Who is afraid of NDIC’s amendments? (1)

The appearance of Nigeria Deposit Insurance Corporation (NDIC) at the public hearing organized 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 setup 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 are 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, unfortunately, some media are being employed to, unwittingly, advance their evidently unhelpful sophistries.

For example, the editorials published in the Monday, March 30, 2015 edition of The Punch (“NDIC law’s contentious amendment”) and the Sunday, April 26, 2015 edition of Leadership (“CBN, NDIC as Sector Regulators”) as well as an opinion article published in the Monday, April 27, 2015 edition of Nigerian Tribune (“Change that set CBN, NDIC on war path”) were quite misleading. These publications conveyed information that stands the truth on its head and clearly aimed to misinform the unsuspecting public. 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 this weakness to dish out propaganda and twist facts. Therefore, those who believe that depositors need the kinds of protection NDIC is proposing have the responsibility to refute the cants 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 ability 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 to the issue. Some of the areas of misconceptions in the various publications to the proposed amendments are 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 license 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 NDIC is portrayed as having requested that “the banks be shared between both organizations 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.

It should be noted that the existing provisions in the NDIC Act, 2006 gave the Corporation powers in Sections 27-31 to examine banks and issue reports and such reports were exchanged between the two institutions. Such was the practice until the assumption of office by the immediate past CBN governor, Sanusi Lamido Sanusi, in 2009, who requested that the NDIC and CBN jointly examine banks and issue joint reports. However, the NDIC was of the view that it should revert to the status quo to maintain its operational independence. And what’s the meaning of its operational independence if it must issue joint reports?

Power to terminate licences of banks

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”.

Bashir Ibrahim Hassan