Who Is Afraid Of NDIC’s Amendments? | Independent Newspapers Limited
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Letters, Opinion

Who Is Afraid Of NDIC’s Amendments?

Posted: May 11, 2015 at 3:52 am   /   by   /   comments (0)

By Bashir Ibrahim Hassan


The appearance of Nigeria Deposit Insurance Corporation (NDIC) at the public hearing organised by Senate Committee on Banking, Insurance and other Financial Institutions to defend its quest for amendments of its 2006 Act last March has ignited a debate on the pros and cons of the proposed amendment. The debate is welcome in a democratic set up like ours, in that it afforded the Nigerian public the opportunity to know what the amendments were meant to achieve.  It is remarkable that the media is playing a very crucial role in providing the public platform to air these relevant arguments.

However, lately, some members of the anti-amendment camps are increasingly employing lots of spins in their narratives that smack of desperation. 

And one is inclined to ask the question: who is/are afraid of the amendments NDIC is seeking? These are amendments that seek to strengthen the legal framework NDIC urgently needs to adequately protect the depositors of our banks, primary mortgage banks and microfinance institutions.

The issues that compel amendments to the Act are already in the public domain, but since not all members of the public will have the time or access to these amendments some people quickly cash on these weakness to dish out propaganda and twist facts. Therefore, those who believe that depositors need the kind of protection NDIC is proposing have the responsibility to refute the claims and set the facts straight.

Before addressing the misinformation, a brief background on the NDIC is necessary to set the argument in perspective.

It is a known fact that the Corporation was established by the NDIC Decree No. 22 of 1988 (now NDIC Act No. 16 of 2006). Since it commenced operations in 1989, the Corporation has been discharging its mandate creditably in the areas of Deposit Guarantee, Bank Supervision, Failure Resolution and Bank Liquidation.

However, the NDIC has been handicapped in the effective discharge of its mandate by a lack of enforcement powers. For example, major challenges arise from its inability to effect payout when there is a bank liquidation. Consequently, the NDIC presented proposed amendments to its enabling law before the National Assembly to strengthen its capacity to effectively discharge its mandate. The proposed amendments are in line with the International Association of Deposit Insurers’ (IADI) core principles of effective deposit insurance. It is instructive to note that the Corporation has not made any new proposal on its functions or powers but has simply re-echoed what has been its mandate and powers since its inception in 1988. Its concern is to ensure safety, soundness and stability in the banking system.

Now let us look at some of the areas of misconceptions in the various publications to the proposed amendments as follows:

Power to license banks

On the issue of power to issue licences to banks, the publications allege that “the Corporation is requesting that applicants for banking licences should simultaneously submit to the CBN and NDIC their applications for licences to enable the Corporation determine whether or not it will grant Deposit Insurance Status to the bank if and when licensed”.

However, the proposed amendments contain no such proposal. The power to licence banks in Nigeria is strictly within the purview of the Central Bank. However, the Corporation has observed that banks, particularly microfinance banks (MFBs) and primary mortgage banks (PMBs), have closed shop shortly after being licensed and that some of them whose licences were revoked by the CBN could not even be located at their last known addresses after taking away depositors’ funds. Even the promoters could not be traced by both the NDIC and CBN. In practice, therefore, the Corporation is desirous of being involved in the process of licensing the banks, particularly in the area of carrying out “fit and proper persons test” in order to forestall the reoccurrence of events where promoters disappeared with depositors’money.

Power to supervise banks

On the power to supervise banks by the Corporation without reference to the CBN, the Corporation is portrayed as having requested that “the banks be shared between both organisations with each party able to exercise regulatory and supervisory powers over its ‘’ share’’ without reference to the other”.  As a matter of fact, again, there is no such proposal in the amendments proposed by NDIC – indeed, there was no need for such a proposal.  On the power to terminate the insurance status of banks, one of the publications also alleges that “the Corporation seeks power to terminate the deposit insurance status of a bank with a mere notification to the CBN”. The reality is that the power to terminate the insurance status of any licensed bank has been in NDIC’s Act since 1988 and is therefore not a new proposal. However, due to the observation by the CBN with respect to this clause, the Corporation decided to amend that section from ‘’Notification’’ to ‘’Consultations’’ whenever such need arises.

Power to appoint Self as Liquidator

On the power to appoint itself as Liquidator, one of the publications alleges that “subsequent to the power to determine the licence of a bank as detailed above, the Corporation also seeks the power to appoint itself as liquidator of the same institution.” It is pertinent to note that both the CBN and NDIC share responsibility for failure resolution. However, with respect to the appointment of the NDIC as liquidator, it was agreed between the CBN and NDIC that the provision be inserted to cater for situations where insured institutions, such as primary mortgage banks (PMBs) and microfinance banks (MFBs), would have closed shop for long periods and the CBN had not revoked their licences of insured institutions.

Although the provision on appointment of NDIC as Provisional Liquidator had already been tested with the revocation of the operating licences of some MFBs, its effectiveness was very much in doubt, given the experience with the cases of the defunct Fortune and Triumph banks. It would be recalled that the NDIC was appointed provisional liquidator for both banks since 2006 but, nine years later, the NDIC has not been able to carry out liquidation activities, such as the realisation of the closed banks’ assets and subsequent payment of liquidation dividends to the uninsured depositors of the banks involved. That was despite the status of the NDIC as a provisional liquidator of the banks.  It is in this regard that the proposed amendment provided for the appointment of the NDIC as Liquidator simpli cita in order to ensure effective winding-up of the affairs of failed insured institutions.

Curiously the anti-amendment camp and their mouthpieces are not mentioning the following depositor-focus amendment proposals, which will amount to crass naivety to oppose.

i) Expanding Incidence for Payment of Insured Deposits To ensure that deposit pay-out are promptly made to the depositors of insured institutions where the insured institution has suspended payment or is otherwise unable to meet its obligations to depositors rather than wait until the licence of such institution is revoked by the CBN. The aim is to ensure that depositors do not suffer unduly.

ii) The Corporation is proposing an amendment to its Act that will empower it to enforce the recommendations contained in its Examination Reports, thereby strengthening its supervisory capacity. This is to prevent a situation where a bank is examined and the same lapses observed in previous examinations report are repeated due to failure of bank management to implement the earlier recommendations as well as to ensure prompt corrective action is taken on problem banks.

iii) The NDIC as Conservator – The NDIC is empowered through Section 34(a) of the Banks and Other Financial Institutions (BOFIA) Act 1990 (as amended) to assume control of certain category of failing banks. However, the subsisting NDIC Act has no provision stipulating its status under such circumstances. The experience of the NDIC in such matters had shown that its status should be likened to that of a Conservator. Accordingly, a problem bank which NDIC hasassumed control of should be protected from attachment of its assets and the assets of NDIC against the liability of such distressed bank. The status of Conservator should confer on NDIC powers that would enhance its ability to recover debts owed to the distressed bank, protect its assets and effectively manage the bank for the purpose of restructuring and rehabilitation.

iiii) Payment of Insured Deposits even when action Challenging Revocation is pending in Court – The proposed amendment seeks to empower the NDIC to pay insured deposits to depositors of insured institutions whose operating licence has been revoked even when the litigation of the institution’s operating licence or winding up is still pending in court. The proposal aims to reduce the extent to which depositors are subjected to untold hardship anytime erstwhile owners of banks whose operating licences have been revoked take the CBN/NDIC to Court to forestall liquidation of their banks. Section 40(7) of the NDIC Act, meant to address the above problem does not prevent the institution of an application in Court from payment of insured deposits. Rather, it regulates the venue for hearing such applications. Accordingly, under the current practice, once an application is filed and pending determination, payment of the insured deposits cannot be done.

The proposed amendments would enable the NDIC to pay insured deposits,irrespective of such an application pending in court, as payment of insured deposits would be statutorily obligatory. The equitable doctrine of lis pendis would not operate in the face of statutory provisions compelling NDIC to effect such payment. In the event that the licence of the institution is restored, the NDIC would exercise its right of subrogation.

v) Reduction of Pay-out period (Depositors’ Re-imbursement) from 90 days to 30 days. The purpose of this amendment is to guarantee prompt settlement of depositors’ insured sum by reducing the waiting period for payment from 90 days to 30 days. That means that the NDIC is seeking to commence the payment of insured deposits within 30 days.

I cannot see any iota of intent from the foregoing amendment that posits NDIC as seeking to be a parallel or coordinate regulator for banks. Rather these amendments are intended to strengthen the Corporation to play its role as a responsible member of the financial safety-net in Nigeria working with the CBN and other critical stakeholders to ensure the safety, stability and soundness of the financial system.

On a final note, one would like to appeal to the out-going 7th National Assembly to be on the side of history and Nigerian depositors by approving these novel and credible amendments that will keep Nigeria Deposit Insurance Corporation ahead of its peers.


•Hassan, a business development executive wrote in from Abuja