Thirty Years of Deposit Insurance System in Nigeria
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2019 THIRTY YEARS OF DEPOSIT INSURANCE SYSTEM IN NIGERIA Table of Contents PREFACE ........................................................................................................................... 6 CHAPTER ONE ................................................................................................................... 8 CONCEPTS AND PRACTICES OF DEPOSIT INSURANCE .......................................................... 8 CHAPTER TWO .................................................................................................................24 MANDATE AND POWERS OF NDIC ......................................................................................24 CHAPTER THREE...............................................................................................................32 GOVERNANCE AND ADMINISTRATIVE STRUCTURE .............................................................32 CHAPTER FOUR ................................................................................................................40 LEGAL FRAMEWORK AND ISSUES ......................................................................................40 CHAPTER FIVE ..................................................................................................................58 DEPOSIT INSURANCE FUNDING AND FUND MANAGEMENT ..................................................58 CHAPTER SIX ...................................................................................................................69 METHODS OF PREMIUM ASSESSMENT................................................................................69 CHAPTER SEVEN ...............................................................................................................81 DEPOSIT INSURANCE COVERAGE ......................................................................................81 CHAPTER EIGHT ...............................................................................................................86 MOBILE MONEY AND FINANCIAL INCLUSION ......................................................................86 CHAPTER NINE .................................................................................................................95 BANK SUPERVISION ..........................................................................................................95 9.0 INTRODUCTION ......................................................................................................95 9.1 RATIONALE FOR SUPERVISION ...............................................................................95 9.3.3.2 Consolidated Supervision ................................................................................. 104 9.3.3.4 Supervision of Domestic-Systemically Important Banks ................................ 105 CHAPTER TEN ................................................................................................................ 109 BANK DISTRESS & FAILURE RESOLUTION ........................................................................ 109 CHAPTER ELEVEN ........................................................................................................... 134 BANK CONSOLIDATION ................................................................................................... 134 CHAPTER TWELVE .......................................................................................................... 147 INTER-AGENCY COOPERATION AND INTERNATIONAL STRATEGIC ALLIANCES .................... 147 CHAPTER THIRTEEN ....................................................................................................... 159 PUBLIC AWARENESS AND DEPOSIT INSURANCE SCHEME .................................................. 159 CHAPTER FOURTEEN ...................................................................................................... 175 INSTITUTIONAL REFORMS AND CAPACITY BUILDING ....................................................... 175 14.1.1 Changes in the Organizational Structure of the NDIC .................................. 175 Year ............................................................................................................................... 190 Page | 1 No. Of Staff Sponsored .................................................................................................... 190 CHAPTER FIFTEEN .......................................................................................................... 193 COMPLIANCE WITH CORE PRINCIPLES FOR EFFECTIVE DEPOSIT INSURANCE SYSTEMS ..... 193 CHAPTER SIXTEEN .......................................................................................................... 204 CORPORATE SOCIAL RESPONSIBILITY ............................................................................. 204 CHAPTER SEVENTEEN ..................................................................................................... 209 PROSPECTS AND LESSONS FOR THE FUTURE ................................................................... 209 Page | 2 FOREWORD Deposit Insurance Scheme (DIS) is recognized in many jurisdictions as one of the three pillars of financial safety-net in addition to prudential regulation/supervision and a lender of last resort function of the Central Bank of Nigeria (CBN). This is not an exception to Nigeria given the history of bank failure that led to the establishment of the Nigeria Deposit Insurance Corporation (NDIC) in 1989. For the past 30 years, the NDIC had proven to be effective in protecting depositors, contributing to the financial system stability by making incidence of bank ruin less likely and enhancing public confidence by providing orderly mechanism for the resolution of failing and failed banks. / In line with global best practice and also its public policy objectives, the Corporation protects bank depositors in all categories of insured banks. Currently, at the NDIC’s insure deposit coverage limit, more than 95% of all bank depositors in Deposit Money Banks (DMBs) including Non-Interest Banks (NIBs), Primary Mortgage Banks (PMBs) and Microfinance Banks (MFBs) are covered, thereby enhancing confidence in the banking system. The NDIC is also the Resolution Authority for banks in Nigeria. The Corporation has adopted different resolution mechanisms including Purchase and Assumption, Open Bank Assistance, Assisted Mergers and Bridge Bank in ensuring that the resolution of distressed institutions is done in an orderly manner with minimal disruption to the payment system. This has earned the NDIC the confidence of the domestic and global public. In performing its supervisory role, the NDIC continues to enjoy close collaboration with other safety-net participants in the financial sector, especially with the CBN. It should be noted that the NDIC collaborates with the CBN at the apex, strategic and operational levels. The CBN/NDIC Executive Committee on Supervision as the highest decision-making body between the two agencies is active and has been successful in guiding Nigeria’s bank supervisory framework to the highest global standard. Page | 3 The achievements, benefits and limitations of the deposit insurance practice in Nigeria in the last three decades are the focus of the book. To commemorate the 30th Anniversary of the NDIC of its existence and the desire to bridge the knowledge gap on the features, benefits, limitations of deposit insurance practice in Nigeria among the general public spurred the NDIC to document its experiences in this book. The book offers a profound and scholarly master piece for those interested in being aware of insurable deposits, insured institutions, deposit insurance coverage limits, funding structure and bank supervision. It also provide coverage limits, funding structure and bank supervision. It also provide a rich information on reimbursement process, distress resolution and liquidation processes, internal administrative structure, consumer protection, local and international collaboration around DIS practices in Nigeria, as one of the leading DISs in the world. It would also serve as a useful resource for depositors, creditors, debtors and shareholders of banks, mass media, students, researchers, consultants, government and practitioners of deposit insurance locally and abroad. The book is written in simple and clear language. Also its precision, relevance, accuracy and currency of facts presented should appeal to a broad range of the reading public. It is therefore my honor and privilege to present the book for wide readership, this book which sets out the roles and explicit deposit insurance scheme can play in the financial system, particularly in Africa where such schemes are few, and which should assist the public in understanding the roles and constraints of the NDIC, as well as provide valuable information for academic work in this area. In addition, I believe that this publication will fill the gap in the literature on deposit insurance in Nigeria. I must not conclude this FORWARD without giving special commendation to the pioneer members of the Management Team of the NDIC led by the first MD/CEO Mr. John Ebhodaghe of blessed memory. They worked tirelessly Page | 4 with absolute dedication, integrity and commitment to lay a sound foundation on which their successors have faithfully built till date. Chief (Dr.) J. O. Sanusi, CON Governor (1999 -2004) Central Bank of Nigeria. Page | 5 PREFACE The book titled “30 Years of Deposit Insurance System in Nigeria” documents the practice of Deposit Insurance by the NDIC within the last 30 years of its