News Column

Strengthening the Nigeria Deposit Insurance Corporation

May 14, 2014



Nume Ekeghe writes on the need to strengthen the Nigeria Deposit Insurance Corporation in order to enhance confidence in the banking system

Globally, the deposit insurance corporation of any country plays an important role of contributing to financial stability and engendering confidence in the system. They always carry this role mostly in conjunction with the central bank.

That is also the situation in Nigeria, where the Nigeria Deposit Insurance Corporation (NDIC) has over the years continued to collaborate with the Central Bank of Nigeria (CBN) in protecting bank customers and also in ensuring the safety of the banking system.

Nevertheless, experts have noted that the proposed amendment of the corporation's enabling Act would provide a robust legal framework that will empower it in the discharge of its responsibilities.

The NDIC Managing Director/Chief Executive, Alhaji Umaru Ibrahim had identified some of the weaknesses in the corporation's Act to include excessive litigations on its role as liquidator of failed banks, lack of proper understanding of the distinction in the legal status of the NDIC as a corporate entity and its role as liquidator, execution of court judgements against the assets of the Corporation for the liabilities of failed banks and difficulties associated with the recovery of judgments on debts owed to failed banks.

Roles of NDIC The primary function of NDIC, is to provide depositors insurance. It also plays the regulatory and supervisory role with the central bank while reporting to the Ministry of Finance.

Furthermore it advises the CBN on liquidation of distressed banks and manages distressed banks' assets until they are fully liquidated. It was recently appointed to manage and liquidate microfinance financed banks whose licences were revoked.

According to the NDIC, in the event of the revocation of the operating licence of a bank or other deposit taking financial institution, "each depositor is insured up to N500, 000 for deposit money banks and N200,000 for micro finance banks/primary mortgage banks."

Securing Depositors To the Head of Research and Intelligence, BGL Securities Limited, Mr. Femi Ademola, the role of the corporation is to secure depositors such that when any bank has any issue, people are able to collect their money back to a large extent.

He however noted that "if you look at the amount of money you can get back if a bank fails, you probably won't be happy, you would feel it is too low.

"What it tells you is that you can actually spread your money across banks. It is too small compared to amount of money made available in the United Kingdom and in the United States. You have to 85,000 and in the US, about $250,000.

"However, because in recent time, we have not had an issue where any bank fails and they cannot collect their deposit so you would say they are doing well."

When asked if it was important to review the maximum payment, Ademola said: "If I would have more than N500,000 in my account in any bank at any point in time and because of that if this bank goes down and out of my money the only thing I am assured of getting back is maybe N500, 000 would it make me happy?

"I'm not sure that amount of money is bad because there must be an amount and formula they use to arrive at the amount of money they would pay as the maximum insurance."

Continuing, he said: "Imagine if Alhaji Aliko Dangote has a personal account in a bank and the bank unfortunately goes down, and you tell him the only thing he can get is N500,000?"

Also, the President, Finance Houses Association of Nigeria (FHAN), Mr. Samuel Durojaiye stressed the need to strengthen the NDIC in order to boost its operations. He however pointed out that with the recent reforms as well as measures taken by the CBN to protect depositors, the probability of a bank going under is low.

Durojaiye added: "The reforms CBN has been turning out in the last few years, I would say that depositors funds are well secured for now and don't forget that the CBN carried out tests and inspections on these banks like every other quarter and they also have resident inspectors monitoring these banks by the instruction of CBN is now risk base.

They also come out with the Basel 1 and 11 capital risk adjustment, where banks are expected to raise their capital as their risk is increasing. So for now I would say the security of depositors funds are well secured in our banks."

Also a senior analyst who preferred to remain anonymous said: "I think giving the stance of the CBN, it is unlikely you would find a bank going under. You should take the example of what happened with the likes of Oceanic, Afribank and all those other banks, what the CBN did was essentially to move all those assets into new entities.

"If we take what CBN has done recently I would say that the risk of a bank being allowed to go under is low or it is not high. Because the view of the CBN is that the industry has to be protected rather than allowing a bank to fail they would try and recapitalise the bank and then offer the bank up for sale."

financial services to all Nigerians, and that is the commitment that was given.

In Standard Bank are committed to making sure that Islamic banking actually succeeds in Nigeria and grows from strength to strength.

Nigeria's muslim population is estimated at half of the country's 160 million people, bringing it to over 200 million muslims when the West African sub-region is included.

One would have expected that non-interest banking, which was introduced in the region, Nigeria inclusive, a couple of years ago would have gained significant traction, but that does not appear to be the case. What could be responsible for the slow uptake of non-interest banking?

I think what is important is that we make sure that we do things right. The central bank did the right thing by laying down very clear ground rules, very clear regulatory standards and very clear criteria for approving any bank to do Islamic banking or non-interest banking.

When the regulator did that, it allowed banks to then apply for getting the license. And with God's help, we are one of the banks, the first bank to get the license. Getting the license was the first step; then you have to make sure that internally we have all the right processes in place.

We have to setup the right structure to supervise in line with Islamic banking; you have to make sure that the products are approved by your board and then approved by the central bank. After that, we had to consult religious leaders and other stakeholders in the Muslim community to give them a sense of what it is that we do.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: AllAfrica