Emphasis on innovation and human resource development has been the hallmark of the two and half decades of the founding of the
It has worked in harmonious partnership with the Central Bank of
The NDIC was established on
Looking back to
Luckily, the NDIC had other countries' experiences to learn from. Czechoslovakia, for example, which was the first country to establish a nationwide deposit scheme in 1924, used the scheme to revitalise the country's banking system after ravages of the First World War. Similarly,
And, as was the case with these countries, the deposit insurance option came to the rescue in
Some of the measures taken by our own NDIC back in the 1990s to save many collapsing banks include moral suasion; continuous interaction with bank managers/owners; imposition of holding actions on distressed banks to restrict operations and encourage self-restructuring; and rendering of financial assistance to banks. In 1989 alone, for example, NDIC in collaboration with the CBN granted facilities to the tune of N2.3 billion to 10 banks with serious liquidity problems.
The takeover of management and control was another set of measures adopted by the NDIC. Between 1991 and 1996, 24 distressed banks were taken over by the NDIC. By the turn of the century acquisition and restructuring saw seven distressed banks handed over to new investors in 1999 and 2000.
These different measures adopted were the manifestation of the innovative grounding of the NDIC. And the most innovative period was the last five years when its current management team came on board, led by Mr.
Most of the measures taken from 2009 till date were quite novel measures in banking failure resolution, including bailouts, bridge banking, establishment of the
The bailout measures were not arbitrary but rather preceded by special audit of the DMBs to ascertain the extent to which they were affected by the financial crisis that engulfed the world in 2008. The special audit report revealed that banks were afflicted by large volumes of non-performing loans (heavily exposed to oil and gas, margin lending), capital erosion, poor risk management, illiquidity and poor corporate governance practices, amongst others. It further revealed that 10 out of the 24 DMBs needed close supervisory monitoring out of which eight, were in precarious financial condition which required serious supervisory intervention. The audit result showed the market shares of the eight banks in precarious financial condition in terms of total assets, deposits, credits and branch network were 30.08 per cent, 30.72 per cent, 52.70 per cent and 40.32 per cent, respectively. The supervisory authorities therefore intervened in eight of the banks with precarious financial condition by sacking their managements and appointing new ones.
To complete the resolution of the situation of eight of the most affected banks, the CBN injected N620 billion into them as loan capital and liquidity support. The apex bank, working with the NDIC, also gave guarantees for all the affected banks' interbank takings and foreign credit obligations. In the end, the eight banks were bailed out and their depositors and shareholder were saved from the deadly depression that such loss causes.
When it became clear that the three banks (
Depositors were protected, thus promoting confidence in the system by ensuring continuity of banking services. Outright liquidation would have had dire consequences on depositors and other stakeholders.
The adoption of innovative option helped to preserve and sustain daily operations in all the 577 branches of the three failing banks, safeguarded 6,667 jobs in the affected banks, and depositors had immediate access to a total deposits of N809.4 billion (U$5.58 billion) as against N130.57 billion (U$842.39 million) insured deposits guaranteed by NDIC. The three bridge banks established and which were acquired, through share subscription, by the
Yet another original idea seen for the first time in
The amount injected (invested) by AMCON had another positive impact. It shored up the affected banks shareholders' funds that were negative and made investment in the banks attractive to investors.
As part of the efforts to meet the resolution cost of restoring financial stability, the FSF was set up by the CBN in collaboration with the banks in 2010. The Fund was to ensure that future bailouts of banks could be achieved with minimum delays and with little demand, if at all, from taxpayers' money. The CBN was to contribute N50 billion annually to the Fund for 10 years while each bank was to contribute 0.4 per cent of its total assets annually for 10 years. The Fund had an initial target of N1.5 trillion (about U$ 10 billion), which has since been increased.
The innovative approaches of the NDIC are lessons the world has been eager to learn. Last year the NDIC managing director,
It is therefore difficult to resist the temptation to salute the courage of its leadership for sticking to the path of innovation. It has been 25 years of modernisation, improvement and originality.
Hassan is associated with NDIC and sent this write-up from
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