The Nigeria Deposit Insurance Corporation (NDIC) was at the recent public hearing organized by the Senate Committee on Banking and Finance to defend its quest for amendments of its 2006 Act to make it more effective in serving the depositors’ interest. But it met with resistance from an unlikely quarter, the Central Bank of Nigeria (CBN).
The differences that came to the fore at the public hearing between these erstwhile bedfellows of our macroeconomic policies conclave and the dramatic circumstances in which these differences were expressed were not lost on the media, which gave them extensive coverage.
But the drama left in its wake series of questions – What are these differences about? What is at stake? In other words, what section of the law is NDIC asking the National Assembly to amend? Who’s to gain? And who’s to lose from the amendments?
Let’s start with the fears expressed by the CBN at the public hearing. According to media reports, the CBN governor, Godwin Emefiele, speaking through his deputy, Suleiman Barau, said the amendment NDIC is seeking was capable of causing chaos and anarchy in the financial sector, insisting that the implication of the amendment would make the NDIC a parallel or coordinate regulator for banks as CBN.
But in a calmed response to the CBN claim, the managing director of the NDIC, Umaru Ibrahim, said: “We are for collaboration; we are for the safety and soundness of the system. We are not in competition with the CBN.”
So what are these amendments? They are many actually, over 20 – from the mundane to the more serious ones. The mundane ones include correction of editorial errors as well as drafting errors in the extant Act; the need for declaration of public policy objectives; the composition and tenure of the board of directors; and the vacancy of membership and appointment of more executive directors.
The more serious amendments include adequate provision for general reserve fund; prohibition of payment of dividend by insured institutions while in default of assessed premium charges; the right to set off guarantors’ deposits against the claim of the failed bank; payment of insured sums in the event of suspension of payment or imminent difficulty for payment even where operation licence has not been revoked; and the supervision of related entities of insured institutions, particularly under consolidated supervision.
Others are power for immediate action required to conduct special examination by managing director without delay from its board of directors and presentation of examination report to the board of insured bank, prompt corrective action; the corporation as conservator; power of the corporation as liquidator, transfer of pending suits, interest on judgment sum; liability of directors and officers; other parties at fault; criminal prosecution and offences and civil penalty and service of process.
A close look at these operational needs makes one wonder how such needs were not taken care of by the extant laws in the first place. But the point is that man-made laws are made to achieve effectiveness in the regulation and administration of human endeavours and, when over time they become deficient, they need to be amended to achieve the much-sought-after efficiency and effectiveness.
On a further look at these amendments, one can see that they are set to address the expectations of the stakeholders. Depositors look up to the NDIC to offer relief to them when their funds are threatened or trapped in failed or ailing financial institutions. The NDIC demonstrated its ingenuity in 2011 when it introduced the bridge-bank model in failure resolution. The option put the interests of the banking public first, especially the primary depositors, and prevented outright liquidation which would have had systemic consequences on the financial system and undermined or eroded public confidence in the banking system. The corporation took over assets of the critically distressed banks and assumed liabilities in the three bridge banks, namely, Mainstreet Bank Limited, Keystone Bank Limited and Enterprise Bank Limited, to replace the erstwhile Afribank plc, Bank PHB plc and Spring Bank plc, respectively. The CBN subsequently revoked the operating licences of the three banks (i.e., Afribank, Bank PHB and Spring Bank) on August 5, 2011.
The bridge-bank mechanism had a salutary effect on the banking system as it preserved and sustained operations of the three banks in all their branches and allowed over 3.7 million depositors to continue to enjoy banking services in the premises of the affected banks. In the process over 6,000 jobs were saved in the banking system and no depositors lost their funds, a condition hitherto absent in our financial system.
With these kinds of open display of ingenuity in the protection of the interests of the depositors, NDIC deserves all the support it needs from all and sundry to review its laws that will help it address its operational challenges that continue to threaten its ability to discharge its mandate. I do not see any conflict here with the role of CBN. If anything, NDIC is leaving up to its expectation and is demonstrating that it is alive to its mandate as minimizer of risks, and is willing to ask for any assistance – even including amendment of its laws to achieve safety, stability and soundness of the banking system in Nigeria. All responsible monetary institutions in the world are constantly reviewing their laws to plug loopholes that can be exploited by greedy operators.
Some of the amendments that NDIC is seeking are akin to what the US Federal Reserve is doing under Comprehensive Capital Analysis and Review. The review by the Federal Reserve was implemented in the aftermath of the 2008 financial crisis. The review tested US banks’ ability to lend to households and businesses even in times of stress. Banks that failed the tests, which means they have high risks, were forced to suspend dividend payments to shareholders, and international lenders can be prevented from sending their earnings back to their parent companies. These are drastic measures but measures which are needed to protect the depositor.
All banks with more than $50bn in assets in the US are subjected to annual examinations. The 31 lenders tested this year together account for roughly 80 percent of the banking sector. They were all deemed to have enough reserve cash to deal with a shock, but the Federal Reserve found fault with Santander and Deutsche Bank’s financial plans, according to a BBC news report.
In this drama between NDIC’s need to strengthen its legal framework to ensure it performs its function better and the panicky resistance from the CBN for fear of its perceived danger of losing some of its role as apex banker in the country, the interest of the depositor must prevail. The National Assembly will be the ultimate judge. Will it help protect the banking public and the depositor or will it protect some archaic legal frameworks that hinder the operations of other equally important financial regulatory institutions in the country?
The NDIC and the CBN have always cooperated in designing our macroeconomic policies. This cooperation should also focus on protecting the depositors’ interest. After all, the depositors are the lifelines of our banking systems.
Bashir Ibrahim Hassan
