking Exami-nation Department, Mr. B. Olajide, also attributed the crisis partly to inadequate supervisory framework, stressing: "One of the lessons learnt is to improve supervisory review process in the exercise of regulatory powers."
He said: "Supervisors and regulators need to adopt risk-based approaches to mitigate inherent risks in banks."
Besides observed internal weaknesses, Afolabi pointed out that the NDIC is still constrained by lack of enabling framework to exercise its mandate.
He cited the case of the establishment of Assets Management Company (AMC), pointing out that NDIC had made a case for it as far back as 2004 but regretted that till date the bill is yet to get to the National Assembly.
The NDIC, he said, had also put a proposal before the National Assembly to empower it to pay depositors of distressed banks in advance even as cases on the banks linger in court, but wondered how long it would take for the NDIC to get the legislative backing.
"The intention is that when the NDIC pays the depositors, the bank can pay back to the NDIC if it comes back. That is better than allow depositors wait endlessly for their money that continues to lose value, while cases hang in the court for a long time," he said.
Donli also pointed out that high level moral hazards that pervaded the financial system made it impossible for post-consolidation banking era to function efficiently.
According to him, "What the country experienced was a crash of the system, without exonerating anybody."
He said banks were defining guidelines from the regulators in the manner it favoured them contrary to the original intentions.
"From day one, some bank managers did not give their buy in to the banking consolidation. After they were forced to consolidate, they continued to play the game their own ways. The same guidelines were exposed to different interpretation by managers of banks. Since the NDIC cannot take over the running or management of these banks, the result is what we have seen today," Donli added.
The CBNâ-àhad on August 14 and October 2 sacked the management of eight banks, appointed new helmsman to run them and injected about N620 billion into these institutions, which lax management among others, had rendered them dangerously undercapitalised.
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