Strengthening Bank Depositors’ Safety Via Review of NDIC Act

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By Edith Ike-Eboh,
(News Agency of Nigeria (NAN)

“My father died few months after the closure of Savannah Bank Plc. in 2001; it was simply because all his life savings were in the bank and nothing was given back to him to enable him to continue his business.
“He had a heart attack and died after some months,’’ says Fidelis Nwankwo.
The plight of Nwankwo’s father aptly typifies the predicament of many other depositors whose lives were negatively affected by the liquidation of certain banks some years ago.
Their dilemma is somewhat compounded by the position of the Nigeria Deposit Insurance Corporation (NDIC) that it could not reimburse aggrieved depositors for the law establishing it would not allow it to do so.
This, among other issues, perhaps, compelled the NDIC to seek a review of the Act establishing it, so as to empower it to effectively protect the depositors’ interests.
The corporation insists that the current developments in the international financial system in general and the Nigerian financial services industry in particular, have necessitated the need to strengthen the supervisory framework of regulatory agencies.
It says that this will enable the agencies to meet contemporary challenges, adding that one of the lessons learnt from the global financial meltdown is the need to introduce greater improved supervision and regulation in the financial services industry.
The Managing Director of the NDIC, Alhaji Umaru Ibrahim, at a recent public hearing, said that the corporation was seeking an amendment of the NDIC Act of 2006 to enable it to have more powers to work effectively.
He said that the corporation’s inability to refund depositors’ funds after a bank’s closure by the Central Bank of Nigeria (CBN) was not due to the lack of funds, adding that it was because of the endless litigations instituted by the owners of the closed banks 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 banks’ owners who incidentally, in most cases, were responsible for the failure of the banks,’’ he said.
Financial experts, however, insist that there were some perceptible mistakes in the drafting of the NDIC Act of 2006 which require a prompt amendment.
Some areas of the Act in which the corporation is seeking amendment include Section (2), which relates to public policy objectives that would help the corporation to work in compliance with international standards and global best practices.
Others are Section 15 (1): the General Reserve Fund to build up a robust Depositors’ Investment Fund (DIF) to enable deposit payout; Section 25 (1): the payment of insured deposits, following inability of insured institutions to meet obligations to its depositors.
Besides, the remaining contentious areas include Section 30 (1): termination of insures status of insured institutions; Section 50 (40): payment of insured deposits, pending action in the court; and Section 52 (10): challenging liquidation of an insured institution.
However, the NDIC is seeking the introduction of new sections in the Act. These include Section 36 (1): the establishment of an insured institution resolution fund to handle distress resolution and Section 47 (1): giving a conservator status to the corporation.
Ibrahim stressed that the proposed amendments aimed at incorporating provisions that would enhance the legal framework put in place for the corporation to effectively carry out liquidation activities with little or no interference from courts, among other challenges.
He, nonetheless, pledged the corporation’s readiness to work in collaboration with the CBN in a sustainable manner.
“This has been the culture, we are not in competition with the CBN; we are here to work together for the growth and development of the banking sector.
“All we are asking for is additional powers to work effectively and we are not competing with the CBN,’’ he said.
Moreover, Alheri Nyako, the former Director of Legal Services in NDIC, said that it was important for the Senate Committee on Banking, Insurance and other Financial Institutions to appreciate certain issues.
He said that the committee should recognise the fact that Nigeria ought to adopt the “risk minimiser model’’ of a deposit insurance system, which was the preferred model globally.
Nyako added that the Act’s amendment would go a long way to ensure the provision of effective services.
He stressed that the NDIC was set up not merely to provide deposit insurance guarantee but to also actively participate in monitoring the wellbeing of its insured institutions
The corporation is also expected to resolve occurrence of distress in order to minimise the risks of failure and thereby, protect the insurance fund.
“What I have seen in the current review is merely the further strengthening of the NDIC’s supervisory powers for greater effectiveness and efficiency; it is not in any way derogating the powers of any other agency,’’ Nyako said.
However, the CBN has opposed the proposed review of the NDIC Act, aiming at giving the corporation more supervisory powers other than what it already has.
Mr Godwin Emefiele, the CBN Governor, kicked against the proposal at a hearing of the Senate Committee on Banking, Insurance and other Financial Institutions on the amendment of the NDIC Act.
He said that if the bill was passed as recommended, it would make the NDIC and the CBN parallel regulators of the country’s banks.
“Following the decision of the NDIC to amend its 2006 Act, the CBN held various meetings to review the proposals so as to ensure consistency with the goals of financial system stability.
“The CBN drew the attention of the NDIC to several objectionable clauses in the proposed amended Act, which at the least sought to confer coordinate functions and powers on the NDIC.
“Specifically, the attention of the corporation was drawn to the implications of the enactment of the Act, as proposed, as it will make the NDIC a parallel/coordinate regulator for banks as CBN.
“It will confer conflicting supervisory functions and powers on NDIC over banks and create overlapping regulatory responsibilities for the corporation,’’ Emefiele said.
The CBN governor, who spoke through Alhaji Suleiman Barau, Deputy CBN Governor (Operations), said that the NDIC wanted to assume power to license banks.
He said that the corporation also sought to assume power to supervise banks without due reference to the CBN, while determining the licences of banks and appointing itself as liquidator.
He stressed that the primary role of the corporation was to insure all deposits, liabilities of licensed banks and other deposit-taking financial institutions operating in Nigeria.
“It was to give assistance to insured institutions in the interest of depositors, in case of imminent or actual financial difficulties where suspension of payments is threatened, so as to avoid damage to the public confidence in the banking system, among others,’’ he said.
Emefiele said that the apex bank specifically objected to some areas of the recommendations on the amendment of the Act.
He said that the areas included Section 3 of the NDIC Act, which sought to undertake the supervision of financial institutions in the country, along with its primary responsibility of providing deposit insurance.
“Our concern is for the mandate of the corporation to be specific in relation to its functions and the reason behind its establishment to be addressed.
“The mandate of the NDIC in the draft bill includes the effective supervision of insured institutions, to reduce the risk of failure and ensure that unsafe and unsound practices are minimised.
“Others include Section 7, Article 2 which seeks the replacement of director of banking supervision with a deputy governor, and Section 32, Articles 5, 6 and 7 on supervision of related entities of insured institutions.
“Section 32, Article 5 empowers the corporation to directly obtain information from the subsidiaries or affiliates or associated companies of an insured institution.
“ Also, Section 32 (6) and 32 (7) further accentuate the power of the corporation over these institutions, including the holding companies, without regard for the specific sector supervisors of the Financial Services Regulation Coordinating Committee,’’ he said.
Emefiele said that the CBN also objected to Section 49 of the draft bill, which empowered the NDIC to appoint itself as liquidator upon the revocation of a bank’s licence by the CBN, among others.
He called on the committee to look into the proposed amendment carefully, in order to ensure that there were no clashes of roles in the sector.
Sharing similar sentiments, Prof. Akpan Ekpo, the Director-General of West African Institute for Financial and Economic Management (WAIFEM), said the amended Act, if enacted, would run contrary to the established responsibilities of the NDIC.
He said that it would also give the corporation the power to license and suspend banks without recourse to the CBN, while determining the licences of banks and appointing itself as a liquidator.
He noted that the proposed functions would overlap with those of the CBN, while negating the functions of the deposit insurers anywhere in the world.
He called for clear delineation of the duties of the two institutions, so as to promote the growth of the national economy.
All the same, many stakeholders observe that the CBN and the NDIC have been having cordial relations over the years, underscoring the need to sustain the relationship in the interest of the financial sector and the national economy.
Malam Kabir Ahmed, the former Director-General of National Pension Commission (PENCOM), said that the CBN and NDIC had been playing complementary roles with regard to banks’ supervision in the past.
He said that founding fathers of the NDIC saw the need for both agencies to always work together in unison, adding that it was imperative for the two institutions to continue to work together in the same vein.
Also, Victor Edozie, a former Deputy CBN Governor, said that banks’ supervision in the country remained the primary duty of the apex bank.
He, however, conceded that the roles of the CBN and the NDIC were quite vital in efforts to ensure the stability of the country’s financial system.
He called on the Senate committee to critically look at the proposed amendment of the NDIC Act, in order to ensure the effective operations of the corporation and the apex bank.
Nevertheless, Mr Bismarck Rewane, an economist, said that it was not necessary for the NDIC to seek additional powers in efforts to improve its service delivery.
“Since there has been an existing collaboration between the two institutions, they should work in the interest of the growth of the sector,’’ he said
Meanwhile, Sen. Bassey Edet Otu, the Chairman of the Senate Committee on Banking, Insurance and other Financial Institutions, has pledged that it would ensure that the NDIC Act, when amended, would not undermine the operations of the NDIC and the CBN.
“What we will do is that we will invite some stakeholders; we will sit with them and get things done in the proper way.
“We will try our best because we need the Act and we will do what we can to ensure the effective existence of the institutions,’’ he said
Observers, however, express the hope that a proper legislation will be put in place to specify the specific roles of the NDIC and the CBN, as part of pragmatic efforts to enable the two agencies to contribute meaningfully to the growth of the nation’s economy.

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