A GOODWILL MESSAGE BY THE ACTING MD/CEO OF NDIC, MR U. IBRAHIM, mni, AT THE CONFERENCE ON "BANKING REFORMS: WHAT NEXT AFTER CBN'S INTERVENTION"
1. It is a great honour and privilege for me to address you at this juncture of this very important conference on “Banking Reforms: What next After CBN’s Intervention”. The importance of this conference can only be appreciated more if we consider the fact that reforms are always difficult to initiate, manage and sustain. Thus, the timely and laudable intervention of the CBN, in the management of the banks in the country should be an issue of serious concern to all stakeholders in the nation’s financial services industry.
2. Although Nigeria has experienced its share of the general global financial crises that started since 2008, it is everybody’s knowledge now that the recent intervention by the CBN/NDIC to salvage some banks in the country from failing has brought to the fore the peculiar crises the country’s banking industry is facing. The imperative of ensuring financial stability through sustaining depositors’ confidence has necessitated a more practical and definite approach to depositors protection in the form of Deposit Insurance Schemes. This realization brings me to our primary mandate of insuring depositors’ fund.
3. In line with our primary objective of promoting stability in the financial system by generally protecting bank deposits, the NDIC particularly protects unsophisticated small depositors more effectively by being their watchdog through supervision of banks and paying fully or substantially, their deposits, in the event of bank failure. While our scheme is not by any means intended to punish large depositors and creditors, this group of depositors/creditors are, by virtue of their significant stakes, expected to take more informed business decisions in their relationship with their banks.
4. The recent global financial crisis has demonstrated the critical role effective systems of deposit insurance play in maintaining public confidence and financial stability, particularly during periods of distress. As we are aware, various measures were adopted by several countries in the world in response to the crisis to strengthen their deposit insurance systems and sustain confidence of the depositors. For instance, as at November, 2009 at least 27 countries had increased their deposit insurance coverage limits while 18 introduced a temporary blanket guarantee to fully protect most depositors.
5. An effective deposit insurance system needs to be based on a number of external elements or preconditions. These preconditions, although mostly outside the direct jurisdiction of the deposit insurance system, have a direct impact on the system. These preconditions include:
a. An ongoing assessment of the economy and banking system;
b. Sound governance of agencies comprising the financial system safety net;
c. Strong prudential regulation and supervision; and
d. A well developed legal framework and accounting and disclosure regime.
6. It is worth noting that since its inception in 1989, the NDIC has worked relentlessly to contribute to the financial system stability in the country and ensure that the payment system has not failed. Its handling of the historic closure of banks in 1998 (licenses of 26 banks were revoked by the CBN) with minimal interruption to the payment system as well as the closure of 13 banks in January 2006 following their inability to meet the prescribed minimum capital of N25 billion all attest to these efforts. It is important to indicate at this juncture that the Corporation, in collaboration with the CBN, adopted, for the first time, the purchase and assumption (P & A) transaction as failure resolution measure for the 13 banks.
7. Given recent developments in the banking industry in the country, which led to CBN’s intervention, and for which reason you organized this conference, we cannot but agree that more need to be done by way of enhancing supervision and boosting depositors’ confidence in order to address the identified problems of weak corporate governance, poor risk management, poor credit policy/administration, insider abuse and greed, among others. On its part, the Corporation has always been forward looking and has already taken some initiatives that would enable it perform better in the light of emerging circumstances. Some of these initiatives include the following:
7.1 Amendment of the NDIC Act
The Corporation has already set in motion the process of reviewing its Act to accommodate provisions that would enhance its effectiveness. Included among the issues being proposed for review by the National Assembly are the granting of independent enforcement powers to the Corporation to deal with erring banks and their directors/ official as well as granting the Corporation powers to pay insured amount to depositors in the event of imminent or actual suspension of payment by an insured institution even before the revocation of its licence.
7.2 Coverage Level and Scope
One of the powerful tools at the disposal of any deposit insurer in contributing to financial system stability is the coverage level and scope. Following the banking consolidation exercise, which was completed in December 2005, the coverage level applicable to depositors of universal banks was increased from N50,000.00 set in 1989 to N200,000 in 2006. In the same vein, deposit insurance coverage was extended to other non-bank deposit-taking financial institutions in 2006 and fixed the coverage level at N100,000. In order to further boost confidence in the nation’s financial system and in view of the developments in the financial services industry and the national economy, the Corporation has set in motion the process of further upward review of its coverage levels as a proactive measure.
With respect to scope, the Corporation is bracing up to the challenge of the imminent introduction of non-interest bearing deposit products through Islamic banking by building capacity in the area of deposit insurance for Islamic banking. In that regard, many staff of the Corporation have benefited from various trainings in the area from other jurisdictions with experience on the field.
7.3 Public Awareness
The Management of the Corporation has taken several initiatives aimed at promoting public awareness of its activities and the existence of a deposit Insurance System (DIS) in Nigeria. To this end, the Corporation has redesigned its Website and made it more comprehensive. The Corporation has also printed and distributed several public awareness booklets, leaflets, and hand bills. Efforts are on to translate the materials into the three major languages in Nigeria, namely, Hausa, Yoruba and Igbo. All these efforts are in addition to various Television and Radio jingles aimed at enlightening depositors.
7.4 Prompt Depositor Reimbursement
Prompt reimbursement of depositors by the deposit insurer has always been emphasized so as to sustain confidence and build trust. The NDIC Act 16 of 2006 set the time frame for depositor reimbursement at ninety (90) days, baring any exogenous factors that could cause further delay. The Corporation is already working on ways to further reduce the number of days within which depositors of failed banks will have access to their trapped funds by requesting for information from banks in specific formats. With the aid of information technology, that will facilitate bank closure, verification process and actual reimbursement.
7.5 Promoting Sound Risk Management
The need for sound risk management in the nation’s financial institutions, particularly after the CBN intervention, cannot be over-emphasized. Sound risk management by banking institutions has been identified as the first line of defence against financial crisis. Although the primary responsibility for sound institutional risk management rests with the boards and senior managements of banks, the safety-net participants, including a deposit insurance agency, have a role to play in promoting sound risk management in financial institutions. In that regard, the Corporation is committed to the promotion of sound risk management through its supervisory activities and through the adoption of differential premium assessment system.
7.5.1 Bank Supervision
The Corporation shares supervisory responsibility with the Central Bank of Nigeria (CBN). Supervision by the NDIC is both on and off-site. Through its supervisory activities, the Corporation has been in the forefront of promoting safe and sound banking practice in the country. Through its examination reports, which usually highlight weaknesses and unethical practices and provide either recommendations or suggest intervention measures for addressing them, the banks have been made to strengthen their operations thereby enhancing their viability. Bank examinations conducted by the Corporation include both routine and target/special examinations, which sometimes are conducted jointly with the CBN as in the case of the Special Examination of 2009 which threw light to the problems in the industry and which informed the CBN intervention. It is worthy of note to mention that the Corporation continues to strengthen its supervisory capacity so as to address challenges posed by the adoption of risk-based supervision and consolidated supervision, amongst others.
7.5.2 Introduction of DPAS
Another way through which the Corporation continues to promote sound risk management in banks is the adoption of differential premium assessment system. Under this system, individual banks pay premium that reflects their respective risk profiles. The Corporation changed from the adoption of a flat rate approach to the adoption of the differential premium assessment system (DPAS) in 2008 in order to introduce fairness in the pricing of deposit insurance and more importantly, to provide incentives for banks to embrace sound risk management. The cumulative effect of the adoption of the DPAS is the reduction of premium payment burden on insured banks.
7.6 Governance
The Corporation has long recognized that in order to ensure the effectiveness of any governing board, which should be the directing mind of the organization, there is the need for its members to be familiar with the operations of the organization as well as challenges confronting it. It was this recognition that informed the organization of an induction course for the new governing board of the Corporation in November 2009. The cardinal objective of the programme was to sensitize the members of the Board on Deposit Insurance issues in relation to NDIC’s operations with a view to enhancing the Board’s effectiveness in its oversight role. The programme also covered some key design features of a deposit insurance scheme and the challenges being faced by the Corporation. In addition, there is the Board Committee on Risk Management.
7.7 Inter-agency Cooperation and Colaboration
Since it commenced operations in 1989, the Corporation has always recognized the need for an effective collaboration between it and other financial safety-net participants. Hence, it has sustained the cordial relationship with the apex regulatory institution in the financial sector, i.e. the Central Bank of Nigeria (CBN). This has been done through planning and scheduling of bank examination, joint deliberation at both the technical and executive committee levels on how to evolve effective regulation of banks and other deposit-taking financial institutions. Similarly, the Corporation has continued to collaborate actively with other members of the Financial Services Regulation Coordinating Committee (FSRCC) like the Security and Exchange Commission (SEC), National Pension Commission (PENCOM) and National Insurance Commission (NAICOM), Nigeria Stock Exchange (NSE) and Federal Ministry of Finance so as to facilitate information sharing and harmonize standards of regulation.
8. With the foregoing, there is no doubt that the Corporation is poised to achieve one of its objectives of contributing to financial system stability. However, the task cannot be achieved solely by the NDIC. I therefore, wish to enjoin all of us present here that all hands must be on deck to rid our financial system of all characters and traits that will constitute threat to its continuous stability. Thank you for your kind attention.