Nigeria: What NDIC's Doing to Sustain Financial System Stability - MD/CEO

21 October 2019
interview

The Nigeria Deposit Insurance Corporation (NDIC) is celebrating its 30th anniversary this week. Its Managing Director/Chief Executive, Umaru Ibrahim, speaks on the achievements of the corporation, particularly efforts to sustain financial systems stability.

PT: This week the NDIC is celebrating its 30th anniversary. How has the corporation delivered on its mandate to the Nigerian financial system?

IBRAHIM: There is no doubt we have delivered. The anniversary provides an opportunity to look back and trace our journey over time and shine the light on our contribution to the country's financial system stability.

Also, the anniversary provides an excellent opportunity to undertake a comprehensive review of our past legacies; a platform to fine-tune our vision and mission and a privilege to cast a searchlight on the future, particularly the challenges and opportunities.

NDIC was established in March 1989 following the promulgation of Decree No. 22 of 1988, now replaced with NDIC Act 16 of 2006, with the objectives of contributing to financial system stability; protecting of small and less financially sophisticated depositors by providing an orderly means of resolution and compensation in the unlikely event of failure of their insured financial institutions.

The Corporation 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 (CBN) supervisory activities in ensuring a safe and sound banking system.

To give the right impetus to drive its philosophy and operations, the Corporation adopted a propelling vision for itself "To be the best deposit insurer in the world by 2020".

Its mission was: "To protect depositors and contribute to financial system stability 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".

The NDIC was designed as a "risk-minimiser" with the mandate of deposit guarantee, banking supervision, distress resolution and bank Liquidation.

In the last 30 years, we achieved some milestones in the discharge of its mandate to the satisfaction of our stakeholders.

PT: Can you say in specific terms in which areas?

IBRAHIM: In terms of deposit guarantee, our key mandate, we have guaranteed payment of deposits up to a maximum limit in accordance with stipulated statutes in the event of failure of an insured financial institution.

This covers all deposit-taking financial institutions licensed by the CBN. They include Deposit Money Banks (DMBs), Microfinance Banks (MFBs), Primary Mortgage Banks (PMBs), Non-Interest Banks (NIBs) and subscribers of Mobile Money Operators (MMOs).

Today, we provide deposit Insurance cover to 27 DMBs, 918 MFBs, 34 PMBs and two NIBs.

Since inception, we have successfully responded to economic realities and yearnings of depositors by periodically increasing the maximum deposit Insurance coverage every five years in line with global best practice to enhance the confidence of the public in the Nigerian financial system.

Specifically, we have increased the maximum deposit insurance coverage twice, from ₦50,000 per depositor per DMB at inception, to N200,000 in 2006 and N500,000 in 2010.

Also, we have increased the maximum coverage per depositor of PMBs/MFBs from N100,000 in 2006 to N200,000 in 2010, while coverage per depositor per PMB was increased to N500,000 to reflect the increased deposits structure in the sub-sector and to stimulate mortgage savings.

Today, we have paid over ₦8.25 billion as cumulative insured amount to 442,999 depositors of closed DMBs; over ₦2.97 billion to 83,415 depositors of closed MFBs, and over ₦70.53 million to 869 depositors of closed PMBs.

In terms of banking supervision, we collaborated with the CBN to ensure the Institutions remain healthy at all times. Where there are problems, they are detected and addressed promptly. Supervision guarantees stability, integrity, soundness and efficiency in the banking system for the protection of depositors' interest.

Through a combination of on-site examination and off-site surveillance, we have collaborated with the CBN over the years in these areas, resulting in reduced bank examination cycle, enhanced monetary policy, promoted safe and sound banking practices as well as assist in resolving troubled financial Institutions.

Also, we have developed policy frameworks in the areas of risk-based supervision, early warning signals to detect problem banks, identification and measurement of systemically important banks (SIBs) and provision of financial and technical assistance to deserving insured Institutions.

At our inception in 1989, the banking system was already in distress with seven technically insolvent state-owned banks.

We collaborated with the CBN and adopted multiple resolution options, namely the Open Bank Assistance (OBA), Purchase and assumption (P&A), Bridge Bank, and reimbursement (payout) of Insured Depositors, to resolve failures in the system.

Through the P&A system, we resolved problems of 13 banks closed by the CBN in 2006 following their inability to meet the Consolidation/Recapitalization requirement of N25 billion.

The same system was adopted in resolving problems involving banks affected by the global financial crisis of 2009, which manifested in poor asset quality and weak risk management and corporate governance.

We adopted the Bridge Bank mechanism to resolve the failure of Afribank, Spring Bank and BankPHB in 2011. In 2018, the mechanism was also used to resolve the failure of Skye Bank Plc.

Through the bridge bank initiative, we safeguarded 12,667 jobs, protected deposit liabilities of over ₦1.759 trillion which ensured depositors had uninterrupted access to their funds, and prevented the systemic repercussions of the failure of the bank on the entire financial system.

Between 1994 to date, 53 DMBs, 325 MFBs and 51 PMBs were put under liquidation without disruption to the nation's payment system.

To date, cumulatively, over ₦29.112 billion was recovered from debtors of DMBs in-liquidation. ₦129.10 million was realised from debtors of failed MFBs, N300 million from PMBs debtors.

Currently, we collected over ₦21.502 billion from the disposal of physical assets of closed DMBs, while N404.74 million and ₦78.17 million were realized in respect of MFBs and PMBs, respectively.

As at today, our debt collection and assets sales culminated in the payments of over ₦116.258 billion as liquidation dividends to depositors, creditors and shareholders of closed DMBs, MFBs and PMBs.

Through our sustained and diligent liquidation activities, we realised assets to ensure all the depositors of the 17 DMBs (in-liquidation) who came forward to file their claims (both insured and uninsured) have all been paid their monies trapped in those banks.

In response to some contemporary developments in the banking system, we adopted operational models, products and services in our business.

These included an increase in maximum deposit insurance coverage (MDIC) to ensure over 95 per cent of depositors were covered; creation of special insured institutions deposit insurance fund (SIIF) and extension of deposit insurance cover to depositors of MFBs and PMBs in 2006.

Also, we extended cover to depositors of non-interest banks (NIBs) through the framework for non-interest deposit insurance and creation of non-interest deposit insurance fund (NIDIF) for NIBs.

Equally, cover was extended to subscribers of mobile money operators (MMOs) through the pass-through deposit insurance framework; adoption of risk-based supervision in banking examination, and collaboration with CBN to jointly develop the framework on consolidated supervision for DMBs.

We have also regularly carried out assessment of banks financial condition and performance through financial analysis system (FinA); introduction and adoption of differential premium assessment scheme (DPAS) to DMBs and PMBs to strengthen enterprise risk management framework of DMBs, PMBs and MFBs.

We have reduced the premium assessment rate for DMBs from 50 to 40, and further to 35 basis points and 30 basis points for PMBs as contribution for financial stability fund.

Also, we have collaborated with the CBN to fund the establishment of the National Association of MFBs Unified Information Technology (NAMBUIT) for MFBs digital financial services as well as financial institution liquidation management software (FILMS) to enhance liquidation activities.

In the past 30 years, we have maintained a high level of professionalism and excellence in our operations as a result of a series of structural and operational reforms necessary to align our activities with global best practices, to give us the right impetus to realize our mandate.

PT: Reforms appears to be the buzz word of most companies and organisations over the years. Could say how he NDIC fared in this direction?

IBRAHIM: Over the years, we adopted several innovations to enhance internal control and strengthen our processes and procedures.

These includes the sound Risk Management Framework the led to the establishment of Enterprise Risk Management Department; adoption of Sustainable Banking Principles in our operations; Zero-Based budgeting, and many other operational systems in line with international best practices.

In 2011, we articulated a Strategic Plan (2011 - 2015), now being reviewed and replaced with 2016 - 2020 Strategic Plan.

The 5-year plan is designed in line with the Balanced Scorecard Performance Management System aimed at achieving our mandate through four key perspectives, namely: Stakeholders' Satisfaction, Process Improvement, Financial Planning and Organisational Learning and Growth.

The discharge of our mandate has been within the context of this articulated plan, based on four thrusts of operational readiness; a culture of continuous performance management; strategic partnering and collaboration, and promoting public confidence on deposit insurance system (DIS).

Ultimately, the strategic plan guides the setting of corporate objectives and the allocation of resources in the corporation.

In 2017, we were awarded the best performing Ministerial SERVICOM Unit (MSU) in the country, following an assessment of our public service delivery by SERVICOM Office in the Presidency.

Our rejuvenated system and procedure led to three best-practice standards awards to us by the British Standards Institution (BSI) in IT Business: IT Service Management System (ISO 20000), IT Security Management (ISO 2701) and Business Continuity Management (ISO2301) in 2018.

We became the first public institution in the country to be certified with all three ISO certifications simultaneously.

PT: Technology is changing the way an organisation does their businesses. How does NDIC adapt to these changes in its operations?

IBRAHIM: As a dynamic and focused organisation, the NDIC will be collaborating with the CBN and other stakeholders in the implementation of the financial inclusion strategic plan. When we started in 1989, deposit insurance was not extended to micro-finance banks and primary mortgage banks.

But, we know the critical role they played in the development of any economy. But, today NDIC has extended deposit insurance to micro-finance banks as a way of promoting financial inclusion and enhance public confidence in the system.

Again, recently we have subscribers of mobile money operators. NIC has also extended deposit insurance cover to them. We know the role financial technology is playing today. Everybody is operating on one mobile application of the other.

There are people who have not visited banks in the last several months because everything is done online. There is a protection we have brought to them to attract more people on board.

We are ready to protect depositors in the system and ensure the system is safe and sound in view of the critical role they play in the banking system of any nation. That is the picture of our future outlook.

The corporation has also disbursed huge funds to set up National Association of Micro-finance banks Information Technology (NAMBIT).

The idea is that after a study by McKenzie, it was revealed that about 145 million Nigerians do not have access to banking services. But, some of them were patronizing the microfinance banks in the rural areas.

So, the CBN and NDIC said, to make life easy, a plan was put together to allow those MFBs to start issuing ATM cards so that their customers can use POS. the CBN is putting together the NAMBIT platform for microfinance banks. As we speak more than 46 MFBs have been on-boarded on the NAMBIT platform.

PT: What about financial literacy awareness consumers protection and training. What have you done in this direction?

IBRAHIM: In the areas of promoting financial literacy and consumers' protection, we have done a lot.

For example, we published several books, including two storybooks ("The Little Piggy" for Nursery and Primary schools and "The Money Tree" for junior secondary schools).

We adopted the "Catch Them Young" approach in Financial Education to instill the right values, attitudes and perceptions of financial management in children and youth.

Also, we established a 24-Hour Enterprise Help-Desk with the toll free number 080063424357 to facilitate interactions with our stakeholders.

We equally promote our online presence through our website:www.ndic.gov.ng as well as its social media platforms on Facebook, Instagram, Twitter, and Linked-in to further deepen and expand engagement with depositors and other stakeholders in the digital space.

In addition, we introduced DIS Courses in Nigerian Universities in partnership with stakeholders to foster effective working relationship to further enhance depositors and consumers protection in the banking system.

As part of efforts to deepen awareness on deposit insurance to promote financial system stability, we have established a train the trainer programmes in seven universities across Nigeria. They include University of Abuja; Ahmadu Bello University; Bayero University, Kano; University of Lagos; University of Benin; University of Ibadan, and the University of Ife.

We have other similar courses in three other universities, namely University of Port Harcourt, Abubakar Tafewa University, Zaria, and the University of Maiduguri.

Every year, we sponsor capacity building for PMBs and MFBs operators in areas of "Moveable Collaterals", Enterprise Risk Management as well as Assets & Liabilities Management (ALM).

We have continued to be involved in several International Exchange and Cooperation Activities, geared towards effective experience-sharing and capacity building with local and international partners.

We co-founded the International Association of Deposit Insurers (IADI) and serves as the current Chair of IADI's Africa Regional Committee (ARC).

We have also participated in several IADI Executive Council (EXCO) meetings and conferences as well as provide technical assistance to other African deposit insurance agencies.

PT: A Bill for the amendment of the NDIC Act is before the National Assembly. What informed the decision to seek amendment of the law?

IBRAHIM: The NDIC, like any other organisation, has challenges. We are still operating with an Act, which may not anticipate what will happen in view of the dynamic nature of the financial system.

One of these is the protracted legal and litigations by owners of banks. Remedies have been articulated in the Bill before the National Assembly to address some of these challenges. The Bill was with the previous National Assembly, which could not finalise the process for its passage. We hope this current Assembly will be able to do it.

PT: Where are we now on the issues involving the liquidation of Savannah Bank and Societe Generale Bank of Nigeria?

IBRAHIM: The issue of Savannah Bank and Societe Generale Bank of Nigeria have been resolved a long time ago.

Societe Generale Bank of Nigeria is today part of the Heritage Bank. Those who have issues with the bank about their investments should visit Heritage Bank, which took over the bank. It has nothing to do with NDIC.

On Savannah Bank, its operational licence was revoked sometimes in 2002. NDIC went in as the liquidator as part of the liquidation process, and the bank went to court.

The licence of the bank was restored. Since that time, Savannah Bank is a bank with restored licence. But, they have not been able to come back into operation, because of the level of their capital.

As soon as they recapitalise to the tune of the prescribed capital base of N25 billion, they should be in operation. That is the issue that can be resolved between the bank and the CBN. The update is that though Savannah Bank is licensed, it is not currently in operation.

PT: As financial system insurer, how safe would you say the Nigerian banks are at the moment?

IBRAHIM: The banks' examination department, special supervision department for microfinance and primary mortgage banks are all doing their best to support the CBN to ensure stability of the financial system.

Nobody is happy to have bank failure in our financial system. We will continue to do our best to ensure the system is safe and sound. All I can say is that there is no threat whatsoever to depositors funds.

Like I said earlier, about 17 banks that were closed in the past have all been paid their deposits by 100 per cent. We have also paid their liquidation dividend.

PT: What about the impact of virtual currency on our economy, particularly the risk Nigerians are being exposed?

IBRAHIM: On several occasions, the CBN has issued warnings about virtual currency, just like NDIC. Nobody is saying one should not invest in virtual currency, after all its business. But, there is need to be cautious, because we do not provide cover to those investing in the virtual currency space.

To take care of the fear of online transactions, NDIC provides coverage for subscribers of mobile money operations. But, there are some of them that are not under our purview. So, we must warn that not all electronic platforms are banks.

In that case if anything goes wrong, there is nothing the NDIC can do. There are finance houses. NDIC does not provide cover for finance houses. NDIC insures operators of licenced banks.

PT: as you celebrate your 30th anniversary, what do you have to tell Nigerians?

IBRAHIM: As we mark the milestones of the past three decades, we would like to assure stakeholders in the banking system in particular and the economy in general of NDDC's readiness, not only to sustain the high standard recorded, but to raise its bar in line with our core values of honesty, respect fairness, discipline, professionalism, teamwork and passion.

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