CBN, NDIC differ over new banks regulation

Ike was an international businessman. On Friday, February 12, 2002 he had deposited N1 billion for his consignment. His business partner in China was expected to send the goods on receipt of the payment.

But on Monday, February 15, 2002, his bank’s licence was withdrawn and his business partner did not get the payment for the goods and did not send them.

When Ike heard that he had lost both his goods and money, he fainted and he was revived in the hospital.  However, his recovery was temporary as he died of heart attack two months after. That was the end of a 45-year-old businessman whose community had looked up to, to liberate them from poverty.

Yemisi Olalekan retired from one of the federal government agencies and her severance benefits were taken to one of the failed banks.

As a widow with three children, she was still contemplating how to complete the house her husband was building before he died. She was also planning how to set up a business so that she could continue to cater for the children. But the next thing she heard was that her bank’s licence had been withdrawn. Of course, Yemisi did not live to achieve any of these dreams.
These two scenarios might not have been the only examples of the adverse effects of bank failures in Nigeria.  There are many others their like them almost a million Nigerians have faced.

Beside Savannah Bank its depositors are still languishing in penury for the ‘sin’ of depositing their money in the bank, there are other banks in liquidation. They are the Peak Merchant Bank, Fortune Bank, African International Bank and Societe Generale Bank of Nigeria (SGBN). There are many Micro-Finance Banks in liquidation whose depositors have either died or were rendered useless for just being bank depositors.

These harrowing experiences have made it difficult for many Nigerians to buy into the campaign for financial inclusion which is a step by the financial regulators to bring everybody into the financial system.

Against this history of bad tales, the Nigeria Deposit Insurance Corporation (NDIC) had sponsored a bill for the repeal of the NDIC 2006 Act and re-enactment of NDIC 2015 Bill.

In the bill, NDIC seeks to strengthen its supervisory framework in view of current developments in the financial system in general and the Nigerian financial services industry in particular.
According to the memorandum to the Senate Committee on Banking, Insurance and Other Financial Institutions, NDIC cited the recent bank closures where the corporation was unable to refund depositors’ fund trapped in them.

“The inability to refund depositors’ fund was not because there was no money to pay but because the owners of the closed banks had instituted endless litigation against the regulatory authorities. This underscores the need for more effective legislative powers to facilitate the prompt settlement of depositors’ funds, irrespective of the litigations filed by the erstwhile owners who incidentally in most cases were responsible for the failures of the banks,” the memorandum, said.

Furthermore, what informed the proposed amendments to the NDIC 2006 Act were the challenges and constraints facing the corporation in carrying out its duties promptly.

“The Act would also enable the corporation to be more effective and efficient in carrying out its mandate of promoting safe and sound banking practices, protecting depositors through effective supervision of insured financial institutions, prompt payment of guaranteed sums and orderly resolution of failed insured financial institutions and thus engender public confidence in the banking system,” the corporation, said.

Part of the highlights of the proposed amendments include its public policy objective which is the protection of the small, uninformed and less financially sophisticated depositors; contribution to financial system stability and enhancement of public confidence and systemic stability.
The core functions of the NDIC since its establishment in 1989 being deposit guarantee, banking supervision, distress resolution and failed bank liquidation has been encapsulated in the proposed amendments on its mandate.

However, the point of crystallization of the obligation to pay insured deposits in the extant Act is when there is imminent or actual suspension of payments by insured institutions. The proposed amendment seeks to include revocation of operating licence of insured institutions as an additional point of crystallization of the obligation to pay insured deposits and delete the reference to imminent suspension of payments by insured institutions.

On the general reserve fund, NDIC says it is entirely funded by the income from premium derived from insured financial institutions which are private sector entities.

“It is very necessary for the corporation to build a robust reserve fund which will serve as a buffer for deposit money banks, microfinance banks and primary mortgage institutions,” the corporations said.

On the payment of dividends by insured institutions while in default of assessment, NDIC is asking for additional sanctions for violators of this provision to include, removal from office after consultation with CBN, in order to serve as sufficient deterrent.

Besides, the corporation is seeking for the establishment of Insured Institution Resolution Fund that would be used to address distress on a going concern basis.
However, the Banks and Other Financial Institutions Act (BOFIA) has provision empowering the corporation to assume control  of certain category of failing banks but the NDIC Act has no provision stipulating the status of the corporation in such circumstances.

“The corporation’s status should be likened to that of a conservator. Accordingly, a bank which the corporation has assumed control of should be protected from attachment of its assets to assist the corporation restructure the bank successfully. In addition, there is need to prohibit attachment on assets of the corporation for liability of a failed bank because the corporation is acting as conservator of such bank,” the bill said.

NDIC also wants an Act which would empower it to pay insured deposits when a bank has ceased to pay depositors and also to pay depositors when a case is pending in court.

However, these intentions were misunderstood by the Central Bank of Nigeria (CBN) that thought that the NDIC was on a move to usurp its powers.

So, in the public hearing, on Monday March 9, CBN had paraded an array of former and present deputy governors, as well as retired directors to the public hearing.

The Deputy Governors present were Mallam Suleiman Barau, Chief Victor Odozi, Mr. Tunde Lemo, Mr. Adebayo Adelabu and Dr O. J. Nnanna while the NDIC paraded the former PenCom Director General, Alhaji Ahmed Mohammad, former Managing Director of NDIC, Mr. Ganiyu Ogunleye, Chairman of NDIC, Wakili Adamawa, Ambassador Hassan Adamu, former Director of NDIC, Professor Peter Umoh, a former Director, Erediuwa Aghatise and Barrister Elema Taribo.

It was a full house as both parties sat on both sides of the hall together with other stakeholders in the economy and the representative of the Finance Ministry.

Bismark Rewane who is a stakeholder said that he was fully behind the seamless resolution of the conflict without turning the hand of the clock backward
Managing Director of NDIC, Alhaji Umaru Ibrahim in his submission, said the powers sought were intended to strengthen the deposit insurance mandate of the corporation. For instance, he said the power the corporation was seeking as a liquidator was meant to help depositors of failed banks to recover their trapped money on time.

Looking back in time, the NDIC boss said directors of failed banks had in the past gone to court to seek interlocutory injunctions, thereby preventing the NDIC from taking over the bank and so delaying payments to depositors in these failed institutions.

“We will continue to work together. We are for collaboration and we are not in competition with the CBN. But we will cherish our operational independence. There are a few things we have to resolve. All we are doing is to add value to the financial services regulation. As our law provides, we have the mandate to regulate independently. But after the 2008 financial meltdown, Lamido Sanusi, the then CBN Governor called us to have a collaboration with CBN,” he said.

But the  CBN Governor now, Mr Godwin Emefiele, who was represented by the Deputy Governor, Suleiman Barau, stated some offensive clauses in the proposed Bill, and said that the requested amendments, if allowed to sail through would make the NDIC a parallel/co-ordinate regulator for banks.

After all the postulations from different stakeholders, the chairman of the Senate Committee on Banking and Finance, Senator Bassey Edet Otu, promised that while the senate will not whittle down the powers of the CBN, it will  at the same time, not allow depositors to suffer and  die because of no fault of theirs. If that is allowed, he said, the industry will not be fair to them.

He, therefore, said that statesmen will be consulted and a decision would be reached quickly to resolve the issue.

However, the Senate, he warned that it will not allow useless ex parte orders to delay the payment of depositors because the bill has a lot of human angles.