Transparency and accountability is the spinal cord of corporate governance.. Nothing demonstrates how genuine any corporation’s commitment to these tenets than its annual report, in which it presents to the public for scrutiny its scorecard, with a view to building confidence and conveying assurances to the public. The Nigeria Deposit Insurance Corporation (NDIC) is in the lead of league of such corporations with uncompromising commitment to transparency and accountability. The Corporation has since released its 2015 annual report to the public. As usual, the report x-rays the true situation of our financial institutions. And, in doing this, it calls spade a spade.
The importance of the NDIC’s annual report cannot be over emphasized. It is a tool for stock investors to analyse and rate the strengths of their portfolios; to bank depositors it is a barometer to measure the financial status of their banks; and to the policy makers a means to know when to apply appropriate measures to stem any downward slides that can temper with the equilibrium of the financial system of the country.
The NDIC report is blunt where it needs to be; conversely it offers praises where there is appreciate progress; and sounds caution were it is needed. The report is blunt when it reports that out of the 42 primary mortgage banks (PMBs) in operation, a total of 14 failed to render returns to the NDIC. It reports that, as a result, unpaid premiums from nine (9) PMBs amounted to ₦238.30 million in 2015. In the same vein, it frankly reports that the quality of MFB risk assets deteriorated further as the Non-Performing Loans (NPLs) increased to 23.13 percent in 2015, from 18.54 percent in 2014 which exceeded the prudential maximum threshold of 5 percent.”
On the other hand, however, the report praises the rise in shareholders’ funds of the PMBs when it says: “The PMBs shareholders’ funds increased by 93.91 percent to ₦138.92 billion in 2015 from ₦71.64 billion in 2014. The subsector Capital Adequacy Ratio (CAR) was 74.04 percent as at December 2015 which exceeded the prudential threshold of 10 percent.”
The NDIC 2016 reported sounded a cautionary note to shareholders of Microfinance bank that “The unaudited profit before tax for MFBs decreased by 77.63 percent to ₦1.68 billion in 2015, from ₦7.51 billion in 2014. Also, return on assets (ROA) and return on equity (ROE) for the subsector declined from 3.39 percent and 14.70 percent in 2014 to 0.47 percent and 13.74 percent in 2015, respectively.”
In addition to x-raying the true situation of our financial institutions, the NDIC’s annual report also informs the public how it is relieving some of its obligations such payments to depositors of closed banks. The report indicates that the corporation made a cumulative payment of N6.796 billion to 426,324 insured depositors of the closed DMBs as at 31st December, 2015 as against N6.795 billion to 426,320 insured depositors in 2014. Similarly, it made a cumulative payment of N2.86 billion to 81,328 depositors of the closed MFBs as at 31st December, 2015, as against n2.77 billion paid to 80,178 depositors in 2014. Also, the NDIC made a cumulative payment of ₦45.05 million to 595 depositors of closed PMBs as at 31st December, 2015 as against ₦2.02 million paid to 30 depositors in 2014.
The NDIC’s report is a primary source of news of innovative policies the corporation is embarking upon. In the report we learn that the corporation, during the year under review, extended deposit insurance coverage to subscribers of mobile money operators (MMOs) via the concept of pass-through deposit insurance up to a maximum of N500,000. Similarly, we learn that the Corporation reduced the premium paid by banks by N9.09 billion in 2015 following the reduction of the premium-base rate from 40 basis point to 35 for each DMB/NIB under the Differential Premium Assessment System (DPAS).
But the most important aspect of the report is always the section on the risk assessment of the banks carried out usually by NDIC, in collaboration with the Central Bank of Nigeria (CBN). In the report under review the Corporation reports that the two regulatory bodies duly carried out routine risk assessments of all the 24 DMBs while the NDIC alone conducted risk-based examinations of 205 MFBs and 6 (six) PMBs. The examinations were with a view to providing reliable information on their financial health, particularly as it affects the quality of risk assets; adequacy of loan loss provisions; capital adequacy; their level of compliance with banking rules and regulations; risk appetite; and adequacy of risk management frameworks.
It was during such risk assessment exercises that the issue of the non-performing loans and other risk management issues of banks are uncovered and appropriate remedies proffered. The example that readily comes to mind is the recent CBN intervention in the management of Skye Bank due to its high loan exposure which stood at the sum of N700 billion. It was for such a reason that NDIC has been clamouring for more powers to deal with these issues as soon as they are noticed. Part of the Corporation’s proposal for an amendment to its Act is to have the power to enforce the recommendations contained in its Examination Reports, to strengthen 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.
Despite the recent Skye Bank exposure story, the NDIC 2015 report shows that for Deposit Money Banks (DMB), overall total loans and advances rose by 5.56 percent, while capital adequacy ratio stood at 17.66 percent in the period under review, compared with 15.92 percent in 2014, and exceeded the minimum threshold of 10 percent and 15 percent for national and international banks respectively. The DMBs’ total loans and advances to the Nigerian economy stood at N13.33 trillion in 2015, showing an increase of 5.56 percent over the ₦12.63 trillion reported in 2014. The non-performing loans to total loans ratio for the industry increased from 2.81 percent in 2014 to 4.87 percent in 2015, within the regulatory threshold of 5 percent.
On the other hand, the unaudited profit-before-tax (PBT) of the DMBs stood at ₦588.86 billion as at 31st December, 2015 representing a decrease of 2.02 percent over ₦601.02 billion reported as at 31st December, 2014. The decrease is hardly a surprise to anyone, given the contraction of the economy in the last quarter of the 2015.
Overall, the report concludes that “the banking industry remained stable and sound during the period under review.”
Recall that this position was re-echoed by the CBN in the wake of change of management of Skye Bank Plc due to its rising loan exposure.
Bashir Ibrahim Hassan
• Hassan is an Abuja-based business and financial analyst.
