Insured Banks, Which the Reading Public May Find Useful

Chairman’s Statement

It is with great pleasure and delight that I present the Corporation’s Annual

Report and Statement of Accounts for the year ended December 31, 2005.

The report reviews developments in the banking industry, highlights the activities of the Corporation during the year under review and provides information on insured banks, which the reading public may find useful.

Macroeconomic Environment in 2002005555

For the second year running the overall performance of the economy was quite promising in spite of pockets of socio-economic and political problems both from within and external. Provisional figures showed that GDP growth was robust at about the same level of 6% attained in 2004. The provisional figures for non-oil GDP growth in 2005 was 8.2% higher than the target of

7.0 per cent in the National Economic Empowerment and Development

Strategy (NEEDS). In the last quarter of 2005, non-food prices or core

1 inflation remained at single digit; anchored at 8.8% as at the end of

December 2005 though the rate of inflation as at the same time on a year- on-year basis was estimated at 11.9%.

Similarly, provisional data showed that the growth in some components of monetary aggregates were within the targets for the period whilst some were slightly above target. For instance, whilst M1 rose by 10.9 per cent compared with the target of 11.4per cent for fiscal 2005, M2 increased by 16.1per cent, a little above the set target of 15.0 per cent. The moderation in monetary aggregates also reflected in the decrease in credit to the economy.

Aggregate bank credit to the domestic economy (net) grew by 14.5 per cent, compared with the growth target of 22.5 per cent for fiscal 2005.

Compared with previous years, interest rates on different classes of deposits experienced a downward trend in 2005. That was due to the government efforts to curtail excessive pricing of bank deposits, which had negative influence on the lending rates. The downward trend was also reflected in the rate payable on government securities. During the year, especially between

2 June and December, rates on Treasury Bills crashed to a level never witnessed in the system since the commencement of deregulation in the late

1980s. That had profound influence on other deposit rates as well as the prime lending rate. Average rate on savings deposits which hovered around

4.9% at the beginning of the year decreased to 4.3%, while average rate on

3-month tenored deposits declined by 3.4 percentage points from 14.4% in

January to 11% by December, 2005. Prime lending rate also declined gradually from 19.2 per cent for greater part of the year to 17 per cent as at the end of 2005.

During the year, the exchange rate remained stable and within the projected band of plus or minus 3% around the central rate. In the Dutch Auction

System (DAS) the exchange rate appreciated from N132.9/US$1 at the beginning of 2005 to N129.1/US$1 at end of December, depicting an appreciation of 2.9% during the period. The stability of the exchange rate during the year could be attributed to the relative stability in the nation’s macro-economy, the fiscal discipline exercised by the government coupled with a consistent tight monetary policy. However, in the other segments of

3 the foreign exchange market - Bureau de Change and parallel market, the

Naira depreciated slightly during the year. At the Bureau de Change, the naira exchange rate anchored around x139.1 to a dollar at the beginning of the year but depreciated to x143.3 to a dollar as at December, 2005 depicting about 1.86% depreciation. In the parallel market, the range was between x138.4 and x143.6 to a dollar during the year depicting a depreciation of about 1.86%.

Undoubtedly, a key achievement of the economic reform in fiscal year 2005 was the successful negotiation to shed the country’s US$30 billion Paris Club debt burden through an unprecedented debt write-off of about US$18 billion by the Paris Club. The arrears of about US$6 billion was to be paid while the country was to apply debt buy-back to the balance in order to completely exit from the club. During the year under review, there was a sustained accretion to reserves resulting in the stock of external reserves of US$28.3 billion as at the end of December. That level of reserves was sufficient to finance 18.4 months of foreign exchange disbursement. Beyond increase in the price of crude oil in the international market, prudent exchange rate management and

4 fiscal restraints on the part of government were also contributory factors to the accretion to external reserves.

The Banking Environment

The environment in which banks operated in 2005 was shaped, significantly, by the Banking Consolidation Programme initiated by the Central Bank of

Nigeria (CBN) in July 2004, the amendment to the Monetary, Credit, Foreign

Trade and Exchange Rate Policy Guidelines for Fiscal year 2004/2005, the fiscal regimes operated by all tiers of government.

Under the recapitalization and consolidation exercise in the industry, each licensed bank was expected to meet up with the new minimum capitalization requirement of =N=25 billion on a solo basis or achieve that either through merger with others or acquisition of/by others. Throughout the year, several

Memoranda of Understanding (MOU) were signed by different groups of banks. Whilst some MOU resulted in fruitful amalgamations, others did not.

As at the end of December 2005, twenty-five (25) consolidated banks emerged from seventy-five (75) banks out of the eighty-nine (89) banks that

5 existed as at December 31, 2004. The remaining fourteen (14) banks, which had negative shareholders’ funds and could not find merger partners/acquirers were receiving special supervisory attention.

Against this background, the performance indicators of the industry reflected a mixed fortune. The total assets of insured banks grew by over 34 per cent in 2005 compared to that of 2004, while total deposits liabilities of the industry grew by 36.1 percent within the same period. The growth rate of deposits was higher than the rate attained between 2003 and 2004 by 7.9 percentage points. However, the contribution of the banking industry to the economy reduced significantly during the period under consideration as depicted by the ratios of banks’ total assets and that of total deposits to

Gross Domestic Product (GDP). Whilst the former decreased by 17 percentage points from the 2004 level of 47.3 per cent to 30.3 per cent in

2005, the latter reduced by 4.6 percentage points from 21.6 per cent in

2004 to 16.6 per cent in 2005. This could well be attributed to the temporary uncertainty occasioned by the frenzied atmosphere created for most of the banks by the consolidation processes.

However, the overall financial condition of insured banks improved in 2005 relative to 2004. The adjusted shareholders fund increased from x289.83 billion to x682.13 billion between December 2004 and December 2005 mainly due to the new requirement of increased capitalisation by each bank.

Similarly, capital adequacy improved as capital to risk weighted asset ratio rose from 13.16% to 21.25% during the period. In addition, the industry’s ratio of non-performing credit to total credit decreased from 23.08% to 20.13% while the average liquidity ratio increased from 50.44% to 60.60% within the year. Despite the improvement in their financial condition, the earnings performance of insured banks declined marginally in 2005 as their un-audited profit before tax fell from x88.60 billion in 2004 to x81.63 billion in 2005.

Inauguration of TTThe The Board of Directors AAAnd And Operational AAActivities Activities of the Corporation

A new Board of Directors of the Corporation was inaugurated by the

Honourable Minister of Finance, Dr (Mrs) Ngozi Okonjo-Iweala, during the

7 year. The Board which I have the honour of presiding as Chairman, included the Managing Director and Chief Executive officer of the Corporation and the two Executive Directors. Others are five (5) Directors including one representative each of the Federal Ministry of Finance and the Central Bank of Nigeria (CBN). The Board had since settled down to tackling the challenges facing the Corporation. I am confident that the members of the

Board will bring their wealth of experience to bear on the work of the

Corporation.

There was no bank closure in 2005. Accordingly, the Corporation continued with the liquidation activities of the 34 failed banks earlier closed between

1994 and 2000. As at the end of 2005, the Corporation had paid about

N3.3 billion out of N5.2 billion total insured deposits of the closed banks-in- liquidation.

The Corporation also declared an aggregate dividend of N10.96 billion for 32 of the 34 banks in liquidation out of which N5.96 billion or 54.38% was paid out to uninsured depositors. So far, 100% dividend had been declared for 10

8 out of the 34 banks-in-liquidation, indicating that all the affected depositors would fully recover their trapped deposits in the affected banks. Similarly, liquidation dividend ranging from 5% to 96% had been declared in favour of the uninsured depositors of 22 other closed banks. This remarkable achievement had no doubt shored up public confidence in the nation’s banking system. However, the liquidation exercise was still bedeviled by slow depositors’ response. To this end, the Corporation would continue with its aggressive public awareness campaign to further sensitize the affected depositors.

In pursuance of the Corporations desire to enhance its public image and promote awareness, the Corporation successfully organized the ‘’First

Depositor Protection Awareness Week’’ that also coincided with its 16 th year anniversary in 2005. The International Association of Deposit Insurers (IADI), of which the Corporation is a founding member and current Chair of the

Africa Regional Committee, identified public awareness as one of the critical success factors for the effective implementation of Deposit Insurance Systems

(DIS) worldwide. It, therefore, requested its members to dedicate the Week

9 of its Annual General Meeting and conference as Depositor Protection

Awareness Week (DPAW). It also afforded the Corporation an opportunity to highlight the achievements and challenges of the Corporation since its establishment in 1989.

Furthermore, to sensitise depositors of banks-in-liquidation on the on-going payments of insured deposits and liquidation dividends the Corporation had earlier in the year launched a nationwide depositor-awareness campaign. By the enlightenment programme, all bona fide depositors of the failed banks who were yet to file their claims for payment of their insured deposits and liquidation dividend were requested to do so with the appointed agent banks without further delay.

In furtherance of its mandate to ensure the safety and soundness of the system, the Corporation continued with both its on-site and off-site surveillance of insured banks during the year. The bank consolidation programme impacted directly on the on-site bank examination activities of the

Corporation especially in the last quarter of 2005. The Corporation

10 conducted 26 routine, 13 target and 7 special examinations during the period.

In addition, it also carried out 12 special investigations arising from market information, whistle blowing and complaints by bank customers.

With regard to other deposit-taking institutions, it is my pleasure to mention that the Board of the Corporation had approved the extension of deposit insurance coverage to Community Banks (CBs) and Primary mortgage institutions (PMIs) that were licensed to operate in Nigeria in line with the

NDIC Act. The approval covered the applicable maximum Deposit Insurance

Cover (MDIC), premium rate and the establishment of a separate Special

Insured Institutions Fund (SIIF). Consequently, the Corporation would commence the premium assessment of the participating institutions as soon as the proposed amendment to the NDIC Act, currently before the National

Assembly, is passed into law.

As a repository of bank data and information, the Corporation processed several requests from the Central Bank of Nigeria (CBN), Securities and

Exchange Commission (SEC), and Pension Commission (PENCOM) on the

11 ‘’Fit and Proper’’ persons test. It actively collaborated with the CBN through the joint Executive and Technical Committees on Banking supervision, e-Fass

Committees, and the Financial Services Regulation Coordinating Committee

(FSRCC) meetings. Through those Committees, the Corporation contributed to the provision of necessary information for the formulation and implementation of banking policies in 2005.

Future Outlook and Conclusion

Let me seize this opportunity to assure the public that the Corporation is poised to effectively protect bank depositors. Against the background of the just concluded recapitalization and consolidation exercise, I wish to re-assure the banking public that the Corporation is more than ever before repositioned to contribute effectively towards the stability, safety and soundness of the financial system. Finally I would also like to acknowledge with sincere appreciation the untiring effort, exemplary loyalty and dedication of the entire management and staff of the Corporation without which the achievements highlighted in this report could not have been possible. I urge each and every member of staff to rededicate himself or herself to tackling the

12 challenges facing the Corporation in the post-consolidated Nigerian banking system.

MrMrMr.Mr . Chris OjiOji,, JP

Chairman

Section 111

Banking Environment In 2005

1.0 Introduction The environment in which banks operated in 2005 was shaped, significantly, by the consolidation programme initiated by the Central Bank of Nigeria (CBN) in July 2004, the amendment to the Monetary, Credit, Foreign Trade and Exchange Rate Policy Guidelines for Fiscal 2004/2005, the Federal Government’s fiscal policy as contained in the year’s budget and the general economic and socio-political conditions. By the end of the year, all universal banks were expected to meet the minimum shareholders’ fund of N25 billion either singly or in conjunction with other banks by way of merger or acquisition. Throughout the year, several Memoranda of Understanding (MOU) were signed by different groups of banks. Whilst some MOU resulted in fruitful amalgamations, others did not. As at 31 st December 2005, twenty-five (25) consolidated banks emerged from seventy-five (75) banks out of the eighty-nine (89) banks that existed as at December 31, 2004. The remaining fourteen (14) banks, which had negative shareholders’ funds and could not find merger partners/acquirers were receiving special supervisory attention.

In spite of the fact that the CBN operated a medium-term monetary policy strategy by which monetary policy guidelines were expected to be operative for two years, certain developments necessitated some changes in the guidelines during the year. The effects of those amendments on the banking environment in 2005 are also discussed in this section.

14 As was obtainable in the previous year, the implementation of the 2005 federal budget was subject to significant challenges because of its late start. Nonetheless, government was able to ensure macroeconomic stability even in the face of high unemployment. Similarly, government continued to maintain a high degree of fiscal discipline. A significant development during the year was the successful negotiation by government and the Paris Club of Creditors over the external debts owed by the country. Details of that and other notable developments are also discussed in this section.

Apart from this introduction, the rest of this section is divided into four, namely: highlights of the amendments to the monetary policy guidelines, an appraisal of the implementation of those policies (including the banking consolidation programme), appraisal of the economic/socio-political environment and a review of the banking sector =s performance.

1.1 Highlights of the Amendment To The Monetary, Credit, Foreign Trade and Exchange Rate Policy Guidelines for Fiscal 2004/2005

The Central Bank of Nigeria (CBN) had since 2000 adopted a medium-term monetary policy framework. Thus, fiscal year 2005 was to be guided by policies and guidelines issued at the beginning of 2004. Nonetheless, in the light of new developments in the financial system, the CBN released an amendment to 2004/2005 Monetary Policy Guidelines. The challenge of monetary policy management in 2005, according to the apex bank, was how to devise and implement policies necessary to sustain macro-economic stability. 1.1.1 Policy Objectives and Thrusts

15 The major objectives of monetary policy remained the same as in the previous year. The objectives were as follows: Χ Maintenance of lower single digit inflation rate by the end of 2005; Χ Gradual reduction in the cost of borrowing for private sector investors by reducing interest rates, and thereby improving capacity utilisation and output growth; Χ Maintenance of monetary stability; and Χ Sustenance of exchange rate stability.

In order to achieve the above objectives, the main policy thrusts as enunciated by the CBN were as follows: Χ Commitment to exchange rate stability, by targeting and maintaining the naira exchange rate to the US Dollar within a tight band of plus or minus 3 percent (It was expected that this would anchor expectations, and enable investors (portfolio and real sector investors) and savers to plan based on realistic calculations of exchange risk exposure); Χ Maintenance of positive real interest rates while also minimising the spread in the term-structure of rates and ensuring lower cost of capital for investors; Χ Addressing the problems associated with the high cost of funds to the deposit money banks; Χ Consolidation of the banking system; Χ Continued institutional reforms of the CBN for more effective and efficient conduct of monetary management; Χ Quarterly review of the Minimum Rediscount Rate (MRR);

16 Χ Reform of the payments system; and Χ Setting to zero the Ways and Means Advances to government. (In the extreme, if any accommodation was to be made, it was not to exceed 5 percent of previous year =s actual revenue but to be cleared to zero at the end of each quarter.)

1.1.2 Policy Measures (a) Exchange Rate Policy Two major measures were to be adopted in 2005. First, the CBN was to maintain Naira exchange rate to US dollar within plus/minus 3.0 percent during the year. That was narrower than the band of 10% proposed under the West African Monetary Zone Exchange Rate Mechanism (ERM) arrangement. The adoption of the 3% band was hinged on the appreciable level of external reserves and the relative stability of the naira exchange rate achieved in 2004. The band was intended to anchor expectations and to enable investors and end-users of foreign exchange (forex) to plan and minimise transaction costs. It was also hoped that the band would discourage the destabilising practices of speculation, hoarding and carrying of large inventories by businessmen.

The second measure under the exchange rate policy was the planned introduction of the Wholesale Dutch Auction System (WDAS). That was expected to come on stream towards the end of 2005 after the successful completion of the consolidation exercise in the banking industry. It was envisaged that the introduction of a Wholesale Dutch Auction System would not only deepen the foreign exchange market, but also assist in the convergence of the Dutch Auction System (DAS) and the inter-bank exchange rates as well as eliminate rent-seeking behaviour by the

17 authorised dealers.

(b) Interest Rate Policy During the year, CBN was to move to a regime of more active monetary policy, with decisions on interest rate regime reviewed every quarter. The CBN would, henceforth, anchor its Minimum Rediscount Rate (MRR) on the year-on-year inflation rate adjusted for seasonality, which would reflect the fundamental policy changes in the economy as opposed to the traditional practice of anchoring the MRR on the 12 months moving average rate of inflation which reflected both current and past policy errors. The adoption of the new strategy in 2005 was expected to render the MRR more proactive and allow it to become a true anchor on which other rates in the money market would be predicated.

(c) National Savings Certificate To enhance liquidity management and ensure monetary stability, the National Savings Certificate (NSC) was to be launched in 2005. It was expected that the issuance of the NSC would encourage the growth of domestic savings, as well as address the problem of excess liquidity in the economy on a more sustainable basis.

(d) Cash Reserve Requirement The Cash Reserve Requirement (CRR) was to complement Open Market Operations (OMO) in ensuring that excess liquidity in the banking system was minimised. The maintenance period of the CRR which averaged 8 weeks in 2004 was to come down to 2 weeks in 2005. The existing ratio of 9.5 percent would, however, remain in force during the year. As usual, the computation of the CRR would be based on each bank =s total deposit

18 liabilities (i.e. demand, savings and time deposits of both private and public entities), certificates of deposits and promissory notes held by non- bank public and other deposit items.

(e) Public Sector Deposits Public Sector Deposits were to be used during the year as an instrument for liquidity management depending on the liquidity condition in the banking system. Accordingly, banks were strongly advised not to rely heavily on public sector funds. The CBN was to give two weeks notice to banks and the relevant public agencies whose funds would be withdrawn. However, the withdrawn funds would be returned to the banking system when the liquidity condition of the system improved.

1.2 Implementation of Monetary/ Banking Policy 1.2.1 Changes in Minimum Re-discount Rate (MRR) and Other Rates During the year under review, the CBN responded to changes in the liquidity condition in the system by tinkering with two out of the three instruments used for monetary management as shown in Table 1.1. First, in February the MRR was reduced by 200 basis points as a result of the observed tightness in the money market and the desire to further reduce rates in the economy. However, in July, the CRR was increased slightly from 9.5% to 10% following a noticeable increase in the liquidity in the system arising mainly from the increase in net foreign assets. That resulted from the monetization of oil revenue receipts and excess crude earnings as well as capital inflows. By October, the CRR was further increased to 11% and that subsisted until November. However, banks were relieved of that burden in December when the CRR was reduced by 600 basis points. Throughout the year, the liquidity ratio remained

19 the same at 40% though by mid-year, there was a revision of the definition of liquidity to include 3-year Federal Government bonds. TABLE 1.1 MINIMUM RE-DISCOUNT RATE (MRR), CASH RESERVE REQUIREMENTS (CRR) AND LIQUIDITY RATIO(LR) (%) In 2005

MONTH MRR CRR LR

January 15 9.5 40

February 13 9.5 40 13 March 9.5 40 13 April 9.5 40 13 May 9.5 40 13 June 9.5 40 13 July 10 40 13 August 10 40 13 September 10 40 13 October 11 40 13 November 11 40 13 December 5 40 Source: CBN

1.2.2 Banking Sector Consolidation Programme Following the announcement of the banking reform agenda in July 2004, which prescribed a new minimum capitalisation requirement of =N=25 billion for each bank, mergers and acquisition activities were witnessed in the industry during the year. Many of the existing banks went to the capital market to raise fresh funds either through public offer, initial public offer and/or private placement in the bid to shore-up their capital in order to either stand in a good stead for a merger/acquisition or meet the minimum capitalisation requirement on a solo

20 basis. As a result of those efforts, some banks hitherto unquoted became quoted on the floor of the Nigerian Stock Exchange (NSE) in 2005.

Regulators/Supervisors provided regulatory guidelines and incentives to assist banks in their efforts to undergo successful consolidation. Similarly, a number of committees were set up to provide direction for easy implementation of the programme. For instance, a high level consultative committee was set up by the Federal Government to, periodically, review the progress made on the banking sector reform and address critical issues affecting the member institutions/ministries, and/or make recommendations to the Board of CBN and the Presidency in a bid to ensure that the consolidation benefits were delivered as promised. The high-level Committee comprised the principal stakeholders in the financial sector and the fiscal authorities.

On its part, the CBN granted 80 percent debt reprieve to eight weak banks as a way of enhancing the possibility of their being acquired by or merged with stronger banks in their bid to meet the x25 billion minimum shareholders’ funds requirement by the end of December 2005. However, the debt cancellation was subject to the banks meeting the following three conditions:

a) Recovery of all non-performing/insider-related loans and advances within a period of two months by the owners of the banks;

b) Injection of any shortfall in the banks = capitalisation to bring it up to a solvency status, also within two months; and

c) The conversion of the balance of 20 percent of the banks = debt to long- term loan of a maximum of 7 years at 3 percent per annum including two years = moratorium.

21 In addition to the above, the apex bank imposed a limit on government investment in banks during the consolidation exercise to 10%. The basic reasons, as enunciated by CBN, were: The need to install good corporate governance in banks in the post consolidation era.

The application of the fit-and-proper-person criterion to disqualify some state governments who had been proved to be bad debtors in the system.

Government-owned banks were deemed to pose additional problem in failing institutions management because of their political clout which could inhibit the implementation of the zero tolerance policy.

As at the end of December, 2005, the structure of the banking industry had changed dramatically: twenty-five (25) banking groups finally emerged from seventy-five (75) banks out of the 89 banks that were in existence at the end of 2004. The successful banks accounted for 93.5 percent of the total deposit liabilities of the nation’s banking system. Fourteen (14) banks which had negative shareholders’ funds and could not find merger partners/acquirers were, by year-end, receiving necessary supervisory attention. The new consolidated banks and their constituent members are as contained in Table 1.2 while Table 1.3 presents the names of the 14 banks which could not find merger partners/acquirers as at end-December, 2005. As shown in Table 1.2, only six banks survived as stand-alone entities. The banks were Zenith Bank Plc, Guaranty Trust Bank Plc, Ecobank Plc, Stanbic Bank Nig. Limited, Standard Chartered Bank Nig. Limited and Nigeria International Bank Limited. Table 1.2 Banking groups and their component members S/N Bank Name Members of the Group 1 Access Bank PLC Access bank, Marina Bank, Capital Bank International. 2 Afribank Bank PLC Afribank Plc, Afribank (Merchant bankers) 3 Diamond Bank PLC Diamond Bank, Lion Bank, African International Bank 4 EcoBank PLC Ecobank PLC

22 5 ETB Plc Equitorial Trust Bank (ETB), Devcom 6 FCMB Plc FCMB, Co-operative Development Bank, Nigeria- America Bank, Midas Bank 7 Fidelity Bank Plc Fidelity Bank, FSB, MannyBank 8 First Bank Plc .FBN Plc, FBN Merchant Bankers, MBC International; 9 FirstInland Bank Plc Inland bank, First Atlantic Bank, IMB,NUB 10 Guaranty Trust Bank Plc GT Bank 11 IBTC-Chartered Bank Plc IBTC, Regent, Chartered 12 Intercontinental Bank PLC Global, Equity, Gateway, Intercontinental 13 Nigerian International Bank Nigerian International Bank 14 Oceanic Bank Plc Oceanic Bank, International Trust Bank 15 Platinum-Habib Bank PLC Platinum Bank, Habib Bank 16 Skye Bank Plc Prudent Bank, Bond Bank, Cooperative Bank, Reliance Bank, EIB International Bank 17 Spring Bank PLC Guardian Express Bank, Omega Bank, Trans International Bank, Citizens Bank, Fountain Trust Bank, ACB International Bank. 18 Stanbic Bank Ltd Stanbic Bank 19 Standard Chartered Bank Ltd Standard Chartered Bank 20 Sterling Bank Plc Magnum Trust Bank, NBM Bank, NAL Bank, INMB, Trust Bank of Africa 21 UBA Plc UBA, Standard Trust Bank, Commercial Trust Bank 22 Union Bank PLC Union Bank, Union Merchant Bank, Broad Bank, Universal Trust Bank, 23 Unity Bank PLC New Africa Bank, Tropical Commercial Bank, Pacific Bank, Centre-Point Bank, First Interstate Bank, Societe Bancaire, NNB International Bank, Bank of the North, Intercity Bank 24 Wema Bank Plc Wema Bank, National Bank 25 Zenith Bank Plc Zenith Bank Plc Source; Central Bank of Nigeria

Table 1.3 List of 14 Banks That Could Not Find Merger Partners/Acquirers And Could Not Meet The Minimum Capital Requirement On Solo Basis S/N Bank Name 1 African Express Bank 2 AllStates Trust Bank 3 Assurance Bank of Nigeria 4 City Express Bank 5 Eagle Bank 6 Fortune International Bank 7 Gulf Bank 8 Hallmark Bank 9 Lead Bank 10 Liberty Bank 11 Metropolitan Bank

23 12 Societe Generale Bank of Nigeria (SGBN) 13 Trade Bank 14 Triumph Bank Source: Central Bank of Nigeria

1.2.3 Reporting Suspicious Transactions To Economic And Financial Crimes Commission (EFCC)

During the year, the CBN in a Circular Ref No: BSD/08/2005 titled Know Your Customer (KYC) Manual For Banks And Other Financial Institutions In Nigeria – Reporting Of Suspicious Transactions To Economic And Financial Crimes Commission (EFCC), directed all banks and other financial institutions to forward all suspicious transactions to the Economic and Financial Crimes Commission (EFCC)/Nigeria Financial Intelligence Unit (NFIU) in compliance with the provisions of Section 6(1-3) of the Money Laundering Prohibition Act of 2004. The Circular stated that the practice whereby reports were equally forwarded to CBN and the National Drug Law and Enforcement Agency (NDLEA) should be discontinued. In view of the continued efforts to achieve a robust regime for Anti-Money Laundering (AML) and other economic crimes in the system, the circular reminded operators to adhere strictly and faithfully to all the provisions and requirements of the Money Laundering (Prohibitions) Act of 2004 and the “Know Your Customer” (KYC) directive/manual, especially as they related to the reporting of unusual or suspicious transactions. Failure to ensure strict compliance with the new directives by Directors, Managements, and Internal auditors of all financial institutions as well as their compliance officers, according to the CBN, would attract the penalties stipulated in Section 6(9) of Money Laundering Act, 2004 and Section 44(2)(d) of BOFIA 1991, as amended.

24 1.2.4 Inauguration of National Payments System Com mittee During the second quarter of 2005, the National Payments System Committee was inaugurated by the Secretary to the Federal Government of the Federation, Obong Ufot Ekaette. This was sequel to the resolution passed by the Authority of Heads of State and Governments of the West African Monetary Zone (WAMZ) at the 3 rd Mini-summit held in Dakar, Senegal in December 2001. The inauguration of the Committee on May 31, 2005 was designed to give effect to the resolution.

Membership of the new Committee was made up of: i) The Governor of CBN- Chairman ii) The Deputy Governor (Operations) - Alternate Chairman iii) 3 Banks representing Bankers Committee - Member iv) The Accountant-General of the Federation – Member v) The Director-General, Nigerian Stock Exchange - Member vi) Chairman, Federal Inland Revenue Service - Member vii) Comptroller-General, Nigeria Custom Service - Member viii) Representative, Nigerian Economic Council - Member ix) Attorney General & Minister of Justice - Member x) National Security Adviser - Member xi) Director, Banking Operations Department, CBN - Member

The Banking Operations Department, CBN would serve as the Secretariat to the Committee. The three representatives of the Bankers Committee would be on a rotational basis.

1.2.5 Re-Introduction of 1% Commission Charge On Foreign Exchange Sales by the CBN .

During the year under review, the CBN issued a Circular to all Authorized Dealers in respect of the Re-Introduction of 1% Commission Charge on Foreign Exchange Sales. In a Circular Ref. TED/AD/81/2005 dated July 28, 2005, the CBN enjoined all Authorized Dealers to note that with effect from August 1, 2005, the apex bank would re-introduce a 1% commission charge on all foreign exchange sales to banks. Accordingly, banks, as stated in the circular were to be debited with the Naira equivalent of the foreign exchange sold plus the 1% commission charge at the point of delivery of foreign exchange.

1.2.6 Issuance of 2 nd Federal Government Of Nigeria (FGN) Bond During the period under review, the Central Bank of Nigeria (CBN), on the authority of the Debt Management Office (DMO) and on behalf of the Federal Government of Nigeria (FGN), offered for sale to the public, seven tranches of 2 – 3 year tenured 2 nd FGN Bonds. The offer was to commence in July 2005 in monthly tranches of N20 billion. Interest payment was to be semi-annual. The bond had since been listed on the Nigerian Stock Exchange (NSE).

1.2.7 Framework For Risk-Based Supervision of Banks In Nigeria. During the year, the CBN issued an exposure draft, to all banks of the framework for risk-based supervision of banks in Nigeria. A key element in the 13-point agenda for the reform of the Nigerian banking industry as unveiled by the CBN Governor in July 2004, was the move towards the implementation of a risk-focused supervisory framework.

In keeping with the reform agenda, the global trend and current best practice in supervision, the CBN/NDIC Executive Committee on Supervision approved a Risk-based Supervision (RBS) framework for banks operating in the system, as

26 a precursor to the New Capital Accord (Basel II). The RBS as stated in the Circular is a proactive and efficient supervisory process, which enables the supervisor to prioritize and focus supervisory efforts and resources on areas of significant risks in banks. It entails a shift from a rigid rules/compliance-based regulatory/supervisory approach to a more risk sensitive one, which seeks to encourage a bank to develop and continuously update its internal risk management system to ensure that it is commensurate with the scope and complexity of its operations.

Being an exposure manual, suggestions as well as constructive criticisms were expected from stakeholders to further enrich the document. It was envisaged that the final document would serve as a useful guide to supervisors and operators alike as the nation’s banking system moved towards the adoption and implementation of RBS.

1.2.8 Guidelines on the Development of Risk Management Systems In 2005, the CBN issued a Circular to all banks in the system in respect of the Development of Risk Management Systems in their individual banks. According to the Circular Ref. BSD/18/2005 dated 15 th September, 2005, a bank’s ability to evolve a comprehensive Risk Management Framework (RMF) was imperative for its strategic positioning. The RMF as stated in the Circular is aimed at ensuring that:

* The individuals who take or manage risks clearly understand them. * The bank’s risk exposure is within the limits established by the Board of Directors. * Risk taking decisions are explicit, clear and in line with the business strategy and objectives set by the Board.

27 * The expected payoffs compensate for the risks taken. * Sufficient capital is available to cushion risks taken.

As a first step towards the full implementation of risk management systems by banks as indicated in the Circular, the CBN/NDIC Executive Committee on Supervision had prepared general guidelines to assist banks in developing their risk management framework (RMF).

1.2.9 Regulatory and Supervisory Framework for Micro-Finance Banks (MFBs) In Nigeria.

Towards the end of December 2005, CBN released a framework to guide a new set of financial institutions known as Microfinance Banks (MFBs). According to the CBN, a micro finance bank is defined as any company licensed to carry on the business of providing micro-finance services such as savings, loans, domestic fund transfers and other financial services that economically active poor, micro-enterprises and small and medium enterprises need to conduct or expand their businesses.

The justification for the establishment of the new institution was hinged on several factors amongst which was that the existing community banks and development finance institutions had been operating sub-optimally over a long period of time as a result of weak institutional capacity, poor corporate governance, restrictive regulatory/supervisory requirements and weak capital base. Other factors enunciated included the existence of a huge un-served market, the need for increased savings opportunity, economic empowerment of

28 the poor, employment generation and poverty reduction and utilization of Small and Medium Enterprises Equity Investment Scheme (SMEEIS) Fund.

Under the policy framework, there would be two categories of micro-finance banks namely: Microfinance banks licensed to operate as a unit bank; and Microfinance banks licensed to operate in a state.

The recognition of these two categories, according to the policy guidelines, would preclude them from aspiring to having a national coverage, subject to their meeting the prudential requirements. The minimum paid-up capital for the first category was pegged at =N=20.0 million whilst the second category attracted a minimum paid-up capital of =N=1.0 billion.

Microfinance banks could be established by individuals, groups of individuals, community development associations, private corporate entities or foreign investors. Universal banks were also allowed to own MFBs after meeting all requirements under the framework. No individual, group of individuals, their proxies or corporate entities and/or their subsidiaries would be allowed to establish more than one MFB under a different or disguised name.

According to the CBN, all Community Banks (CBs) operating before the commencement of the new policy should transform to MFBs and operate in local government areas.

1.3 Other Developments

29 111.3.3.3..3 ...11 Inauguration Of The NDIC’s Board of Directors by thethethe Honourable Minister of Finance

On November 15, 2005 the new Board of Directors of the Corporation was inaugurated by the Honourable Minister of Finance, Dr (Mrs) Ngozi

Okonjo-Iweala. Members of the new Board of Directors were as follows:

i) Mr Chris Oji - Chairman ii) Mr G. A. Ogunleye - Managing Director/Chief Executive Officer iii) Prof. P. N. Umoh - Executive Director (Operations) iv) Mrs F. B. Ibrahim - Executive Director (Finance & Admin) v) Mr. Abdullahi Musa - Member vi) Col. Roland Omowa (Rtd) - Member vii) Alh. Kalli al-Gazali - Member viii) Director, Banking Supervision Department, Central Bank of Nigeria ix) Director, Home Finance Department, Federal Ministry of Finance

30 1.3.2 The Launching Of A Nationwide Depositor-Awareness Campaign by the Corporation

During the year, the Corporation launched a nationwide depositor-awareness campaign to sensitise depositors of banks-in-liquidation on the on-going payments of insured deposits and liquidation dividends. By the enlightenment programme, all bona fide depositors of the failed banks who were yet to file their claims for payment of their insured deposits and liquidation dividend were requested to do so with the appropriate agent banks without further delay.

For maximum effectiveness, the Corporation used radio and television jingles in twelve Nigerian languages in addition to the three major languages, handbills via Local Government Headquarters, Insured Banks, Mosques, Churches, Markets, Motor Parks and Major Hotels. The Corporation also placed advertorials in widely circulated newspapers and magazines in the country. Furthermore, the Corporation had dedicated an e-mail address for the benefit of stakeholders seeking further information/enquiries about its activities.

1.3.3 1st Depositor Protection Awareness Week (DPAW) And 16 th Year Anniversary of the NDIC

Towards the end of the third quarter, the Corporation organized its 1st Depositor Protection Awareness Week and its 16 th year anniversary. The International Association of Deposit Insurers (IADI) of which the Corporation is a founding member and current Chair of the Africa Regional Committee identified public awareness as one of the critical success factors for effective implementation of Deposit Insurance Systems (DIS) worldwide. It, therefore, requested its members to dedicate the Week of its Annual General Meeting and conference as Depositor Protection Awareness Week (DPAW). It also afforded

31 the Corporation an opportunity to showcase the achievements and challenges of the Corporation since its establishment in 1989.

The DPAW which commenced on 12 th September 2005 and ended on 16 th September 2005 had several activities. These included a Press Conference addressed by the Managing Director/Chief Executive, Mr. G. A. Ogunleye, OFR, a Novelty Football Match, Public Lecture as well as a Gala Night.

1.4 Macroeconomic/Socio-Political Environment As in the previous year, the overall performance of the economy was generally encouraging in spite of pockets of socio-economic and political problems both from within and external. Indicators showed that the economy was generally stable. Nigeria’s BB rating by Standard and Poor’s was essentially due to the stable macroeconomic environment. Provisional figures showed that GDP growth of 6% was robust at about the same level in 2004. The provisional figures for non-oil GDP growth in 2005 was 8.2% much higher than the target under the National Economic Empowerment Development Strategies (NEEDS) of 7.0%. That implies that measures employed to diversify the economy were beginning to work especially in sectors like agriculture, services, construction, retail business and some segments of the manufacturing sector. In the last three months of 2005, non-food prices (core inflation) remained at single digit; it anchored at 8.8% as at the end of December, 2005 though the rate of inflation as at the same time on a year-on-year basis was estimated at 11.9%.

Provisional data showed that the rate of growth in some components of monetary aggregates were within the targets for the period whilst some were slightly above target. For instance, whilst M1 rose by 10.9 per cent compared

32 with target of 11.4% for fiscal 2005, M2 increased by 16.1%, a little above the set target of 15.0 percent. The moderation in monetary aggregates also reflected in the decrease in credit to the economy. Aggregate bank credit to the domestic economy (net) grew by 14.5 per cent, compared with the growth target of 23.4 per cent for fiscal 2005.

A key achievement of the economic reform in fiscal year 2005 was the successful negotiation to shed the country’s US$30 billion Paris Club debt burden through an unprecedented debt write-off of US$18 billion by the Paris Club. The remainder would be bought back thus affording an opportunity to completely exit from the Club. During the year, there was a sustained accretion to reserves resulting in the stock of external reserves of US$28.3 billion as at end December. That level of reserves was sufficient to finance 18.4 months of foreign exchange disbursement. Beyond increase in the price of crude oil in the international market, good exchange rate management and fiscal restraints on the part of government were also contributory factors to the addition to external reserves.

The socio-political scene in 2005 was relatively peaceful though pockets of violence were experienced especially in the Niger Delta Region. During the year, government continued to work on its reform agenda. For instance, there was the launch of a Home Mortgage Finance system to enable middle class and working class Nigerians purchase or build their homes through a Federal Government guarantee of N100 billion in bonds for the Federal Mortgage Bank (FMB). The FMB would in turn work with commercial banks. In addition to that, government continued to instill greater transparency in its business. One of the achievements in that regard was the five year audit of the oil sector carried out through the Nigerian Extractive Industries Transparency Initiative

33 (NEITI) working group, the result was expected to be presented to major stakeholders in 2006. Government had continued to strengthen the support given to institutions established to fight corruption and economic and financial crimes whilst efforts aimed at improving government services in areas such as electricity generation and other infrastructures were also improved upon during the year. In 2005, peak daily power generation held steady at 3000Mw but that was still sub-optimal when compared with the needs of businesses and individual households. Notwithstanding the improvements in many areas of the economy, unemployment of large number of school leavers including university graduates still remained a key economic problem.

Compared with previous years, interest rates on different classes of deposits experienced a downward trend in 2005. That was due to the efforts of government to curtail excessive pricing of bank deposits which had negative influence on the lending rates. As shown in Table 1.4, the downward trend was also reflected in the rate payable on government bills. In 2005, especially between June and November, rates on Treasury Bills crashed to a level never witnessed in the system since deregulation. That had profound influence on other deposit rates. For instance, average rate on savings deposits which hovered around 4.9% at the beginning of the year decreased to 4.3% by year end. During the same period, average rate on 3-month tenured deposits declined by 3.4 percentage points from 14.4% in January to 11% by December, 2005. As shown in the table, rates were generally at their lowest during the month of October.

Average rates on other classes of deposits were 6.6%, 12.3%, 10.7% and 10.8% for 7-day, one-month, six-month and 12-month tenored deposits respectively.

34 As evident in the table, rates on short-term deposits were generally higher than long-tenored deposits as was the case in the preceding year.

The Prime Lending Rate (PLR) also witnessed a gradual decline in 2005. The rate hovered around 19.2% for a greater part of the year but eventually declined to 17.0% by November, 2005. For the entire year, PLR averaged 18.8%. The spread between the average rate on three-month deposit and the PLR was 6.0%whilst the difference between the latter and average savings rate was 12.3% during the same period. The spreads were slightly but not significantly different from what were obtainable in the previous year. That meant that government’s efforts at reducing the spread between deposits and lending rates did not yield the desired result during the year.

TABLE 1.4 AVERAGE INTEREST RATE (%) JANUARY- DECEMBER, 2005 Prime Month Savings Time Deposits Lending Account Rate 7 Day 1month 3 month 6month 12month T-Bills Rate

19.2 January 4.9 7.3 13.5 14.4 12.1 11.0 13.2 19.2 February 4.8 7.4 13.5 14.3 12.1 10.8 12.3 19.1 March 4.7 7.3 13.9 14.3 12.1 12.3 11.3 19 .0 April 4.7 7.0 13.2 14.3 11.8 11.9 9.5 19.2 May 4.5 6.8 13.3 13.6 11.4 11.1 9.0 19..0 June 4.2 6.4 12.9 13.3 11.4 10.8 5.0 19.1 July 4.4 6.7 13.4 13.5 11.3 10.8 5.0 19.1 August 4.3 6.1 12.8 13.1 11.1 10.7 4.2

35 19.0 September 4.3 5.9 12.3 13.0 10.5 10.2 4.5 19.2 October 4.4 6.1 6.5 7.6 8.6 10.5 3.5 17.0 November 4.4 6.1 11.4 11.4 8.1 9.5 6.2 17.4 December 4.3 5.9 11.0 11.2 8.4 9.5 11.9 18.8 Average 4.5 6.6 12.3 12.8 10.7 10.8 8.00 Source : Bank Returns and CBN Research Department

During the period under review, the exchange rate remained stable and within the announced band of plus or minus 3% around the central rate. As shown in Table 1.5, the DAS exchange rate appreciated from N132.9/US$1 at the beginning of 2005 to N129.1/US$1 at end of December, depicting an appreciation of about 2.9% during the period. The stability of the exchange rate in 2005 could be attributed to the relative stability in the nation’s macro- economy, the observed fiscal discipline exercised by the government coupled with a consistent monetary policy during the year under review.

In other segments of the foreign exchange market, that is Bureau de Change and parallel market, the Naira depreciated slightly during the year. At the Bureau de Change, the naira exchange rate anchored around x139.1 to a dollar at the beginning of the year but depreciated to x143.3 to a dollar as at December depicting 1.86% depreciation. In the parallel market, the range was between x138.4 and x146.5 to a dollar thus averaging x142.2 for the period and a depreciation of about 1.8%. The premium between the two markets and the official market increased in 2005 to x10.0 and x10.20 in the bureau de change and parallel market respectively compared to premiums of x6.70 and x6.10 per dollar recorded in both markets in 2004 respectively. The increase in premiums between the two markets and the official market could be ascribed to supply

36 shortages in the former occasioned by CBN’s effectiveness in curtailing round- tripping of forex by banks.

TABLE 1.5 NAIRA EXCHANGE RATE ( x/US Z) JANUARY-DECEMBER 2005

MONTH IFEM BUREAU DE CHANGE PARALLEL MARKET

JANUARY 132.9 140.6 141.1

FEBRUARY 132.9 139.8 140.0

MARCH 132.9 139.4 138.5

APRIL 132.9 139.1 138.4

MAY 132.8 139.4 138.8

JUNE 132.8 140.1 140.9

JULY 132.8 142.3 142.3

AUGUST 132.9 144.4 145.0

SEPTEMBER 132.9 146.1 146.5

OCTOBER 129.5 144.6 145.1

NOVEMBER 129.5 145.3 146.5

DECEMBER 129.1 143.3 143.6 131.99 142.03 142.23 AVERAGE

37 Sources: CBN NDIC Market survey of Bureau de Change NDIC Market survey of Parallel market

1.5 General Performance of the Banking System The recapitalization and consolidation exercise in the industry singly shaped the performance of banks during the year. Whilst some big and sound banks were busy expanding the frontiers of their businesses, some small ones and some whose financial conditions were not too sound were absolutely engaged in the pursuit of either merger partners or acquirers to the neglect of their core business. In some of the latter banks, lending was practically suspended. In addition, the system witnessed flight to safety as depositors moved their funds from banks which were perceived not likely to survive the consolidation exercise to the healthier ones. As noted earlier, twenty-five (25) consolidated banks emerged from seventy-five (75) banks whilst the remaining fourteen (14) that did not meet the minimum shareholders’ funds requirement nor find merger partners were receiving special supervisory attention as at 2005 year end.

As at the end of the period under review, indicators as shown in Table 1.6 showed that the performance of the industry was a mixed grill. As shown in Table 1.6, insured banks = total assets (inclusive of off-balance sheet engagements) grew by over 34 percent from x4,047 billion as at the end of December 2004 to x5,463.1 billion as at the end of 2005. That was 9.9 percentage points lower than the growth experienced between 2003 and 2004. In spite of the reduced addition to total assets experienced during the year, growth in total deposits of the industry was 36.1 percent; that was higher than the growth rate between 2003 and end of 2004 by 7.9 percentage points. The industry’s contribution to the economy significantly reduced during the period

38 under consideration as depicted by the ratios of banks = total assets and that of total deposits to Gross Domestic Product (GDP). Whilst the former decreased by 17 percentage points as against the 2004 year =s level, the latter reduced by 4.6 percentage points during the same period. The decrease could be as a result of the growth witnessed in the other sectors of the economy as a result of the various economic reform programmes that were implemented during the period under review and which were expected to have lagged effects.

39 TABLE 1.6 SUMMARY OF KEY STATISTICS IN THE BANKING INDUSTRY

Parameters 2003 2004* 2005**

Gross Domestic Product ( x=billion) At Current Market Prices 7,191.05 8,563.30 14,894.45

25 Number of Banks in Nigeria 89 89

Total Assets of Banks( x=billion)*** 3,365.20 4,047.00 5,463.1

30.3 Ratio of Total Assets of Bank to GDP (%) 46.8 47.3

Total Deposits of Banks( x=billion) 1,415.80 1,814.75 2,469.07

Ratio of Total Bank Deposits to GDP (%) 19.7 21.2 16.6

Total Loans and Leases of Banks( x=billion) 921.5 1,145.7 1,832.18

Sources : Bank Returns Central Bank of Nigeria Note:

* Revised

** Provisional

*** Including Off-balance Sheet Items

40 Section 2

Financial Condition Of Insured Banks In 2005

2.02.02.0 Introduction

In 2005, the financial condition of insured banks improved relative to

2004. The adjusted shareholders’ fund increased from x289.83 billion to x682.13 billion between December 2004 and December 2005. Similarly, capital adequacy improved as capital to risk-weighted asset ratio rose from

13.16% to 21.25% during the period. Also, the industry’s ratio of non- performing credit to total credit decreased from 23.08% to 20.13% while the average liquidity ratio increased from 50.44% to 60.60%. Despite the improvement in their financial condition, the performance of insured banks declined marginally in 2005 as their unaudited profit before tax fell from x88.60 billion in 2004 to x81.63 billion in 2005.

41 2.12.12.1 Capital Adequacy

The decline in insured banks = capital adequacy which was witnessed from

2002 to 2004 was reversed in 2005. The capital-to-risk-weighted asset ratio improved from 13.16% in 2004 to 21.25% in 2005. The improvement in the banks’ capital adequacy was also reflected in a substantial increase in adjusted shareholders’ fund from =N=289.83 billion in 2004 to

=N=682.13 billion in 2005. Table 2.1 presents some statistics on insured banks = capital adequacy as at December 31, 2005 with comparative

figures for the previous year. The improvement in the capital adequacy

ratio was as a result of the massive injection of fresh capital by

shareholders in an attempt by the banks to meet the =N=25 billion

minimum capitalization for insured banks within the December 31 2005

deadline.

TABLE 2.1 INSURED BANKS = CAPITAL ADEQUACY

Year

Capital Adequacy 2004 2005 Indicators

Adjusted Shareholders = 289.83 682.13 Fund ( x billion)

Capital to Risk Weighted 13.16 21.25 Asset Ratio (%)

Number of Banks 89 25*

* Following the conclusion of the banking sector consolidation, 75 banks regrouped into 25 new banks while 14 others failed to meet the consolidation requirement. Source: BaBanknk Returns

2.22.22.2 Assets Quality.

Total credit granted by insured banks increased by 20.56% (from x1,519.76 billion to x1,832.18 billion) between December 2004 and

December 2005. The banks = non-performing credits also increased from x350.82 billion to x368.76 billion within the period. Table 2.2 presents some statistics on the asset quality of insured banks for 2004 and 2005.

As can be observed from the table, there was a slight improvement in the banks = asset quality as the ratio of non-performing credit to the total credit

43 decreased from 23.08% in 2004 to 20.13% in 2005. The improvement in asset quality was further indicated by a decrease in the ratio of non- performing credits to shareholders = fund from 105.30% to 57.18% between 2004 and 2005. That indicated the increased ability of capital to absorb losses that might arise from the non-performing credits. The substantial decrease in the ratio of non-performing credits to shareholders funds was mainly due to fresh capital injections in the industry and the heightened debt recovery efforts of banks towards the end of 2005 in a bid to meet the minimum recapitalisation requirement.

TABLE 2.2 ASSET QUALITY OF INSURED BANKS

Year Item 2004 2005

Total Credit( x billion) 1,519.76 1,832.18

Non-Performing Credit 350.82 368.76 (x billion)

Shareholders = Funds 333.17 768.21 (x billion)

Ratio of Non-performing Credit 23.08 20.13 to Total Credit (%)

Ratio of Non-performing Credit 105.30 57.18 to Shareholders = Funds (%)

Source: Bank Returns

The improvement in asset quality of insured banks in 2005 relative to what obtained in 2004 is further illustrated in Charts 2A and 2B.

CHART 2A

PROPORTION OF NON-PERFORMING CREDITS TO TOTAL CREDITS

0 2004 2005

C H AR T 2B

PROPORTION OF NON-PERFORMING CREDITS TO SHAREHOLDER S ' F U N

1 2 0 1 0 0 8 0 6 0 4 0 2 0 0 2 0 0 4 2 0 0 5

2.3 Earnings And Profitability.

Earnings are critical to a bank because they contribute to internal growth, affect the bank’s ability to raise external capital, as well as shape the bank’s image in the market place. Table 2.3 presents earnings and profitability indicators of insured banks for 2004 and 2005. As can be observed from the table, the profitability of insured banks decreased in

2005 as banks recorded a profit before tax of x81.63 billion compared to the x88.60 billion earned in the preceding year. Returns on equity and assets also decreased from 27.23% and 2.58% to 4.81% and 0.49%, respectively, within the period. The sharp declines in the returns were largely due to the reduced level of operations observed during the course of the consolidation and the substantial increases in the industry’s equity and assets as the consolidation programme came to an end towards the end of December 2005.

TABLE 2.3 EARNINGS AND PROFITABILITY INDICATORS

Indicators Year

2004 2005

Profit before tax 88.60 81.63 (x million)

Interest Income ( x million) 410.75 454.86

48 Non-interest Income ( x million) 194.16 215.33

Interest Expenses ( x million) 190.08 199.37

Operating Expenses ( x million) 326.23 402.64

Yield on Earning Assets (%) 18.22 4.07

Funding Cost (%) 9.66 1.72

Return on Equity (%) 27.23 4.81

Return on Assets (%) 2.58 0.49

Source: Bank Returns

2.42.42.4 Liquidity Profile

Insured banks = liquidity improved as their average liquidity ratio increased from 50.44% in December 2004 to 60.69% in December 2005. Table

2.4 presents the liquidity profile of the banks.

TABLE 2.4 LIQUIDITY RATIO OF INSURED BANKS

Year Items 2004 2005

Average Liquidity Ratio(%) 50.44 60.69

Loans And Advances to Deposit Ratio 63.13 65.14 (%)

No. of Banks with less than the 40% 15 0 minimum Liquidity Ratio

Source: Bank Returns

The improvement in liquidity ratio was largely as a result of the large equity injection into the industry towards the end of the year.

2.5 Soundness of the Banking IndustrIndustry.y.

As the banking sector consolidation programme came to an end on

December 31, 2005, 75 banks out of the 89 banks that existed as at 31 st

December, 2004, regrouped into 25 bigger banks with each having a minimum of x25 billion shareholders’ fund. The remaining fourteen (14)

banks which had negative shareholders’ funds and could not find merger

partners/acquirers at the expiration of the deadline for the bank

consolidation programme were receiving necessary supervisory attention as

at end-December, 2005.

Section 3 .

51 Insured Banks’ Shareholders’ Funds

3.03.03.0 Introduction

Adequate capital is the foundation of any banking system. Adequate capital is to serve as a cushion against unexpected losses. Adequate capital provides protection to depositors, creditors, deposit insurance funds, central banks, and ultimately, the economy. Due to the protection it provides against loss, the maintenance of adequate capital is the principal source of public confidence in individual banks and the banking system.

Given its importance to the banking system, ensuring adequate capital in individual banks is a fundamental role of bank regulatory/supervisory authorities worldwide.

Over the years, the nation =s regulatory/supervisory authorities had been

challenged by the relatively weak capital base of the banks. This problem

had contributed to the failure of some banks. Requiring banks to maintain

52 adequate capital is central to an effective supervisory regime. Section 9 of the Banks and Other Financial Institutions Act (BOFIA) 1991 as amended, requires the Central Bank of Nigeria (CBN) to determine from time to time the minimum-paid up share capital of banks. In line with that requirement, the CBN had periodically reviewed the minimum capital requirements of banks. However, the challenge of weak capital base of banks had remained until the recent introduction of the banking reform programme which also affected the capital base of banks in the system.

From the adoption of international best practices in banking supervision and the prescriptions of the Basel Capital Accord, it is evident that the shareholders = funds, rather than the paid-up share capital determines the

level of capitalization required to support banks = operations. On that premise, the Central Bank of Nigeria, on July 6, 2004 announced a reform programme for the nation’s banking industry: the main thrust of which required the 89 insured banks then in the system to raise their shareholders’ funds to a minimum of =N=25 billion each. Banks were specifically required to achieve that through fresh capital injection where 53 applicable, but were most importantly encouraged to enter into merger/acquisition arrangements with other banks. That was to enable them take advantage of economies of scale to reduce the cost of doing business as well as enhance their competitiveness locally and internationally.

During the year, in attempts to satisfy the newly prescribed minimum capitalization requirement, banks adopted various methods to raise additional capital such as through private placements, right issues and initial public offers (IPOs). That development impacted positively on the nation’s banking industry’s capital base as at the end of 2005. Twenty five (25) bigger banks emerged from 75 banks, out of a total of 89 banks that existed as at end-December, 2004. Each of the 25 banks that emerged post consolidation was endowed with at least =N=25 billion shareholders’ funds. That development had led to a renewed surge of public confidence in the nation’s banking industry. The 25 successful banks accounted for over 93 per cent of the nation’s banking system total assets/deposit liabilities. The remaining fourteen (14) banks with negative 54 shareholders’ funds and which could not find merger partners/acquirers were receiving necessary supervisory attention at the end-December,

2005.

From available statistics, =N=406.4 billion was raised by insured banks from the nation’s capital markets out of which =N=360 billion was verified and accepted by the CBN in the process of complying with the minimum capital requirement. Also, the process led to the inflow of foreign direct investment (FDI) of US$652 million and GB £162,000 into the system.

From available information, the top ten (10) banks in the nation’s banking

system controlled about =N=379.48 billion or over 50 percent of the entire

industry’s capitalization which stood at about =N=768 billion as at 2005

year-end. Table 3.1 presents the shareholders’ funds of the 25 banks

that emerged under the banking consolidation programme as at December

31, 2005. As evidenced in the table, First Bank Plc came first with

shareholders’ funds of =N=46.92 billion. United Bank for Africa Plc came

second with total shareholders’ funds of =N=46.69 billion, while 55 Intercontinental Bank Plc ranked third with shareholders’ funds of

=N=45.45 billion. Zenith Bank Plc ranked fourth with shareholders’ funds of =N=37.78 billion while Union Bank Plc came fifth with shareholders’ funds of =N=37.63 billion. Table 3.2 ranks the banks on the basis of shareholders’ funds.

TABLE 3.1 INSURED BANKS’ SHAREHOLDERS’ FUNDS AS AT DECEMBER 31, 2005

S/N BANK NAME** SHAREHOLDERS’ FUNDS (=N=’ BILLION)

1 ACCESS BANK NIGERIA PLC 25.09

2 AFRIBANK NIGERIA PLC 25.90

3 DIAMOND BANK PLC 31.12

4 ECOBANK NIGERIA PLC 27.81

5 EQUITORIAL TRUST BANK PLC 26.36

6 FIRST CITY MONUMENT BANK PLC 27.54

7 FIDELITY BANK PLC 27.38

8 FIRST BANK PLC 46.92

9 FIRSTINLAND BANK PLC 25.99

10 GUARANTY TRUST BANK PLC 35.09

11 IBTC-CHARTERED BANK PLC 27.01

12 INTERCONTINENTAL BANK PLC 45.87

13 NIGERIA INTERNATIONAL BANK LTD 25.31

14 OCEANIC BANK PLC 28.11

56 15 PLATINIUM-HABIB BANK PLC 25.10

16 SKY E BANK PLC 30.0 6 17 SPRING BANK PLC 34.50

18 STANBIC BANK LTD 25.66

19 STANDARED CHARTERED BANK LTD 26.65

20 STERLING BANK PLC 25.47

21 UNITED BANK FOR AFRICA PLC 46.69

22 UNION BANK PLC 37.63

23 UNITY BANK PLC 26.61

24 WEMA BANK PLC 26.22

25 ZENITH BANK PLC 37.78

TOTAL 777687686868 bn ** Component Members of Each Bank Are Indicated in Table 1.2 Source: Bank Returns

TABLE 3.2 RANKING OF BANKS ON THE BASIS OF SHAREHOLDERS’ FUNDS AS AT DECEMBER 31, 2005

S/N BANK NAME SHAREHOLDERS’ FUNDS (=N=’ BILLION)

1 FIRST BANK PLC 46.92

2 UNITED BANK FOR AFRICA PLC 46.69

3 INTERCONTINENTAL BANK PLC 45.87

4 ZENITH BANK PLC 37.78

5 UNION BANK PLC 37.63

6 GUARANTY TRUST BANK PLC 35.09

7 SPRING BANK PLC 34.50

8 DIAMOND BANK PLC 31.12

9 SKYE BANK PLC 30.08

10 OCEANIC BANK PLC 28.11

57 11 ECOBANK PLC 27.81

12 FIRST CITY MONUMENT BANK PLC 27.54

13 FIDELITY BANK PLC 27.38

14 IBTC-CHARTERED BANK PLC 27.01

15 STANDARD CHARTERED NIGERIA 26.65 LIMITED

16 UNITY BANK PLC 26.61 17 EQUITORIAL TRUST BANK PLC 26.36

18 WEMA BANK PLC 26.22

19 FIRST INLAND BANK PLC 25.99

20 AFRIBANK NIGERIA PLC 25.90

21 STANBIC BANK LIMITED 25.66

22 STERLING BANK PLC 25.47

23 NIGERIA INTERNATIONAL BANK LIMITED 25.31

24 PLATINIUM HABIB BANK PLC 25.10

25 ACCESS BANK PLC 25.09

TOTAL 77768768 bn

Source: Bank Returns

Section 4

Structure Of Assets And Liabilities Of Insured Banks In Year 2002005555

4.04.04.0 Introduction

The risk disposition of a bank =s management is usually reflected in the structure of assets and liabilities of the bank, which also provides the regulatory authorities and the banking public with information that can be used in assessing the health condition of the bank. This section and the

59 accompanying tables present the structure of assets and liabilities of insured banks in 2005 as compared with those of 2004.

4.14.14.1 Insured Banks = Structure ofofof Assets

60 The Total Assets of insured banks (inclusive of Off-Balance Sheet

Engagements), as shown in Table 4.1 increased by about 34.99 per cent from N=4,046.99 billion in 2004 to N=5,463.08 billion in 2005. As a proportion of total assets, the following assets increased: Interbank

Placement from 0.73 per cent in 2004 to 0.75 per cent in 2005;

Bankers Acceptances and Commercial Papers from 2.57 per cent in 2004 to 4.04 per cent in 2005; Investment in FGN Development Stock from

2.44 per cent in 2004 to 4.42 per cent in 2005; Industrial (Other)

Investments from 0.11 per cent in 2004 to 0.37 per cent in 2005; Gross

Loans, Advances and Leases from 33.27 per cent in 2004 to 33.29 per cent in 2005; Investment in Unconsolidated Subsidiaries & Associates from 0.06 per cent in 2004 to 0.12 per cent in 2005; Other Assets from

6.96 per cent in 2004 to 8.09 per cent in 2005; and Customers’

Liabilities from 16.49 per cent in 2004 to 17.82 per cent in 2005.

Furthermore, new investments in Treasury Certificates and Stabilisation

Securities accounted for 0.32 per cent and 0.21 per cent of total assets, respectively in 2005.

61 Expressed as a proportion of total assets, the following assets decreased:

Vault Cash from 2.17 per cent in 2004 to 1.66 per cent in 2005;

Balances Held With CBN from 6.76 per cent in 2004 to 6.39 per cent in

2005; Balances Held with Other Banks in Nigeria from 2.47 per cent in

2004 to 1.69 per cent in 2005; Balances Held with Offices & Branches

Outside Nigeria from 11.86 per cent in 2004 to 7.07 per cent in 2005;

Money at Call in Nigeria from 0.13 per cent in 2004 to 0.11 per cent in

2005; Treasury Bills from 14.27 per cent in 2004 to 12.77 per cent in

2005; Provision for Loans and Loan Losses from 5.93 per cent in 2004 to 3.95 per cent in 2005; Net Fixed Assets from 3.98 per cent in 2004 to

3.54 per cent in 2005. However, Bills Discounted Payable in Nigeria remained unchanged at 0.01 per cent during the year.

The sharp drop in the Treasury Bill Rate from 15 per cent to as low as

3.5 per cent, resulted in a decrease in investment in Treasury Bills in

2005. However, with the floating of FGN Bonds at a rate higher than the

Treasury Bill Rates and for a period of between two to three years, with interest payment to be made semi-annually, investment shifted from 62 treasury bills to FGN Development Stocks which witnessed an increase of

1.98 percentage points in 2005. That explains the rise in investment in

FGN Development Stocks during the year under review.

TABLE 4.1 INSURED BANKS = STRUCTURE OF ASSETS IN 2002004444 & 2002005555

Percentage Share As At Assets End Of December

2004 2005

Vault Cash 2.17 1.66

Balances Held With CBN 6.76 6.39

Balances Held With Other Banks In Nigeria 2.47 1.69

Balances Held With Offices & Branches Outside Nigeria 11.86 7.07

Money At Call In Nigeria 0.13 0.11

Interbank Placement 0.73 0.75

Placement With Discount Houses 1.65 1.28

Treasury Bills 14.27 12.77

Treasury Certificates 0.00 0.32

Investment in Stabilization Securities 0.00 0.21

Bills Discounted Payable In Nigeria 0.01 0.01

Bankers Acceptances and Commercial Papers 2.57 4.04

Investments In FGN Development Stock 2.44 4.42

Industrial (Other) Investments 0.11 0.37

Gross Loans, Advances And Leases 33.27 33.29

Provision For Loans And Loan Losses (5.93) (3.95)

Investment In Unconsolidated Subs And Associates 0.06 0.12

Net Fixed Assets 3.98 3.54

Other Assets (Less Current Loss if Included) 6.96 8.09

Customers = Liabilities (Per Contra) 16.49 17.82

Total Assets 100.00 100.00

Total Value Of Assets (N=> Billion) Inclusive of OBS NNN=N===4,046.994,046.99 NNN=N===5,463.085,463.08

Source: Computed From Bank Returns

4.24.24.2 Insured Banks = Structure ofofof LiabilitiLiabilitieseseses

Expressed as a proportion of total liabilities, the following liabilities increased: Shareholders = Funds (the sum of banks = Share Capital,

Reserve Funds, Profit, Preference Shares and Revaluation Reserves)

64 increased from 9.76 per cent in 2004 to 14.79 per cent in 2005;

Overdrawn Account with the CBN from 0.45 per cent in 2004 to 0.47 per cent in 2005; Balances Held for Other Banks Outside Nigeria from 0.47 per cent in 2004 to 0.51 per cent in 2005; and Liabilities per Contra from

16.49 per cent in 2004 to 17.82 per cent in 2005. The following liabilities expressed as a proportion of total liabilities decreased: Debentures from

0.08 per cent in 2004 to 0.07 per cent in 2005; Balances Held for Other

Banks in Nigeria from 0.37 per cent in 2004 to 0.22 per cent in 2005;

Total Deposit Liabilities (Demand, Savings and Time Deposits) from 44.83 per cent in 2004 to 44.71 per cent in 2005; Loans and Advances from

FGN, State Governments, CBN, NDIC and Other Banks from 1.48 per cent in 2004 to 0.62 per cent in 2005. Money at Call from 1.36 per cent in

2004 to 1.08 per cent in 2005; and Other Liabilities from 24.71 per cent in 2004 to 19.68 per cent in 2005. However, Negotiable Certificate of

Deposits and Non-Negotiable Certificate of Deposits remained unchanged at 0.03 per cent and 0.00 per cent respectively during the year.

65 The increase in insured banks’ Shareholders’ Funds as seen above could be explained by the fact that there was massive injection of funds into the nation’s banking system in an effort by each bank to meet the minimum shareholders’ funds of =N=25.0 billion requirement by December 31,

2005. As for the short-fall in Total Deposit Liabilities of banks in 2005 when compared with that of 2004, it was occasioned by the withdrawals of public sector funds which was part of the banking sector reform agenda.

Also, withdrawals were made by depositors to enable them partake in the acquisition of shares in banks under the bank consolidation programme.

TABLE 4.2 INSURED BANKS = STRUCTURE OF LIABILITIES IN 22000000004444 & 2002005555

Percentage Share Liabilities As At The End Of December

2004 2005

Share Capital 3.51 3.79

Reserve Funds (Including Retained Profit & Loss) 4.67 9.79

Current Year Profit and Loss 1.32 0.82

Preference Shares 0.00 0.05

Revaluation Reserves 0.26 0.34

Debentures 0.08 0.07

Overdrawn Account With CBN 0.45 0.47

Balances Held For Other Banks In Nigeria 0.37 0.22

Balances Held For Other Banks Outside Nigeria 0.47 0.51

Money At Call In Nigeria 1.36 1.08

Demand Deposits 25.13 24.77

Savings Deposits 8.88 8.03

Time/Term Deposits 10.82 11.91

Negotiable Certificate Of Deposits (NCD) 0.03 0.03

Non-Negotiable Certificate Of Deposits (NNCD) 0.00 0.0

Loans And Advances From FGN, State 1.48 0.62 Governments, CBN, NDIC And Other Banks

Other Liabilities (Less Current Year Profit And Loss if 24.71 19.68 Included)

Liabilities Per Contra 16.49 17.82

Total Liabilities 100.00 100.00

Total Value Of Liabilities (N=> Billion) Inclusive of NNN=N===4,044,044,046.996.99 NNN=N===5,463.085,463.08 OBS

Source: Computed From Bank Returns

Section 5 .

Insured B anks’ Deposit Liabilities By Size And Type In 2005

5.1 Analysis Of The types And Sizes Of Deposits Mobilised By Insured Banks

Bank deposits usually constitute the largest component of a banking system’s liabilities. A thorough analysis of the types and sizes of deposits mobilised by banking institutions is of great significance in an effort to ensure effective asset/liability management. The total deposit liabilities of

68 insured banks increased from =N=1.81 trillion as at December 2004 to

=N=2.47 trillion as at December 31, 2005, representing an increase of

36.05 percent. One reason that could account for the substantial increase is the aggressive deposit mobilisation strategies adopted by insured banks during the year under review. The various strategies adopted in 2005, played a significant role in boosting the quantum of deposit liabilities mobilised by insured banks. The withdrawal of public sector funds from banks made it imperative for insured banks to strengthen their deposit mobilisation efforts. The growth in deposit could also be linked with the improved performance of the nation’s economy as evidenced in the growth in GDP in 2005, as noted in Section 1 of this report. Table 5.1 and Chart

5A show the total deposit liabilities of insured banks as at December

2005.

TABLE 5.1 ANALYSIS OF DEPOSIT LIABILITIES OF INSURED BANKS

69 Type of Deposit 2004 2005 Liabilities Amount Percentage of Amount ((=N==N==N=’M)’M) PercPercentage entage of (((=N=(=N==N=’M)’M) Total (%) Total (%)

Savings Deposits 355,932.04 19.61 443,351.82 17.96

Demand Deposits 799,884.23 44.08 1,197,778.41 48.51

Time/Term Deposits 658,929.17 36.31 827,939.48 33.53

TOTAL 1,1,1,814,745.441, 814,745.44 100.00 2,469,069.71 100.00 Source: Bank Returns

As can be seen from Table 5.1, savings deposits mobilized by insured banks increased by =N=87.4 billion from =N=355.93 billion as at

December 2004 to =N=443.35 billion as at December, 2005 representing an increase of 24.56 percent. Further analysis shows that savings deposits represented 17.96 percent of total deposit liabilities in December 2005. A closer look at the situation in 2005 vis-a-vis 2004 reveals that savings deposits increased only in absolute terms but declined as a proportion of total deposits. Whereas savings deposits constituted 19.61 percent of total deposits in 2004, in 2005 this category of deposits declined to 17.96 percent of total deposits.

70 From Table 5.1, it can be seen that demand deposits mobilized by insured banks amounted to =N=1,197.78 billion, which represented 48.51 percent of banks’ total deposit liabilities as at December 31, 2005. Deviating from the trend with savings deposits, demand deposit liabilities increased both in absolute terms and as a proportion of total deposit liabilities, increasing from =N=799.90 billion to =N=1,197.78 billion and from 44.08 percent to

48.51 percent in December 2004 and 2005 respectively. Following the same trend with savings deposits, time/term deposits mobilized by insured banks as at December 2005 increased significantly by =N=169.01 billion from =N=658.93 billion in December 2004 to =N=827.94 billion in

December 2005. However, as a proportion of total deposits, time/term deposits’ relative share declined from 36.31 percent in 2004 to 33.53 percent in 2005. The decline could be as a result of the withdrawal of government deposits, most of which were on a term basis.

It is important to note that out of the total deposit liabilities of

=N=2,469.07 billion mobilized by all the banks in operation as at the end of December 2005, the deposits of five biggest banks amounted to 71 =N=1,218.90 billion, which represented 49.37 percent of the total deposits as evidenced in Table 5.2. Furthermore, deposit liabilities generated by top ten (10) banks stood at =N=1,634.82 billion or 66.21 percent of the total deposit liabilities of all insured banks in the system. The fact that ten banks held over a half of the total deposits of the entire industry shows that competition for deposits in the nation’s banking industry remained very uneven as in previous years.

As at December 2004, ten banks held 56.73 percent of total deposits of the banking industry. By December 2005, the total share of ten banks had grown to 66.21 percent. We can deduce from this that the competitive edge of the big banks over the rest of the banks remained very significant.

TABLE 5.2 ANALYSIS OF DEPOSIT LIABILITIES HELD BY THE BIG INSURED BANKS 2005

72 Banks (((=N=’B)( ))) Percentage of Total (%) Top Five Banks 1,218.90 49.37 Top Ten Banks 1,634.82 66.21 All Other Banks 834.25 33.79

Source: Bank Returns

5.2 Deposit Size Of Insured Banks

The average deposit in insured banks increased appreciably by 51.36 percent from =N=20.39 billion in December 2004 to =N=30.86 billion in

December 2005. The distribution of deposit liabilities generated by top five, top ten banks and the rest of insured banks’ is presented in Table

5.2 and Chart 5B.

TABLE 5.3 ANALYSIS OF INSURED BANKS’ DEPOSITS BY TENOR

Type of Deposit 2004 2005

Amount Percentage of Amount Percentage of (((=N=(=N==N=’M)’M) Total (%) (((=N=(=N==N=’M)’M) Total (%)

Below 30 Days 1,122,420.06 61.85 1,926,615.10 78.03

Between 31 and 90 Days 519,380.14 28.62 330,114.62 13.37

73 Between 91 and 180 Days 113,421.59 6.25 81,479.30 3.30

Between 181 and 365 Days 46,820.43 2.58 55,060.25 2.23

Above 365 Days 12,703.22 0.70 75,800.44 3.07

Total 1,814,745.44 100.00 2,469,069.71 100.00 Source: Bank Returns

5.3 Analysis Of Insured Banks’ Deposits By Tenor

Analyses of insured banks’ deposits by tenor are presented in Table 5.3 and Chart 5 C. The table shows that short-term deposits of below 30 days totalled =N=1,926.62 billion as at the end of December 2005, representing 78.03 percent of the total deposits, as against 61.85 percent in 2004. As can be seen from the table, this category of short-term funds increased significantly both in volume and as a proportion of total deposits in 2005. On the other hand, deposits of between 31 and 90 days declined sharply by =N=189.27 billion from =N=519.38 billion in December 2004 to =N=330.11 billion as at end of December 2005. Even as a proportion of total deposits, this category of short-term deposits also witnessed a huge drop, as it declined from 28.62 percent in December 2004 to just

13.37 percent as at December 2005. The drop during the period under

74 review, could be linked to fund withdrawal by depositors to enable them partake in shares’ acquisition in some banks that went to the capital market to raise funds in an attempt to meet the =N=25 billion minimum shareholders’ funds prescribed by the CBN.

Deposits of between 91 and 180 days also decreased considerably by

=N=31.94 billion from =N=113.42 billion in December 2004 to =N=81.48 billion as at December 2005. Whereas deposits of between 181 and 365 days increased only in absolute terms from =N=46.82 billion in 2004 to

=N=55.06 billion in 2005, it however declined marginally as a percentage of total deposits from 2.58 percent in December 2004 to 2.23 percent as at December 2005. With regard to long-term funds of more than 365 days

(one year), this category of deposits deviated from the trend of previous years as it increased both in absolute terms and as a percentage of total deposits. It increased from =N=12.70 billion (0.70%) in December 2004 to =N=75.80 billion (3.07%) in December 2005. In spite of the relative increase in the volume of deposits of more than 365 days, the fact

75 remains that investors were less inclined to placing their funds for long- term periods in the system.

The analysis of banks’ deposits by tenor as depicted in Table 5.3 shows that banks’ capacity to channel investible funds to the real sector of the economy on a long-term basis in 2005 was significantly hampered. It is expected that the current economic and financial sector reforms of the present administration would help in reversing the ugly trend.

Section 6 . Analysis of Insured Banks’ Assets By Size in 2005

One of the major indicators of insured banks’ performance is the level

and extent of growth in the total assets over time. The growth in

assets provides a reasonable basis, along with other variables, for 76 ascertaining both the current and long-term performance and prospects of deposit-taking institutions. Insured banks’ total assets in 2005, is presented in Table 6.1 along with the comparative figures for 2001,

2002, 2003 and 2004.

TABLE 6.1 GROWTH TREND IN INSURED BANKS’ ASSETS 2001 – 2005

Total % Year Assets Growth (=N=’b) 2001 2,449.11 29.20 2002 2,980.5 21.70 2003 3,365.21 12.91 2004 4,046.99 20.26 2005 5,463.1 34.99 Source: Bank Returns

Table 6.1 shows that insured banks’ total assets (inclusive of off- balance sheet engagements) grew by 34.99 per cent, from

=N=4,046.99 billion in 2004 to =N=5,463.1 billion in 2005. A further

77 analysis of the growth in total assets indicates that in 2002, 2003, and

2004 total assets were =N=2,980.5, =N=3,365.21 and =N=4046.99 representing increases of 21.70 per cent, 12.91 per cent and 20.26 per cent respectively.

It is important to note that out of the total assets of =N=5,463.1billion as at the end of December 2005, the assets of the five (5) biggest banks amounted to =N=2,470.01 billion, which represented 45.21 percent of the total assets as evidenced in Table 6.2. Furthermore, the assets of top ten (10) banks stood at =N=3,532.08 billion or 64.65 percent of the total assets of all insured banks in the system as at

December 31, 2005. The fact that ten banks held over 60 percent of the total assets of the entire industry was an indication of the oligopolistic nature of the nation’s banking system during the period under review.

TABLE 6.2 78 ANALYSIS OF INSURED BANKS’ ASSETS BY SIZE

Banks Total % of (=N=’b) Total

Top 5 2,470.01 45.21

Top 10 3,532.08 64.65

Others 1,626.00 29.76

Source: Bank Returns

DISTRIBUTION OF INSURED BANKS’ ASSETS BY SIZE AS AT DECEMBER 31, 2005

2470

3532

1626 79

SSSectionSection 777

IIInsuredInsured BBBanksBanks RRReportedReported FFFrauds/ForgeriesFrauds/Forgeries AAAndAndndnd

FFFidelity Fidelity BBBondBond IIInsuranceInsurance CCCoverCover

7.07.07.0 IIIntroduction Introduction

Sequel to the requirements of Sections 39 and 40 of the NDIC Act No 22 of 1988 (as amended), banks render monthly returns on frauds and forgeries and also notify the Corporation about terminations, dismissals and retirement of staff. Also, Section 32 of the Act requires insured banks to

80 provide fidelity bond insurance to cover frauds and forgeries committed against them.

Presented in this section are the reported cases of frauds and forgeries in

2005 along with the comparative figures for 2004. Also, information on the general nature of frauds and forgeries as well as the number and categories of staff involved is provided. Finally, insured banks’ responses on fidelity bond insurance cover during the period under review, are highlighted.

7.17.17.1 Cases of Frauds And Forgeries In Insured Banks

There was an increase in the number of reported cases of frauds and

forgeries in the nation’s banking system in 2005 over that of 2004. In

spite of the increase however, there was a decrease in the total amount

involved in 2005 compared to 2004. Table 7.1 shows the number of

reported cases of frauds and forgeries, the amount involved and the

expected loss.

TABLE 7.1 RETURNS OF INSURED BANKS ON FRAUDS AND FORGERIESFORGERIES

Quarter Year Total Total Total Proportion of No. of Amount Expected Expected Loss To Fraud Involved Loss (N='m) Amount Involved Cases (N='m) (%)

1st 2005 296 3,711.2 856.72 15.13

2004 244 1,399.80 344.30 24.05

1,186.47 58.89 2nd 2005 303 1,321.08

256 2004 3,503.6 739.40 20.64

3rd 2005 313 1,963.85 1,184.79 39.56

4,432.90 16.72 2004 379 758.20

4th 2005 317 3,610.00 2,374.07 43.12

2004 296 2,417.80 768.10 31.07

10,606.18 39.17 Average/ 2005** 1,229 5,602.05 Total 2004** 1,175 11,754.00 2,610.00 21.71 *

** - Provisional Figure *** - Revised Figure Source: Bank Returns

As shown in the table, there was a total of 1,229 reported cases of fraud and forgeries involving =N=10.61 billion (that is, =N=10.4

82 billion, US$1.4 million, GBP35,840 and Euro116,310) in 2005, compared with 1,175 reported cases involving about =N=11.75 billion (that is, =N=9.6 billion, US$15.6 million, GBP46,397.40 and

Euro223,728.70) in 2004. The expected loss in 2005 was estimated at =N=5.61 billion (that is, =N=5.5 billion,

US$728,346.96, GBP30,085 and Euro10,255), compared to about

N=2.61 billion in 2004 (foreign currencies for 2004 and 2005 were converted to the domestic currency using the exchange rates at

December 2004 and 2005 respectively). The proportion of expected loss to the amount involved increased significantly to over

52 per cent as at end of 2005 from about 22 per cent in 2004.

Charts 7A and 7B depict the extent of frauds and forgeries in insured banks in 2004 and 2005.

CHART 7A

AMOUNT INVOLVED IN FRAUDS AND FORGERIES (N'M)

11,754 12,000 10,606 10,000 8,000 6,000 4,000 2,000 0 Year

2004 2005

CHART 7B EXPECTED LOSS IN FRAUDS AND FORGERIES(N'M)

6,000 5,602 5,000 4,000 3,000 2,610 2,000 1,000 0 Year

2004 2005

7.27.27.2 Incidence And Type Of Fraud And FoForgeriesrgeries Reported

The ten (10) banks with the highest number of reported fraud cases as presented in Table 7.2 were responsible for 88.38% of the total amount involved in 2005. The table shows that in absolute terms, the total amount involved, which stood at =N10,606.18 million in 2005, was lower than the 2004 figure but higher than that of 2003.

TABLE 7.2 TEN BANKS WITH HIGHEST FRAUD CASES

2003 2004*** 2005** GROUP Amount % Share Amount % Share Amount % Share Involved Involved Involved (N =M) (N =M) (N =M)

88.38 Total For 10 10,024.00 85.88 9,373.74 92.02 Banks 8,635.38

Total For All 100.00 11,754.00 100.00 10,606.18 100.00 9,383.67 Banks

** - Provisional Figure *** - Revised Figure Source: Bank Returns

85 An analysis of the types of frauds and forgeries perpetrated showed that the commonest types were the following:

a) Presentation of forged cheques; b) Granting of unauthorised credits; c) Posting of fictitious credits; d) Fraudulent transfers/ withdrawals; e) Cheque suppression and cash defalcation f). Loss of money to armed robbers; and g). Outright theft of money.

The frequency, amount involved and expected loss are presented in

Table 7.3.

TABLE 7.3 TYPES OF MAJOR FRAUDS AND FORGERIES (INCLUDING CASES OF ARMED ROBBERY AND OUTRIGHT THEFT) IN 2002005555

GENERAL FREQUENCY OF AMOUNT ACTUAL LOSS NATURE OF OCCURRENCE INVOLVED

FRAUD N=M % N=M %

2,601.69 24.53 1,413.75 25.24 Granting of 21 unauthorized loans/overdraft

2,632.45 24.82 628.82 11.22 Presentation of 418 forged cheques

670.31 6.32 924.69 16.51 Posting of fictitious 43 credit

566.37 5.34 708.07 12.66 Loss of money to 61 armed robbers

2,637.75 24.87 759.10 13.55 Fraudulent transfer 365 and withdrawals

160.15 1.51 235.75 4.21 Outright theft 33

1,054.25 9.94 930.84 16.62 Suppression of 171 cash/cheques

Attempted Fraud 117 331.77 3.13 0 0

101010,10 ,,,606.18606.18 TOTAL 1,229 100 555,5,,,602.02602.02 100

Source: Bank Returns

Table 7.3 indicates that Fraudulent transfer and withdrawawithdrawalswithdrawa lslsls,, which took second position in terms of frequency of occurrence, constituted the largest proportion with regard to the amount involved in fraud cases in 2005 as was the case in 2004. However, in terms of

87 expected/actual loss, it occupied the fourth position in 2005 as against the first in 2004. The picture was however, different in 2003 when Presentationresentation of forged cheques occupied the first position in absolute amount and loss expected. Furthermore, Presentation of forged cheques ranked first and third in terms of frequency of occurrence and amount involved, respectively in 2005. However, in

2003 and 2004 it (PresentationPresentation of forged chequescheques)))) occupied the second position both in terms of the amount involved (28.33%) and the expected loss (30.31%). Moreover, unlike the trend in 2003 and

2004 when fraudulent transfer and withdrawals and presentation of forged cheques were jointly responsible for over 60% of the total amount involved in fraud cases and expected loss; in 2005 they constituted only 49.69% and 29.77%, respectively. The figures for

2004 for both types of frauds, that is, 66.69% of the total amount involved in major fraud cases and 61.37% of the total expected loss compared with the 2005 figures (.i.e. 49.69% and 29.77%, respectively) show a significant drop.

Granting of unauthorized loans/overdraft which took number eight (8) in terms of frequency of occurrence in 2004, came second (24.53%) in terms of total amount involved and first (25.23%) in terms of actual/expected loss in 2005. This contrasts with the 2004 scenario when it took the third position as regards total amount involved in reported cases of frauds and forgeries. Suppression of cash/cash/cheques cheques which took the fourth position as regards total amount involved in reported cases of frauds and forgeries in 2004 was third in terms of frequency of occurrence in 2005. Also, it (SuppressSuppressionion of cash/chequescash/cheques)) came fourth (((9.94%) ( in terms of the total amount involved and third (16.61%) in terms of expected/actual loss in 2005..

Attempted fraud was number four in terms of frequency of occurrence, accounting for 3.13% of the total amount involved in frauds and forgeries in 2005 but recorded zero percent in actual loss sustained.

Whereas Lossoss of money to armed robbers and Posting of fictitiousfictitious credit occupied the fifth and sixth positions in terms of frequency of

89 occurrence, they came sixth (5.34%) and fifth (6.32%), respectively in total amount involved in reported cases of fraud and fourth (16.50%) and fifth (12.65%) respectively, in actual loss sustained. Finally, outright theft took the seventh position both in terms of frequency of occurrence and total expected loss (4.20%) and number eight position

(1.51%) in terms of total amount involved in reported cases of frauds and forgeries in 2005.

7.37.7.7. 333 Banks = Staff Involvement in Frauds And Forgeries

Table 7.4 shows the rank and number of banks = staff involved in frauds and forgeries for the past three years. A total of 378 staff of banks were reported to be involved in frauds and forgeries in 2005, a decrease of about 1.30% when compared with the previous year =s level. That implies that a slightly reduced number of staff perpetrated frauds and forgeries during the period under review. Of the total, core operations staff such as supervisors, officers, accountants, managers, executive assistants, clerks and cashiers totalled 347, accounted for

90 about 91.78 per cent, an increase of 1.18 percentage points relative to the 2004 level. By implication, even though there was a drop in terms of the absolute number of staff that perpetrated fraud in 2005, there was a slight increase in terms of core bank staff that engaged in fraudulent activities in the same year relative to the previous year.

TABLE 7.4 BANKS = STAFF INVOLVED IN FRAUDS AND FORGERIES

2003 2004 2005 Rank Number % Number % Number %

25 169 44.70 Supervisors & Managers 23.58 157 40.99

124 32.80 Officers, Accountants & Executive 41 38.68 129 33.68 Assistants

54 14.28 Clerks & Cashiers 25 23.58 61 15.93

16 4.23 Typists, Technicians & - - 18 4.70 Stenographers

12 3.17 Messengers, Drivers, Cleaners, 7 6.60 15 3.92 Security Guards & Stewards

3 0.79 Temporary Staff 8 7.55 3 o.78

- - Uncategorized Staff - - - -

106 Total 100.00 383 100.00 378 100.00

Source: Bank Returns

7.47.47.4 Report On Fidelity Insurance Cover For Insured Banks In 2003

Section 32 of the Nigeria Deposit Insurance Corporation (NDIC) Act

No. 22 of 1988 (as amended), stipulates that Aany licensed bank or such other financial institution which insures its deposits with the

Corporation shall be required to provide fidelity bond coverage @. The fidelity insurance policy covers frauds and forgeries committed by insured banks = staff. It is intended to reduce the adverse effects of insider frauds and forgeries on the banks. Accordingly, all insured banks are expected to take up the fidelity insurance cover and renew same annually. The required minimum insurance coverage for each bank is fixed at 15% of its paid-up capital as at 31 st December of the preceding year.

92 In 2005, the rate of compliance was high, both in absolute figure and percentage terms, than what obtained in 2004. Table 7.5 reports the number of banks that complied with the fidelity insurance cover requirement in 2005 compared to 2004.

TABLE 7.5 BANKS' RESPONSE TO NDIC FIDELITY INSURANCE

COVER IN 2002005555

(a) (b) (c=b/a) Year No. Of Banks In No. Of Banks % of Total Operation That Responded

2005 89** 49** 55.0

2004 89 8 9.0

** Figures before the emergence of the 25 consolidated banks

Source: Bank Returns

As shown in Table 7.5, during the period under review and before the conclusion of the consolidation exercise and the emergence of 25 banking groups in the system, 49 insured banks out of the 89 insured banks that existed as at end-December, 2004 complied with the requirement of fidelity insurance coverage. The 2005 figure was a significant increase, compared with that of 2004 when only 9.0% (that is, only 8 out of the 89 insured banks that existed as at that year end), complied. Consolidation and the emergence of 25 banks in the system as against 89 that existed at end-

December, 2004 would make it much easier for the Corporation to monitor insured banks’ compliance with the requirement in the post consolidation era.

Section 8

Bank Supervisory Activities In 2005

8.0 Introduction

Banks are supervised to protect depositors, ensure monetary stability and promote an effective and efficient paymentpaymentssss system. Banking supervision provides the oversight required to presepreserverve the integrityintegrity of, and promote public confidence in, the banking system. Hence, tthehe CorporationCorporation has continued to

regard the supervision of insured financial institutions as an integral part of the

mechanism for ensuring safe and sound practices in the nation’s banking

systemsystem.. Thus, the Corporation continued with its onon----sitesite and offoff----sitesite supervisory

activities in 2002005555.. The supervisory activities of the three (3) depadepartmentsrtments

primarily charged with this responsibility namely:namely:---- Field Examination, OffOff----sitesite

Supervision and Special Insured Institutions (SIIs) Departments in fiscal year

2005 are reviewed in this section.

8.1 On-Site Examination

The bank consolidation programme, which was initiated by the Central Bank of

Nigeria (CBN), impacted directly on bbbank bank examination activities of the

Corporation in 2005, especially in the last quarter of the year when the

4 Corporation had to carry out a number of joint special/targetspecial/target eexaminationsxaminations alongside the CBN Examiners. Although expected, such joint activactivititiit iiieses werweree outside the planneplannedddd routine examinations. Besides, the Corporation also carried out a number of special investigations arising from market information, whistlewhistle---- blblblobl ooowingwing and complaintcomplaintssss by bank customers. The statistics of the CorporationCorporation’sCorporation ’s activities in iitsts core function of onon----sitesite supervision in 2005 and those of the preceding year, 2004, are presented in Table 8.8.8.1.8. 1.1.1.

Table 8.1 Number of Banks Examined On-site By NDIC Year Routine Target Special Special Total Examination Examination Investigation 2005 262626 131313 777 121212 585858

2004 303030 111 111 181818 505050

As shown in the above tttable,table, the Corporation conducted 26 routine, 13 target and 7 special examinations in 2005. A total of 12 special investigations were also conducted during the year. In all, the Corporation Corporation conducted 58

examinations in 2005 as against 50 in 2004.

5 As reported in 2004, many of the banks were continually in the breach of banking laws, rules and regulations. The following contracontravvvventionsentions were regular features in the 2005 examinationsexaminations....

i)i)i) Rendition of inaccuinaccuraterate returns and failure to disclosedisclose the true naturnaturee of

all transactions to the Regulatory Authorities;

ii)ii)ii) Prevalence of large volume of nonnon----performingperforming director related credits;

iii)iii)iii) NonNon----implemimplemimplemenenenentationtation of recommendations of successive bank

examinationexaminationssss and audit reports;

iv)iv)iv) Granting credit facfaciiiilitieslities in excess of single obligor limit;

v)v)v) Failure to meet the 10% minimum prescribed ratio of capital to riskrisk----

weighted assetsassets;;;; and

vi)vi)vi) Failure to meet the prescribed statutory liquidity ratio of 40%.

6 Aside from the foregoing, the examinations revealed serious weaknessesweaknesses in

Corporate Governance. One such weakness wwasas llackack of transparency in financial reportingreporting, ,,, especially in the continued wrongful use of Bankers

Acceptances and Commercial Papers to understate loans and advances as well as deposits. Some banks also engaged in spurious paper transactions among themselves to cover up for serious violation of the law.

Also, ppooroor execution of BoBoaaaardrd oversigoversighhhhtt functions, as discovered in many banks were manifested in the failure of ccommitteesommittees of the various boards to meet regularregularlylylyly and the failure of such boards to compel their cccommitteescommittees to perform as requiredrequired.. Other problems noted were failure to institute andand execute appropriate framework for strategic planning and risskkkk managementmanagement, , as well as the failure of the boards to enforce compliance with the various policies, rules and regulations guiding the businesses of their respective banks. In many instances, some management committees also failed to meet regularlyregularly.. The exhibition of such apathy by the various boards and managements pprovidedrovided ample opportunities for selfself----servingserving and lessless----thanthanthan----transparenttransparent financial transactions that had farfar----reachingreaching consequences for the respective banks.

7 A fallfall----outout of the weaknesses in the boboaaaard’srd’s overoversigsigsigsighhhhtt role was the weak

supervision of the credit function and the resultant prevalence of large volume of

poor quality risk assets in the bboooooksoks of the banks. Apart from the numerous

bad loans generated from the generality of bank borrowers, some insidersinsiders----

related credit facilities remained nonnon----performing.performing. Taken together, they all

contributed to the problems of poor liquidity, poor assets quality, huge

provisioning requirements and, consequently, poor earnings, weak capitalization

and, insolvency of some ooff the banks. Besides, withwith large nonnon----performingperforming loans

standing against them, such insiderinsider----debtorsdebtors lacked the moral courage to pursue

other debtordebtor----customerscustomers to pay up. Thus, efforts at debt recoverrecoveryy had been

poor.

The effectiveness of the Internal Audit fufufunction fu nction was, perhaps, the greatest

weakness of corporate governance in nearly all the bbaaaanksnks examined during the

year. That situation was accentuated by lack of commitment by the respective

bank’s Audit Committee, which culminated in audit findings of one year being repeated in the following years. There had been no effort on the parts of the boards and managements to enforce compliance with auditors’ recommendations in some banks. It was apparent that the audit committees either never reviewed

8 audit repreportsorts or were simply not bothered by the findingsfindings evevenen when they involved reckless spending, unauthorized transactions and or brazen violations of policies all of which translated to huge losses for the banks. Besides, in many instances, such banks often ffailedailed to implement Examiners’Examiners’ recommendations even when faced with the threat of regulatory sanctions.

Inadequacy of contingency plan for business continuity was another prominent weakness. Some banks did not appreciate the need for best practicepracticess with

rrregardregard to business continuity in the event of a disadisaster.ster. Disaster Recovery Plan

(DRP) which should, among others, include appropriate controls in the

movements of backup tapes, ensuring that they are regularly tested and updated

as well as establishing an appropriate plan to deal with disruptions in businebusinessss

activities arising from any unforeseen event were never in placeplace.. The fffailurefailure of

the banks to establish a DRP would seriously impair their abilities to continue

operations without disruption, or with accurate records,records, in the event of a disaster

that destroyed their databases.

Meanwhile, as a result of the new capitalization requirements, some of the

banks were able to raise additional capital funds which put them in good

9 positions for merger and/or acacquisition,quisition, while some others remained the way they were and were absorbed by other banks before the 31 ststst December 2005 deadline. A good number of the banks experienced difficulties iinn their attempts

to raise fresh capital funds and were also unattractive for acquisition. As was

later confirmed by Special Examinations, their financial conditions were very

poor. Their operations were charactericharacterizzzzeded by poor asset quality, negative

shareholders’ fund, and acute illiquidity.

As in previous years, tthehe CorporCorporation ation in 2005 continued its capacity building

activities for onon----sitesite bank examiners. In that regard, the CorporatiCorporation’son’s

examiners benefited from various specialized trainingtraining programprogrammememessss which were

meant to sharpen thetheiriririr skills for better performance in all spheres of onon----sitesite

examination, especially Information Technology (IT)(IT), , Supervision and

Management.

8.2 Off-Site Supervisory Operations

In the year 2005, the Corporation continued with its function of offoff----sitesite

surveillance over insured banks and provisioprovisionn of essentialessential services to its

stakeholders. The stakeholders to whom the CorporationCorporation rendered services were

10 the insured banks, the depositors of insured banks, CBN and other safety net players in the financial sector, international financial institutions such as the

World Bank and the IMF.

The Bank of the North Limited under the Control and Management of the

Corporation was restructured and merged with 8 other banks to form Unity Bank

PLC. Applications from banks for liquidity support were appraised and where necessary, alternative resolution options and technical assistance were provided.

As part of its supervisory activities, tthehe Corporation also handled complaints received from banks and banks’ customers during the year.

The Corporation significantly improved on its premium management processesprocesses

during the year which resulted in enhanced premium collection in 20052005.. It

undertook targeted onon----sitesite premium examination of some banks to ensure

improved regulatory reporting and also to maintain the insured stastatustus of all licensed banks.

In liaison with other safety net players, the corporation corporation processed several

requests from the CBN, SEC, and the Pension Commission ((PENCOMPENCOMPENCOM)))) on the

11 “Fit and Proper” persons test. It actively participated in the CBN/NDIC ExecutivExecutivee and Technical Committees on Banking Supervision, electronicelectronic Financial Analysis

Surveillance System ((eeee----FASSFASSFASS)))) Committee and the Financial Services Regulation

CoCoCo-Co ---ordinatingordinating Committee ((FSRCCFSRCCFSRCC)))) meetings. Through these CommitteesCommittees,, the

Corporation contributed to the provision of necessary information for the formulation and implementation of banking policies in 2005.

As a repository of bank data and informationinformation,, the Corporation provided some visiting IMF and World Bank teams with required banking industry statistatisticalstical data and information during the year under reviewreview....

8.3 Special Insured Institutions Supervisory Operations

The Special Insured Institutions Department (SIID) is responsible for the onon----sitesite examination, offoff----sitesite surveillance as well as premium asassessmentsessment of licensed

Community Banks (CBs) and Primary Mortgage InsInsttttitutionsitutions (PMIs). Community

Banks currently operating in the country were given 24 months with effect from

December 31, 2005 to migrate to Microfinance Banks which are required to have a mminimuminimum capital of N20 million.

12 8.3.1 On-Site Examination of CBs and PMIs

During the year under review, the Corporation examined 114 insinsttttitutionsitutions

comprising 67 Community BBaaaanknknknkssss and 47 Primary Mortgage Institutions as

against a total of 71 institutions that were eexaminxamineded in the preceding year.

The onon----sitesite examination of CBs and PMIs in 2005 revealed tthathat most of the

institutions continued to reel under the effects of huge nonnon----performiperformiperforminnnngg loans and

weak internal controls, while their managerial problems were yet to abate. The

Corporation’s examination reports further provided strong evidencevidenceses of continued

general lack of skilled manpower as well as pervasive poor Corporate

Governance practices in the subsub----sector.sector. These features had the potential of further increasinincreasingg the risk profile of the institutionsinstitutions with dire coconsequencesnsequences for the stability of the financial system. It is expected that much improvement will be recorded in the subsub----sector,sector, if stakeholders ensure faithful implementationimplementation of the Corporation’s recommendrecommendationsations as outlined in the examination reports.reports.

8.3.2 Off-Site Surveilance of CBs and PMIs

The Corporation carried out offoff----sitesite surveillance of licensed CBs and PMIs in the year by analyzing their returns. The offoff----sitesite surveillance resulted in the

13 production of the First, Second and Third quarterly reports. ManManyy of the CBs and PMIs however, did not file returns with the Corporation. Only an average of

58% of the licensed CBs filed returns with the Corporation in the year under review while, an average of 26% ooff the PMIs fulfilledfulfilled ththatatatat statutory requirement.

From all indications, some of the licensed Community Banks and Primary

MortMortggggageage Institutions had closed shop and that could be responsible for the low

rererenditionre ndition of statutory returnsreturns....

The offoff----sitesite surveillasurveillancence of the institutions confirmed thatthat they were no nott doing

much of financial intermediation. For example, the Quarterly Analysis Reports

showed that the bulk of the incomeincome----generatinggenerating assets of the institutions were

concentrated in placements and investmeninvestmentsts rather thanthan credits.

8.3.3 Premium Assessment of CBs and PMIs

During the year, the Board of the Corporation approved the extension of deposit

insurance coverage to CBs and PMIs that are licensed to operate in Nigeria in

line with the NDIC Act. The approval covered the applicable Maximum Deposit

Insurance Cover (MDIC), premium rate and coverage and the establishment of a

separate Special Insured Institutions Fund (SIIF). Consequently, the Corporation

14 would commence the premium assessment of the participatinipatingg institutions as soon as the proposed amendment to the NDIC Act before the National Assembly had been passed into law.

Section 9

Bank Receivership And Liquidation Operations In 2005

9.9.9.19. 111 IIIntroduction Introduction

15 The year 2005 witnessed the conclusion of the first phase of the consolidation exercise in the banking sector by the Central Bank of Nigeria

(CBN), which required each insured bank to raise its shareholders’ funds to a minimum of =N=25 billion by December 31, 2005. However, no bank was closed during the year under review. Therefore, the number of banking licences revoked by the CBN since 1994 remained at 36 as listed in Table

9.1. As at the end of year 2005, the litigations arising from the revocation of the licences of Peak Merchant Bank Ltd and Savannah Bank Plc were yet to be resolved. Consequently, the Corporation continued with the liquidation activities of the thirty-four (34) failed banks earlier closed between1994 and

2000 during year 2005.

The Corporation =s major liquidation activities in year 2005 included the commencement of the payment of liquidation dividend to the shareholders of

Alpha Merchant Bank Plc (In-Liquidation), loan recovery, valuation and sale of physical assets of the closed banks, payment of liquidation dividend to uninsured depositors as well as media campaign to sensitise depositors of the thirty four (34) banks about their claims and to encourage them to file such

16 claims. Other activities during the year included collating of information and documents to terminate the liquidation activities of some closed banks and providing necessary information on liquidation-related legal matters.

Table 9.1 List Of The 36 Closed Banks

Bank (In ---Liquidation) Date of Revocation of Licence 1 Abacus Merchant Bank Ltd. January 16, 1998 2 ABC Merchant Bank Ltd. January 16, 1998 3 Allied Bank Plc. January 16, 1998 4 Alpha Merchant Bank Pl ccc September 8,994 5 Amicable Bank of Nig. Plc January 16, 1998 6 Century Merchant Bank Ltd. January 16, 1998 7 Commerce Bank Ltd. January 16, 1998 8 Commercial Trust Bank Ltd. January 16, 1998 9 Continental Merchant Bank Plc January 16, 1998 10 CoCoCo-Co ---opopopoperativeerative & Commerce Bank Plc January 16, 1998 11 Credite Bank Nig. Ltd. January 16, 1998 12 Crown Merchant Bank Ltd. January 16, 1998 13 Financial Merchant Bank Ltd. January 21, 1994 14 Great Merchant Bank Ltd. January 16, 1998 15 Group Merchant Bank L td.td.td. January 16, 1998 16 Highland Bank of Nig. Plc January 16, 1998 17 ICON Ltd. (Merchant Bankers) January 16, 1998 18 Ivory Merchant Bank Ltd. December 22, 2000 19 Kapital Merchant Bank Ltd. January 21, 1994 20 Lobi Bank of Nig. Ltd. January 16, 199 8 21 Mercantile Bank of Nig. Plc January 16, 1998 22 Merchant Bank of Africa Ltd. January 16, 1998 23 Nigeria Merchant Bank Ltd. January 16, 1998 24 North ---South Bank Nig. Plc January 16, 1998 25 Pan African Bank Ltd. January 16, 1998 26 Peak Merchant Bank Ltd * February 28,2003 * 27 Pinacle Commercial Bank Ltd. January 16, 1998 17 28 Premier Commercial Bank Ltd. December 22, 2000 29 Prime Merchant Bank Ltd. January 16, 1998 30 Progress Bank Nig. Plc January 16, 1998 31 Republic Bank Ltd. June 29, 1995 32 Rims Merchant Bank Ltd December. 22, 2000 33 Royal Merchant Bank Ltd. January 16, 1998 34 Savannah Bank of Nigeria Plc * February 15, 2002 * 35 United Commercial Bank Ltd. September 8, 1994 36 Victory Merchant Bank Ltd ... January 16, 1998 * Liquidation Suspended Following Court Action

9.9.9.19. 111 CCClaims Claimslaims’’’’ SSSettlementSettlement AAAndAnd AAAdministrationAdministration

Claim settlement and administration involving the verification, processing and settlement of claims filed by the bonafide claimants of the closed banks continued during the year under review. In accordance with the provisions of the NDIC Act No 22 of 1988 (as amended), the Corporation provided funds for the payment of insured deposits from the Deposit Insurance Fund (DIF), while liquidation dividends to uninsured depositors, creditors and shareholders were paid from the proceeds of the sale of physical assets and recoveries made from debtors.

9.1.9.1.1111 Payment OOOfOf Liquidation Dividends TTToTo DepositorsDepositors.

18 The payment of liquidation dividends to the uninsured depositors continued during the period under review. As shown in Table 9.2, a sum of x5,967.06 million was paid as liquidation dividend as against the sum of x5,723.24 paid as at 31 st December, 2004, that is, an increase of x243.82 million.

Contrary to the misconception that the Corporation only pays depositors to the extent of the insured amount of x50,000.00, no matter how much a depositor had with a closed bank, the Corporation had by 2005 year-end declared 100% dividend (that is, full recovery) for uninsured depositors of ten

(10) banks. The affected banks were:

1) ABC Merchant Bank Ltd; 2) Alpha Merchant Bank Plc; 3) Amicable Bank of Nigeria Ltd; 4) ICON Ltd (Merchant Bankers); 5) Kapital Merchant Bank Limited; 6) Nigeria Merchant Bank Ltd; 7) Pan African Bank Ltd; 8) Premier commercial Bank Ltd; 9) Rims Merchant Bank Ltd; and 10) Continental Merchant bank Ltd.

19 Also, twenty-two other banks in liquidation had declared dividends ranging

from 5% to about 96% for uninsured depositors.

Table 9.2 Schedule Of deposit PayPay----OutOut As at December 31, 2002005555

S/NO Bank (In(In----Liquidation)Liquidation) Total DepositDepositssss Total Total Insured Liquidation Dividend Amount atatat Closure Insured DepositDepositssss Rate %%)))) Amount paid (=N=M) DepositDepositssss paid(=N=M) declared =N=M (=N=M) (=N=M) 111 Abacus MerchMerchantant Bank 12.779 7.303 15.00 Ltd. 272.563 40.00 18.49 222 ABC Merchant Bank Ltd. 14.086 8.454 100.00 224.081 223.64 156.11

333 Allied Bank Plc. 851.578 6.00 2,7852,785.261.261 1,205.651 379.83 109.69

444 Alpha Merchant Bank Plc 18.519 18.469 100.00 1,218.390 1,219.23 793.00

555 Amicable Bank of Nig. 26.226.225 252525 7.904 100.00 PlcPlcPlc 41.035 41.07 7.84 666 Century Merchant Bank 11.023 5.193 8.00 Ltd. 573.287 58.50 42.05 777 Commerce Bank Ltd. 199.607 109.630 46.62 1,156.746 558.56 353.74 888 Commercial Trust Bank 29.122 5.807 86.45 Ltd. 215.770 178.33 72.45

999 Continental Merchant 31.450 18.997 100.00 Bank Plc 1,390.270 1,387.30 822.70

101010 CoCoCo- Co ---operativeoperative & 884.939 65.86 Commerce Bank Plc 1,914.895 1,366.862 1,314.45 704.70

111111 Credite Bank Nig. Ltd. 24.716 10.292 29.01 155.223 45.00 31.69 11121222 Crown Merchant Bank 9.476 3.026 14.00 Ltd. 111.603 15.62 1.73 131313 Financial Merchant Bank 4.874 3.722 64.23 Ltd. 154.913 99.50 55.56 141414 Great Merchant BaBanknk 5.380 2.382 15.00

20 Ltd. 132.421 19.86 3.66

151515 Group Merchant Bank 4.197 1.335 --- Ltd. 296.275 0.00 0.00 161616 Highland Bank of Nig. 39.490 18.765 41.09 PlcPlcPlc 91.275 37.49 15.55 171717 ICON Ltd. (Merchant 33.944 30.163 100.00 Bankers) 1,421.194 1,402.71 870.46 181818 Ivory Merchant Bank 3.191 0.0.0.1000. 100100100 --- 0.00 0.00 46.084 191919 Kapital Merchant Bank 5.874 4.332 100.00 Ltd. 314.601 314.60 289.32

202020 Lobi Bank of Nig. Ltd. 146.562 91.043 47.60 233.234 111.03 57.09 212121 Mercantile Bank of Nig. 581.730 370.007 70.30 PlcPlcPlc 803.801 711.32 227.06

S/NO Bank (In(In----Liquidation)Liquidation) Total DepositDepositssss Total Total Insured Liquidation Dividend Amount aaatattt Closure Insured DepositDepositssss Rate % Amount paid (=N=M) DepositDepositssss paid(=N=M) declared =N=M (=N=M) (=N=M) 222222 Merchant Bank of Africa 20.909 12.828 95.85 Ltd. 712.398 682.63 288.74 232323 Nigeria Merchant Bank 4.847 3.626 11100.00100.00 Ltd. 153.896 153.90 78.38 242424 NorthNorth- ---SouthSouth Bank Nig. 152.494 80.403 6.07 PlcPlcPlc 349.868 19.02 5.80

252525 Pan African Bank Ltd. 360.745 231.884 100.00 648.630 690.00 242.44 262626 Peak Merchan bank Ltd 20.468 2.490 --- 0.00 3,424.404 0.00 272727 Pinacle Commercial 63.377 27.082 51.21 Bank Ltd. 508.728 260.50 187.22 282828 Premier Commercial 24.407 0.963 100.00 Bank Ltd. 31.051 31.05 0.05 292929 Prime Merchant Bank 4.810 2.667 20.00 Ltd. 204.725 40.00 37.99

303030 Progress Bank Nig. Plc 738.750 440.293 28.92 1,096.893 363.29 153.87

21 313131 Republic Bank Ltd. 19.923 13.068 82.21 79.182 68.65 27.03 323232 Rims Merchant Bank Ltd. 6.907 1.047 1010100.0010 0.00 252.519 252.52 199.84 333333 Royal Merchant Bank 11.042 5.066 5.00 Ltd. 677.856 33.80 24.75 343434 United Commercial Bank 34.099 26.174 51.59 Ltd. 275.907 168.11 67.76 353535 Victory Merchant Bank 4.455 1.866 37.00 Ltd. 114.856 42.00 20.39 363636 Savannah Bank of --- Nigeria Plc 4,907.177 1,084.282 0.000 0.00 0.00 TOTAL 26,991.012 6,326.273 3,302.578 10,963.51 5,967.06 Source: Receivership & Liquidation Dept., NDIC

9.1.9.1.2222 Payment OOOf Of LLLiquidation Liquidation DDDividends Dividends TTTo To General Creditors AAAnd And SSShareholders.Shareholders.

The year under review witnessed the payment of liquidation dividends to shareholders of Alpha Merchant Bank (In-Liquidation) by the Corporation. A total sum of x263.82 million or 44% out of the x600million declared, that is, x3 per share of 50kobo, had been paid as at 31 st December, 2005

22 9.1.9.1.3333 Low RRResponseResponse OOOfOf Depositors

The low response of depositors concerning collection of their deposits continued to be a source of worry to the Corporation during the year.

Despite several extensions of dates for collection of insured deposits as well as the series of enlightenment campaigns embarked upon by the

Corporation to ensure that claimants file their claims, depositors and other claimants alike, had not responded adequately. Consequently, many depositors were yet to file their claims as at December 31, 2005.

9.2 RRRisk Risk AAAssetsAssetsssets’’’’ MMManagementManagement

The Corporation during the year continued to place emphasis on the effective management of the risk assets of the banks-in-liquidation. The recovery of the assets was crucial to the fulfilment of the Corporation =s role as liquidator.

However, since 1999, when the Failed Bank Tribunals were wound up and their activities transferred to a special division of the Federal High Court, that aspect of the Corporation’s function had continued to suffer. Due to protracted delays and adjournment of cases, debt recovery had been minimal.

Furthermore, difficulty of locating assets of judgement debtors for attachment

Παγε 23 οφ 192 and sale whenever judgement was obtained also constituted a hindrance to debt recovery efforts of the Corporation. Even where attachment was successful it had been difficult to sell the properties due to a variety of reasons.

During the year, the Corporation intensified its debt recovery efforts through the use of moral suasion to encourage debtors to pay. Negotiations with some debtors resulted in the grant of interest waivers on a case by case basis. In 2005, the sum of x358.34 million was recovered from debtors, bringing the total recovery to x5,688.58 million as at December 31, 2005, compared with the December 31, 2004 figure of x5,295.53 million as shown in Table 9.3.

Table 9.3 Summary Of Loans And Advances And Recoveries As At December 31, 2002005555

S/NO Bank (In-liquidation) Total loans and Recoveries as at Recoveries as at advances at 31/12/2004 31/12/2005 closure =N=million =N=Million =N=million 1 Abacus Merchant Bank Ltd. 1,213.87 41.56 41.81 2 ABC Merchant Bank Ltd. 565.37 51.28 76.64

Παγε 24 οφ 192 3 Allied Bank Plc. 2,535.48 318.64 383.43 4 Alpha Merchant Bank Plc 1,030.72 902.70 907.38 5 Amicable Bank of Nig. Plc 328.99 20.82 25.06 6 Century Merchant Bank Ltd. 809.81 31.62 31.62 7 Commerce Bank Ltd. 1,643.59 265.81 269.68 8 Commercial Trust Bank Ltd. 570.59 110.22 150.47 9 Continental Merchant Bank Plc 1,712.28 311.23 406.21

10 Co-operative & Commerce Bank Plc 2,305.38 531.47 541.95 11 Credite Bank Nig. Ltd. 479.92 21.38 21.99 12 Crown Merchant Bank Ltd. 340.31 4.45 9.81 13 Financial Merchant Bank Ltd. 447.19 100.66 104.66 14 Great Merchant Bank Ltd. 393.44 8.64 12.38 15 Group Merchant Bank Ltd. 741.81 12.15 30.21 16 Highland Bank of Nig. Plc 114.05 15.33 19.06 17 ICON Ltd. (Merchant Bankers) 140.62 125.09 126.25 18 Ivory Merchant Bank 1,491.37 8.63 13.67 19 Kapital Merchant Bank Ltd. 344.27 242.03 242.03 20 Lobi Bank of Nig. Ltd. 291.60 64.06 71.94 21 Mercantile Bank of Nig. Plc 1,217.60 222.82 234.07 22 Merchant Bank of Africa Ltd.

Παγε 25 οφ 192 2,048.81 180.52 186.65 23 Nigeria Merchant Bank Ltd. 1,243.15 192.05 194.44 24 North-South Bank Nig. Plc 932.04 29.52 29.78 S/NO Bank (In-liquidation) Total loans and Recoveries as at Recoveries as at advances at 31/12/2004 31/12/2005 closure =N=million =N=Million =N=million 25 Pan African Bank Ltd. 1,282.45 642.29 661.53 26 Peak Merchant Bank Ltd - 22.40 22.40 27 Pinacle Commercial Bank Ltd. 1,551.90 141.99 142.00

28 Premier Commercial Bank Ltd. 1,102.00 15.38 15.55 29 Prime Merchant Bank Ltd. 838.11 38.64 39.29 30 Progress Bank Nig. Plc 1,880.94 400.12 406.55 31 Republic Bank Ltd. 232.56 27.88 33.93 32 Rims Merchant Bank Ltd. - 0.00 2.18 1,900.88 33 Royal Merchant Bank Ltd. 1,131.07 25.60 43.09 34 United Commercial Bank Ltd. 1,864.58 150.95 172.27 35 Victory Merchant Bank Ltd. 301.47 17.60 18.60

35,028.22 5,295.53 5,688.58 Source: Receivership & Liquidation Dept., NDIC

9.9.9.39. 333 PPPhysical Physical AAAssetAsset Disposal

Παγε 26 οφ 192 During the year under review, the Corporation engaged the services of some

estate valuers to value some landed properties of the banks-in-liquidation.

Some of such properties were sold and ownership transferred to their buyers.

Details of sale proceeds of physical assets classified into landed property,

vehicles/generating sets and chattels are presented in Table 9.4. As

evidenced in the table, the sum of x587.45 million was realised from the

sale of physical assets in 2005 compared to the proceeds of x783.26 million

realised in 2004. The cumulative proceeds from sale of physical assets

amounted to x5,354.83 million as at December 31, 2005 compared to

x4,767.38 million as at December 31, 2004.

Table 9.4

SUMMARY OF PROCEEDS FROM SALES OF PHYSICAL ASSETS AASS AT DECEMBER 31, 2005200 555

S/NO BANK LANDED CHATTELS TOTAL . PROPERTY VEHICLES/GEN. [=N=Million [=N= [=N=Million] SETS ] Million]

1 Abacus Merchant Bank Ltd. - 2.71 3.66 6.37 2 ABC Merchant Bank Ltd. -

Παγε 27 οφ 192 3.83 3.40 7.23

3 Allied Bank Plc. 605.89 64.39 38.67 708.95 4 Alpha Merchant Bank Plc 122.24 0.07 0.71 123.02

5 Amicable Bank of Nig. Plc 8.00 7.14 17.55 32.69 6 Century Merchant Bank Ltd. - 6.80 10.51 17.31 7 Commerce Bank Ltd. 125.14 40.62 31.28 197.04

8 Commercial Trust Bank Ltd. 36.08 10.30 25.38 71.76 9 Continental Merchant Bank Plc 984.33 11.57 22.36 1,018.26

10 Co-operative & Commerce Bank Plc 464.65 13.10 32.79 510.54 11 Credite Bank Nig. Ltd. 15.00 14.09 14.89 43.98 12 Crown Merchant Bank Ltd. 15.00 4.93 3.80 23.73 13 Financial Merchant Bank Ltd. - - 10.33 10.33

14 Great Merchant Bank Ltd. 4.27 1.88 0.96 7.11

15 Group Merchant Bank Ltd. 2.16 4.68 6.84 16 Highland Bank of Nig. Plc 12.97 5.54 7.99 26.50 17 ICON Ltd. (Merchant Bankers) 667.45 3.34 20.88 691.67 18 Ivory Merchant Bank - 3.76 1.53 5.29

19 Kapital Merchant Bank Ltd. - 41.36 0.24 41.60 20 Lobi Bank of Nig. Ltd. 80.61 3.90 11.70 96.21 21 Mercantile Bank of Nig. Plc 362.81 6.99 42.22 412.02

Παγε 28 οφ 192

22 Merchant Bank of Africa Ltd. 287.04 1.87 16.48 305.39 23 Nigeria Merchant Bank Ltd. 3.55 4.89 0.50 8.94

24 North-South Bank Nig. Plc - 1.20 15.64 16.84 25 Pan African Bank Ltd. 338.81 6.52 4.92 350.25

26 Pinacle Commercial Bank Ltd. - 11.77 18.38 30.15 S/NO BANK LANDED CHATTELS TOTAL . PROPERTY VEHICLES/GEN. [=N=Million [=N= [=N=Million] SETS ] Million]

27 Premier Commercial Bank Ltd. 37.43 3.83 9.90 51.16 28 Prime Merchant Bank Ltd. 2.28 5.39 7.67

29 Progress Bank Nig. Plc 3.12 15.50 39.64 58.26

30 Republic Bank Ltd. - - 6.38 6.38

31 Rims Merchant Bank Ltd. 400.00 1.70 1.42 403.12 32 Royal Merchant Bank Ltd. - 2.84 3.88 6.72 33 United Commercial Bank Ltd. - 29.10 15.46 44.56

34 Victory Merchant Bank Ltd. - 0.31 6.63 6.94

TOTAL 4,574.39 330.29 450.15 5,354.83

9.9.9.49. 444 LLLiquidation Liquidation ––– RRRelatedRelated Legal Matters

Παγε 29 οφ 192 As at December 31, 2005 the Corporation as Liquidator of the banks in- liquidation, had 1,042 debt recovery cases pending in various courts with a total value of x14,056.83million as against a total of 1,049 cases valued at x14,140.23million pending as at December 31, 2004. The number of cases in which judgements were obtained as at December 31, 2005 totalled 754 involving the sum of x6,465.26million and $34.14million while the number of judgements enforced totalled 26 valued at x215.13million and $4.244million.

As at the end of year 2005, 116 debt recovery cases involving the sum of x889.51million and $117,049.93 had been executed. Thus, the sum of x2,091.53million and $533,144.83 were the cumulative recovery thus far through litigation.

As at December 31, 2005, the Corporation was faced with 415 defensive suits involving the sum of x3,238.10million, $8.91million and GBP21,613.00.

Also, as at that date, the Corporation had secured favourable judgements in

63 of the 91 defensive cases concluded. A total of 7 defensive cases involving the sum of x46.62million were settled as at December 31, 2005.

Παγε 30 οφ 192 Furthermore, as at December 31, 2005 18 criminal cases, involving the sum of x4,040.80million and $13.69million were awaiting adjudication at the courts. In its capacity as the Liquidator of failed banks and pursuant to the requirement of Section 429 of the Companies and Allied Matters Act (CAMA)

1990 (as amended), and Section 38B of the Banks and Other Financial

Institutions Act (BOFIA) 1990 (as amended), the Corporation filed the required returns in respect of the banks in-liquidation with the Corporate

Affairs Commission (CAC) and the Central Bank of Nigeria (CBN) during the year under review.

9.5 EEExternal External AAAuditAudit

The Corporation retained the services of 19 firms of Chartered Accountants to audit the accounts of the banks-in-liquidation for the year 2005.

9.6 TTTermination Termination Of Liquidation AAActivitiesActivities

Παγε 31 οφ 192 Some banks had been in liquidation for over five years and the remaining assets were considered unrealisable. Meanwhile, various costs were being incurred which could no longer be absorbed by the income earned by those banks. Consequently it was decided that the liquidation activities of the banks be terminated so that the Corporation would be discharged as liquidator to the affected banks. The Corporation had reviewed the relevant laws and produced a checklist/guideline on the procedures, processes and documentation required to terminate the liquidation activities of a bank. In that regard, the Corporation had prepared the legal files of nine closed banks and had compiled in full the legal file of one of the affected banks.

SSSectionSection 101010

Summary Of Other Activities And Accomplishments Of The Corporation In 2002006666

10.0 Introduction

A major development during the year was the setting up of the “ServicomServicom

UnitUnit” for the Corporation in line with Federal Government directive to public

sector operators. SERVICOM is the acronym for “Service Compact with All

Nigerians”. It expresses the Corporation’s commitment to provide more

responsive, citizen-friendly and high quality service delivery that is efficient,

accountable and transparent. Apart from this development, there was no

change in the existing structure of the Corporation during the year under

review. Reported in this section are the summary of the major activities of the

Departments/Units in 2005 under the existing three divisions, namely: the

Office of the Managing Director/Chief Executive, Operations Division and

Finance and Administration Division. Also reviewed in this section, are other

accomplishments of the Corporation in 2005 which are in the areas of

33 corporate social responsibility; international networking as well as initiatives undertaken to enhance public understanding and awareness of deposit insurance in Nigeria, including its benefits and challenges.

10.1 Office Of The Managing Director/Chief ExecutiveExecutive

The division comprised three (3) Departments and one (1) Unit which reported directly to the Managing Director/Chief Executive during the year under review. The major activities of the Departments and the Unit in 2005 are summarised below.

10.1.1 Office Of The Board Secretary And Legal Department

In 2005, apart from covering meetings of the Board, Major Contracts Tenders

Board, the Executive Committee (EXCO) and the Management Consultative

Committee (MCC), the Department provided, on a regular basis, professional legal services including rendering of legal opinions and advice on various issues aimed at achieving the statutory objectives of the Corporation. The

34 Department continued to manage the criminal prosecution of all persons charged for various financial malpractices in banks under the Failed Banks Act and all civil litigations involving the Corporation.

During the year, the Department coordinated the review of the Corporation’s enabling Act which translated into passing of the Bill by the Senate. As at the end of 2005, the Bill was before the House of Representatives, which had conducted a Public Hearing after it had passed the second reading. Also, the

Department in year 2005 concluded editorial work on the first batch of the compendium of Nigerian Banking Law Reports (1933 – 1989) which would be referred to as the Nigerian Banking Law Reports (NBLR). The Department also concluded the re-certification of the Corporation’s landed properties in the

FCT during the year.

10.1.2 Internal Audit DepartmenDepartmentttt

During the year, the Internal Audit Department reviewed the activities of all the

Departments/Units, Lagos Office and the 3 zonal offices of the Corporation.

35 The exercise was done with a view to improving the Internal Control System as well as safeguarding the assets of the Corporation. To ensure that corporate objectives were implemented, the Department carried out a comprehensive review of the activities of Departments/Units during the Mid-

Year and End of Year Audit of the Corporation. In addition, the Internal Audit

Department conducted quarterly Cash Count and Stock-taking/Vehicle

Inspection at the different locations of the Corporation =s Offices. The Audit observations and recommendations were sent to the Management and their responses communicated to the affected Departments/Zones for implementation.

The Internal Audit Department continued to keep Management abreast of the activities of the 34 banks (In-liquidation) by carrying out comprehensive bi- annual review of their operations at Lagos as well as Enugu consolidation centres. The Department’s observations and recommendations were communicated to Receivership &Liquidation (R&L) Department for implementation after due approval by the Senior Management.

The Internal Audit Department also undertook the inspection of all items purchased by the Corporation for use in the various Departments to ensure that they complied with the required specifications as well as the laid-down procedures on procurement. Other activities carried out by the Department in

2005 included the review of all payments made by the Corporation to ensure compliance with laid-down policies and procedures. The Department also carried out the inspection of houses purchased or built by staff through the

Staff Housing Loan Scheme to confirm their existence and suitability.

10.1.3 Corporate Development Department (CDD)

During the year, the Department continued with its primary function of coordinating the planning activities of the Corporation. The Department monitored the implementation of the Corporation’s 2005 Annual Plan through

37 the review and analysis of Quarterly Plan Implementation Reports submitted by

Departments/Units with a view to ensuring that those activities align with the

Plan as well as the strategic focus of the Corporation. Also, constraints in carrying out those departmental activities, where identified, were highlighted to the Management and subsequently resolved.

As part of its function in reviewing the System, Processes, Methods and

Procedures of the Corporation’s activities with a view to enhancing their effectiveness and efficiency, the department carried out a comprehensive review of the operations manual of departments/units in line with the

Establishment Planning Committee (EPC) Report. The exercise ensured that the operations’ manuals of all departments/units were up-to-date and properly streamlined to incorporate all the recent developments in the Corporation. The department also carried out a joint review of the status of the implementation of the NDIC Code of Conduct and Work Ethics with the Human Resources department (HRD) and Administration Department as a prelude to the liquidation activities that would result from the banking sector reform.

Following the outsourcing of security services as part of the Corporation’s reform process, the department reviewed the internal security system of the

Corporation to determine its effectiveness in meeting Management’s expectations. Also, the exercise was to ensure that security concerns were adequately addressed without compromising existing standards. The

Department also coordinated the activities of the “Servicom UnitUnit” that was set up by the Corporation during the year in line with Federal Government directive to the public sector operators.

10.1.4 Public Affairs Unit (PAU)

As in previous years, the public enlightenment effort of the Corporation was the focal point of the Unit in 2005. During the year, the Unit continued to maintain cordial relationship with major stakeholders and other strategic publics of the Corporation. Also, the Unit paid much attention to public awareness on the Corporation’s mandate and activities through the electronic and print media during the year. The Unit in collaboration with other departments co-ordinated

39 the 1st Depositor Protection Awareness Week (DPAW), that was organised in

August, 2005 to enlighten depositors and other vital stakeholders on the objectives, benefits and limitations of the deposit insurance scheme. Also, the

Unit coordinated the hosting of a 3-day workshop for Business Editors and

Finance Correspondents Association of Nigeria (FICAN) in November 2005 at

Kano.

To facilitate effective government relations, the Unit maintained good working relationship with the Executive and Legislative arms of government, especially the relevant Committees in the Senate and the Federal House of

Representatives during the year. As part of the public relations efforts and effective liaison with the strategic publics and major stakeholders, the Unit coordinated courtesy visits by insured banks, international organisations and professional bodies as well as hosted Nigerian students’ excursions to the

Corporation in 2005. In line with its corporate social responsibility and contribution towards the development of the nation’s educational system, the

Unit coordinated the commissioning of projects executed through the

40 Corporation =s education support programme for some Federal Universities in the country in year 2005.

10.2 Operations Division

The Operations Division had five (5) Departments namely: Field Examination,

Off-site Supervision, Receivership & Liquidation, Special Insured Institutions and Research. The activities of the first four Departments had featured in other Sections of this report, therefore reported here are the activities of the

Research Department in 2005.

10.2.1 Research Department

During the year, the Department monitored and documented developments in the nation’s banking and financial services industry and published the major developments in the NDIC Quarterly. Apart from the Quarterly Journal, the

Department also published the NDIC News, a quarterly in-house news magazine for the staff of the Corporation. Also, the Department coordinated the publication and distribution of the Corporation's 2004 Annual Report and

41 Statement of Accounts. In addition, the Department coordinated the publication of a book during the year on the liquidation activities of the

Corporation. The book was presented during the Depositor Protection

Awareness Week in August, 2005. The Department also had some ad-hoc duties from the Management which were discharged in the year 2005. In addition, the department continued to supervise the Corporation =s specialised library.

10.3 Finance And Administration Division

The composition of the Finance and Administration Division included:

Administration, Human Resources, Finance, Computer Services Departments and the Lagos Establishment Office. A review of the activities of the departments as well as the Lagos Establishment Office in 2005 is hereby presented.

10.3.1 Administration Department

42 During the year, the Administration Department was preoccupied with its responsibility of creating and maintaining a conducive working environment which included providing support services, procurement of goods and equipment for various departments and staff to ensure optimal achievement of the Corporation =s goals and objectives. During the year, the Department carried out general improvement works as well as routine maintenance of the

Corporation =s official staff quarters and residences as well as the Head Office

Building in Abuja. Also, during the year, the Department completed the construction of 2 Number 5 bedroom semi-detached duplexes which it started earlier in Abuja.

In an effort to upgrade the telecom facilities in the Corporation, the department during the year 2005, supervised the completion of the supply and installation of fibre optic cables and multiplexers by Siemens between NITEL Exchange,

Wuse and the Head Office to achieve a more effective and efficient communication system in the Corporation. The next phase of the project, the supply and installation of a new PABX System, also commenced during the

43 year. To complement the existing public water supply, borehole systems and mini-water works were initiated and successfully completed by the department for the Head Office and in some official staff quarters in year 2005.

10.3.2 Human Resources Department (HRD)

In an effort towards the realization of the Human Resources’ objectives of the

Corporation, the Department during the year 2005 implemented various polices designed to ensure the effective management and utilization of the human capital as well as addressing the training needs of staff to enhance their productivity. In that regard, staff motivation in the areas of the enhancement of their welfare, training and development were given necessary attention during the year.

During the year, staff promotion exercise for year 2004 was successfully conducted by the department in which 86 staff were promoted to various grades. In line with the Corporation’s policy on Staff Conversion and 44 Upgrading, 12 members of staff who obtained additional qualifications were either converted or upgraded to relevant grades in 2005. The training and development function of the department received priority attention in 2005 as part of the Corporation’s efforts towards developing a versatile workforce to meet the present as well as future challenges of the nation’s banking system post consolidation. 41 different types of overseas courses were attended by

Executives, while 86 Senior and 3 Secretarial staff benefited from various overseas training programmes during the year under review. The Corporation also sponsored 26 Executives, 215 Senior, 25 Secretarial and 49 Junior staff for various local and in-house training programmes in 2005. Two (2) in-plant

Mandatory Continuing Professional Education (MCPE) programmes were conducted for registered members of the Nigerian Institute of Management

(NIM) and the Chartered Institute of Bankers of Nigeria (CIBN) during the year.

The Department initiated, developed and reviewed some HRM policies towards ensuring effective human resource management activities and harmonious

45 industrial relations in the Corporation during the year. After two (2) years of experimenting with the Corporation’s newly introduced performance management system and sequel to the report and recommendations of the workshop organized on it for the executive Staff of the Corporation in

February, 2005, an interdepartmental committee was appointed to review the implementation with a view to addressing the problems highlighted at the workshop, and to make appropriate recommendations on the way forward. The new performance management system was introduced to address certain weaknesses observed in the former system in relation to evaluation of individual performance and rewarding achievement. During the year, the department commenced the deployment of a new Human Resources

Management System (HRMS) AHuman Manager @ so as to further improve its effectiveness in terms of service delivery.

During the year, seven (7) staff disengaged through normal retirement, one

(1) by termination of appointment, and one (1) by compulsory retirement while four (4) staff died during the year under review. A total of forty-nine (49)

46 National Youth Service Corps (NYSC) members did their primary assignment with the Corporation during the year under review. Also, the Corporation engaged sixteen (16) students of higher institutions on industrial attachment to help them gain practical experience in their various areas of studies in 2005.

During the year, five (5) disciplinary cases (1 senior and 4 junior) were referred to the Central Disciplinary Committee (CDC), which were handled expeditiously and relevant recommendations made to the Management for consideration.

10.3.3 Finance Department

In year 2005, Finance Department continued to perform its core functions.

These included: maintaining the Corporation =s financial records, planning and controlling its financial affairs through the budgeting process, production of monthly Management Information Reports, Audited Accounts and investing the

Corporation =s fund in eligible securities to ensure safety and liquidity. During the year, the National Assembly requested for the Corporation’s Budgets and

Budget Implementation Reports which were submitted to them. The 47 Department also paid to the Tax Authorities VAT deductions, Withholding

Taxes as well as Pay As You Earn (PAYE) Taxes in year 2005. Although interest rates crashed in the year, the Corporation was however able to meet its operating expenses within the provision of the budget as a result of

Management’s ability to manage costs and diversify investments into higher yielding bonds.

10.3.4 Computer Services Department (CSD)

During the year under review, the Computer Services Department (CSD) continued with its mandate of providing quality Information and Communication

Technology (ICT) services to users, to enable them discharge their responsibilities efficiently and effectively. To achieve that goal, the CSD commenced the implementation of the second phase of its Information System

Strategy (ISS) recommendations, in particular, the upgrade of the

Corporation’s Website, optimization of the Local Area Networks (LAN) at the

Head Office, Abuja and Lagos as well as the establishment of new LANs at

48 the Zones. Also, the department commenced the implementation of Wide

Area Network (WAN) to connect all zonal offices with Lagos and Abuja and establishment of a centralised Internet Access via SAT-3.

During the year, the department commenced the deployment of a new, Web- enabled, Robust Human Resources Management System – Human Manager, and the testing of electronic Financial Analysis and Surveillance system (e-

FASS) application using live data from selected financial institutions over the established link to the Central Bank of Nigeria (CBN). In the area of human capital development, the department trained staff on two selected Banking

Applications – Finacle and Flexicube during the year. In order to achieve a competitive and highly skilled workforce for the Corporation, some office automation courses were also run for users selected from various departments/units in 2005.

10.3.5 Lagos Establishment Office

49 The Lagos Establishment Office was preoccupied with its main functions of providing logistic support to the Corporation =s Departments and Units in Lagos during the year under review. The Office also ensured proper maintenance of assets and equipment as well as the provision of logistic support to the

Financial Malpractices Investigation Unit. The Establishment Office had also complemented the efforts of the Administration Department and Human

Resource Department in the Head Office, Abuja to accomplish some tasks in

Lagos during the year 2005. Of significant importance was the efforts made by the Office during the year under review, to secure a permanent office accommodation for the Lagos Office. Pursuant to that, the Office successfully coordinated the bid for one of the Federal Government properties in Lagos which the Corporation won.

10.4 Other Activities And Accomplishments Of The CorporaCorporationtion In 2002005555

10.4.1 Corporate Social Responsibility

50 During the year, the Corporation, as part of its contribution to the Nigerian community, granted financial assistance to a number of higher institutions in the country. The sum of =N130 million was set aside by the Corporation for 13

Federal Universities in the country (2 from each of the 6 geo-political zones and Abuja) under its Education Support Programme. As at the end of 2005, a total of =N=122.00 million had been disbursed to the following 13 institutions:

Χ University of Maiduguri;

Χ University of Benin;

Χ Federal University of Agriculture Makurdi;

Χ Usman Dan Fodiyo University, Sokoto;

Χ Abubakar Tafawa Balewa University, Bauchi;

Χ Bayero University, Kano;

Χ Federal University of Uyo;

Χ Federal University of Technology, Owerri;

Χ Nnamdi Azikiwe University, Awka;

Χ University of Ilorin;

51 Χ University of Abuja;

Χ Obafemi Awolowo University, Ile-Ife; and

Χ University of Ibadan

As at the end of 2005, projects in six (6) – University of Maiduguri; Federal

University of Agriculture Markurdi; Usman Dan Fodio University, Sokoto;

Abubakar Tafawa Balewa University, Bauchi; Bayero University, Kano; and

Federal University of Uyo, had been commissioned.

10.4.2 Contribution To Federal Government Economic Reforms

In 2005, the Corporation and its employees continued to contribute to the various reforms being implemented in the country. To support the Economic and Financial Crimes Commission (EFCC), 3 senior staff of the Corporation seconded to the Commission in year 2004 were still with the Commission in

2005. The affected staff participated in the preparation of the report of the

Technical Committee for the establishment of a Financial Intelligence Unit

52 (FIU) in Nigeria. Also, a staff of the Corporation seconded to the Budget

Office of the Federation in 2004 was still there in 2005.

The Corporation during the year, in collaboration with the Central Bank of

Nigeria (CBN) produced a Draft Bill of the Asset Management Corporation of

Nigeria (AMCON), which had been passed to the National Assembly. The

AMCON was conceived as one of the institutional mechanisms to support the banking reform programme.

10.4.3 Public Awareness Programmes

One of the Corporation’s major on-going initiatives is to increase public awareness about deposit insurance and to improve public understanding of its benefits and limitations. To that end, the Corporation in 2005 devoted considerable efforts to advertising by placing advertisement in major national daily newspapers, providing information to a wider audience across the nation.

Also, NDIC published advertising supplements in some magazines. In addition to print materials, the Corporation either through the Managing Director/Chief

53 Executive or the two Executive Directors - Operations and Finance and

Administration - made various presentations either as lecture, guest or keynote speakers to diverse audience in 2005. All the efforts were geared towards increasing public understanding and awareness of deposit insurance and promote an understanding of the NDIC’s role and contribution within the nation’s financial system. Some of the initiatives in 2005 included:

11101000....4.4.4.4.3.3.3.3.1111 TTThe The Launching Of A Nationwide DepositorDepositor----AwarenessAwareness Campaign by the Corporation

During the year, the Corporation launched a nationwide depositor-awareness campaign to sensitise depositors of banks-in-liquidation on the on-going payments of insured deposits and liquidation dividends. By the enlightenment programme, all bona fide depositors of the failed banks who were yet to file their claims for payment of their insured deposits and liquidation dividends were requested to do so with the appropriate agent banks without further delay.

54 For maximum effectiveness, the Corporation used radio and television jingles in twelve Nigerian languages in addition to the three major languages; handbills via Local Government Headquarters, Insured Banks, Mosques,

Churches, Markets, Motor Parks and Major Hotels. The Corporation also placed advertorials in widely circulated newspapers and magazines in the country.

10.4.3.10.4.3.2222 111ststst DepositDepositor ororor Protection Awareness Week (DPAW) AAndnd

161616 ththth Year Anniversary of the NDIC

During the year, the Corporation organized its 1st Depositor Protection

Awareness Week and 16 th Anniversary. It would be recalled that the

International Association of Deposit Insurers (IADI) of which the Corporation is a founding member and current Chair of the Africa Regional Committee identified public awareness as one of the critical success factors for effective implementation of Deposit Insurance Systems (DIS) worldwide. It therefore

55 requested its members to dedicate the Week of its Annual General Meeting and conference as Depositor Protection Awareness Week (DPAW).

The DPAW which commenced on 12 th September 2005 and was rounded off on 16 th September 2005 had series of activities. These included a Press

Conference addressed by the Managing Director/Chief Executive, Mr. G. A.

Ogunleye, OFR, to inform the general public about the concept and practice of

Deposit Insurance in Nigeria. The press conference afforded the Management of the Corporation an opportunity to showcase the achievements and challenges of the Corporation since its establishment in 1989.

One of the key events of the week was a Public Lecture in which papers were presented on: ”TheThe Role of Deposit Insurance in EnsuringEnsuring Financial System

StabiliStability:ty: The Global PerspectivePerspective”; and “TheThe Role of Deposit Insurance in

Ensuring Financial System Stability in NigeriaNigeria”.

56 In his welcome address to the public lecture, Mr. G. A. Ogunleye, OFR, pointed out that the Corporation’s experience in the last 16 years showed that the level of awareness about the scheme was low. He stressed that the anniversary lecture was a critical component of the series of activities planned by the Corporation as part of the global initiative on Depositor Protection

Awareness. He noted that series of efforts had been made by the

Corporation to educate the public about deposit insurance. These included seminars, workshops, media campaign, public advocacy, press briefing, various publications, et cetera. In spite of these measures, he noted that the strategic publics remained inadequately aware of the benefits and limitations of the scheme hence the need for the public lecture which according to him would become an annual event.

In her keynote address, the Minister of State for Finance, Mrs. Nenadi E.

Usman identified poor public awareness as one of the challenges of the

Corporation and therefore commended the efforts of the Board and

Management of the Corporation for supporting the initiative of the IADI, by

57 hosting the Depositor Protection Awareness Week. According to her, in its sixteen years of existence, the Corporation had justified its establishment.

Mrs. Nenadi Usman pointed out that an effective deposit insurance system needed to be supported by strong prudential regulation and supervision, sound accounting and disclosure regimes as well as enforcement of laws, rules and regulation. In line with that, she noted with satisfaction, the ongoing review of

CBN and NDIC Acts. Also, she commended the Management of the NDIC for its proactive approach in executing its mandate, especially with respect to arrangements to extend deposit insurance to primary mortgage institutions

(PMIs) and community banks (CBs).

Another issue of concern raised by the Honourable Minister was that of moral hazard. To that extent, she posited that the amount of deposit insurance coverage limit for individual depositors should not be set so high as to encourage irresponsible behaviour by banks or depositors. She was also of the opinion that DIS coverage should not be set so low as to endanger the credibility of the scheme. The Minister also stressed the need for effective

58 financial supervision which according to her, would require skilled supervisors who could understand the risks in banking activities, identify ways to anticipate, manage and control the risks.

During the Depositor Protection Awareness Week, a book on “Bank Liquidation

In Nigeria (1994 ––– 2004)”2004) ””” published by the Corporation for the purpose of documenting its experiences for the benefit of the banking industry as well as other stakeholders was also launched.

10.4.3.10.4.3.3333 Workshop OrganiOrganizzzzeded For Business Editors and Finance Correspondents Association of Nigeria (FICAN)

59 During the year, the Corporation organized a workshop for Business Editors and

Finance Correspondents Association of Nigeria (FICAN). The workshop, which took place in Kano from Monday 21 st – 23 rd November, 2005 was the fourth in

the series specifically designed to improve the Business Editors’ as well as the

Correspondents’ understanding of the concept and practice of Deposit Insurance

Scheme (DIS) in Nigeria. The 2005 workshop like the previous ones was an

assurance that the Corporation remained committed to the goal of further

enriching as well as enhancing the capacity of financial journalists to enable

them adequately cope with the ever increasing challenges of their profession.

The maiden edition of the workshop was held in Jos between March 25 th and

26 th , 2002, while the second and third editions were held at Ibadan between

May 19 th and 22 nd , 2003 and Enugu between August 25 th - 27 th , 2004.

In his keynote address at the 2005 workshop, the Managing Director/Chief

Executive of the Corporation, Mr. G. A. Ogunleye, OFR, explained that the

NDIC, as a safety-net player in the financial system, would continue to collaborate with the Central Bank of Nigeria as well as other stakeholders in ensuring the safety and soundness of the nation’s banking system.

Like the previous editions, the main objectives of the three-day workshop, among others, included:

i) Creating better understanding of the concept, establishment and benefits

of the Deposit Insurance Scheme (DIS); and ii) Enhancing participants’ understanding of the NDIC’s mandates,

achievements, problems and prospects;

Some of the key topics that were deliberated upon during the 3-day workshop were:

* Issues in the Funding of Deposit Insurance Scheme in Nigeria; * Determining the Adequacy of the Maximum Deposit Insurance Coverage (MDIC); * Deposit Guarantee: The Experience in Nigeria; * Legal Issues in Deposit Guarantee in Nigeria; and

61 * Public Awareness in Effective Deposit Guarantee: The Role of the Press.

A major departure of the 2005 FICAN workshop from those of 2002, 2003 and

2004 Editions was the Constitution and Meeting of Syndicate Groups to discuss

some of the papers that were presented during the workshop. The workshop

was attended by sixty-nine (69) Business Editors/Finance Correspondents as

well as twenty (20) staff of the Corporation.

10.5 OtOtOtherOt her Activities Of The Corporation In 2005

During the year, the Corporation responded to requests for assistance from

African countries that were considering adopting or enhancing their deposit insurance systems. In that regard, the Corporation provided training, through attachment, to personnel from Zimbabwe Deposit Protection Board (ZDPB),

Deposit Insurance Fund of Tanzania and Commission Bancaire de l’Afrique

Centrale based in Cameroon during the year 2005.

Section 112222

63 Insured Banks’ OfficesOffices,, BranchBrancheseseses,, Directors And Approved Auditors

12.1 Distribution Of Insured Banks’ BranchesBranches/Offices/Offices By States

As at the end of December 2005, there were a total of 3,535 branches/offices operated by all the insured banks in the country. From available information, forty-three (43) additional bank branches and cash offices were approved for banks by the Central Bank of Nigeria (CBN) in

2005. Table 12.1 shows the distribution of insured banks = branches/offices in the 36 states of the Federation including Abuja, the Federal Capital

Territory (FCT) and Overseas.

As in the past, Lagos State accounted for the highest number of bank branches/offices with 1,074, about 30.0 per cent of the total number of bank branches and cash offices in 2005. Rivers State came second with 207 branches/offices (5.8 percent), while Abuja (FCT) came third with 164

64 branches/offices (4.6 per cent). Anambra state occupied the fourth position with a total of 159 branches/offices (4.4 per cent). Other leading states were Oyo (124) or (3.5 per cent), Kano (121) or (3.4 percent), Ondo (108) or (3.1 per cent) and Abia (101) or (2.8 percent). The number of overseas branches/offices stood at 8 as at December 31, 2005.

TABLE 12.12.1111 DISTRIBUTION OF INSURED BANKS = OFFICES AND BRANCHES AS AT 31ST DECEMBER, 2005

S/N States (Including Number of Percentage Share Abuja And Overseas) Branches/Offices (%)

1. Abia 101 2.8

2. Abuja (FCT) 164 4.6

3. Adamawa 34 0.9

4. Akwa-Ibom 84 2.3

5. Anambra 159 4.4

6. Bauchi 45 1.2

7. Bayelsa 36 1.0

8. Benue 40 1.1

9. Borno 61 1.7

10. Cross River 40 1.1

S/N States (Including Number of Percentage Share Abuja And Overseas) Branches/Offices (%)

11. Delta 89 2.5

12. Ebonyi 22 0.6

13. Edo 93 2.6

14. Ekiti 64 1.8

15. Enugu 67 1.8

16. Gombe 31 0.8

17. Imo 48 1.3

18. Jigawa 23 0.6

19. Kaduna 88 2.4

20. Kano 121 3.4

21. Katsina 39 1.1

22. Kebbi 27 0.7

23. Kogi 40 1.1

24. Kwara 59 1.6

25. Lagos 1074 30.0

26. Nassarawa 20 0.6

1.4 27. Niger 53

28. Ogun 91 2.5

29. Ondo 108 3.1

30 Osun 78 2.2

31. Oyo 124 3.5 66

S/N States (Including Number of Percentage Share Abuja And Overseas) Branches/Offices (%)

32. Plateau 63 1.7

33. Rivers 207 5.8

34. Sokoto 42 1.1

35. Taraba 33 0.8

36. Yobe 31 0.8

37. Zamfara 25 0.7

38. Overseas 8 0.2

Total 3,535 100.0 Source: Bank Returns

121212.212 .2 Insured Banks’ Head OfficesOffices’’ Addresses and Branches

The distribution of branches per insured bank and their Head Office

Addresses are presented in Table 12.2. As evidenced in the table, the seventy-five (75) banks out of the eighty-nine (89) banks that existed at end-December, 2004 accounted for 3,392 that is, over 95 per cent of the

3,535 total bank branches and cash offices in the nation’s banking system in

2005. The remaining fourteen (14) banks which could not find merger

67 partners/acquirers under the consolidation programme accounted for about 5 per cent. At the end of the consolidation exercise, the three big banks: First

Bank of Nigeria Plc, Union Bank of Nigeria Plc and United Bank for Africa

Plc maintained their lead in the branch network as at 2005 year end.

United Bank for Africa Plc was in the lead with a total of 456 branches during the year; First Bank of Nigeria Plc came second with a total of 404 branches, while Union Bank of Nigeria Plc was third with a total of 384 branches. From available record, the three banks accounted for 1,244 branches or about 35 per cent of the total number of bank branches/offices in the system in 2005. Other leading banks in 2005 were Unity Bank Plc with 200 branches, Spring Bank Plc with 188 branches, Intercontinental Bank

Plc with 174 branches, Afribank Nigeria Plc with 147 branches, First Inland

Bank Plc 144, Skye Bank Plc with 142 branches, Oceanic Bank Plc with 135 branches, Wema Bank Plc with 134 branches, Diamond with 128 branches and Zenith Bank Plc with 114 branches.

12.12.12.312. 333 Insured Banks And Their Directors In 2005

In recent times, the issue of corporate governance had taken the centre stage in international discourse. For the financial services industry, the retention of public confidence through the enthronement of good corporate governance remains of utmost importance given the role of the sector in the mobilization of funds, the allocation of credit to the needy sectors of the economy, the payment and settlement as well as the implementation of monetary policy.

The Organization for Economic Co-operation and Development (OECD) principles emphasize the criticality of the board in corporate governance especially its composition, leadership, integrity and independence.

The board of directors is a group of people appointed by the shareholders to direct and manage the business and its corporate resources for the benefit of resource owners. The board is a major vehicle for conveying corporate governance hence its quality is of great significance to corporate survival.

69 The board constitutes the highest policy making organ of a bank and what happens at the board level impacts fundamentally on the management of the institution. Experience has also shown that no matter how effective regulation is, it does not substitute for the role of active and efficient boards of directors in banks. Hence, it remains the duty of bank directors to ensure that there is sound management in their banks. Insured banks = directors are expected to review policies and operations of their banks, as well as undertake other responsibilities that permit the bank to operate in a safe and sound manner.

Over the years, the nation’s regulatory/supervisory authorities had continually raised issues bordering on poor corporate governance in some of the banks in the system. The nation’s past/immediate experience of bank failures revealed that most of the affected institutions failed not because of market dynamics or exogenous factors alone. The various acts of insider abuses perpetrated by directors, principal owners and their cohorts contributed significantly to the failures. Also, the contents of some banks = examination

70 reports had continued to reveal that many banks were yet to imbibe the ethos of good corporate governance. Many banks before the emergence of the 25 consolidated banks at the end of 2005 were being run according to the dictates of one man or a few people, sometimes without regards to the bank’s overriding interest and/or that of its key stakeholders. A pointer to that was how the consolidation exercise was concluded. While some banks’ management went to the negotiation table during the exercise with the interest of their stakeholders on the front burner, some others went with the intention of perpetuating themselves in office even when it was obvious that they had nothing to offer in the emerging picture. That scenario, eventually led to the failure of some banks that hitherto, held out much hope for meeting the CBN deadline either through merger or acquisition.

Banking institutions require the highest level of confidence of the members of the public to survive. One important way of ensuring the survival of banks especially in post-consolidation is for the boards of directors to show the

71 highest sense of discipline, integrity, steadfastness and tenacity of purpose.

Presented in Table 12.2, is the list of the directors of the 25 bank groups that emerged at the expiration of the bank consolidation programme as at 31 st

December, 2005.

12.12.12.412. 444 Insured BanksBanks’’ Approved External Auditors

Auditors play a vital role in the corporate governance process. As a result, the nation’s regulatory/supervisory authorities have continued to strengthen these roles by encouraging measures that would ensure auditors’ independence through the regulation of their appointment and disengagement.

The statutory reporting requirements of insured banks' external auditors to the

Corporation are stipulated under Section 38 of the NDIC Act No. 22 of 1988

(as amended). The Companies and Allied Matters Decree of 1990 (as amended), the Banks and Other Financial Institutions (BOFI) Act No. 25 of

1991 (as amended), the SAS 10 (Accounting by Banks And Non - Bank

72 Financial Institutions Part I) and SAS 15 (Accounting by Banks And Non-

Bank Financial Institutions Part II) and other CBN directives also impose responsibilities/obligations on banks' external auditors. The external auditors' reports, by the provisions of these various statutes, are expected to lend credibility to the banks = financial statements thereby assisting in promoting confidence and transparency in the banking system. They are expected to exercise all care, diligence and skill as necessary in the performance of their function to complement efforts of the Regulatory and

Supervisory Agencies.

The list of firms of Chartered Accountants approved to conduct independent audits of insured banks in the system is as shown in Table 12.2. As a result of the coming together of many banks under the consolidation programme which ended on December 31, 2005 to form mega banks, some banks were

73 still in the process of appointing/obtaining regulatory authorities’ approval for

new auditor(s) as at the 2005 year end.

TABLE 12.12.2222 INSURED BANKSBANKS’’ ADDRESSES, BRANCHBRANCHESESESES,, DIRECTORS AND APPROVED AUDITORS AS AT DECEMBER 31, 2005 S/N Names & Addresses No. of Director’s Name Status Approved Auditors Branches 1. Access Bank (Nig.) Plc. 35 G. Oyebode Chairman KPMG Professional

Plot 1665,Oyin Jolayemi Aigboje Aig-Imoukhuede MD/CEO Services Street, Victoria Island , Herbert Wigwe DMD P.M.B. 12935, Lagos. T. E. Koroye ED O. Nwuke ED Cosmas . M. Maduka Director Mahmoud Isa Dutse Director T. B. Folawiyo Director O. Otubu Director E. Chiejina Director

2. Afribank Nig. Plc 147 Aliyu K. Belgore Chairman Akintola Williams

51/55, Broad Street, Patrick.O.Akinkuotu MD/CEO Deloitte & Touche P.M.B. 12021, Lagos Sebastian Adigwe ED Chinedu Onyia ED Isa. M. Zailani ED Jibrin Isa ED Nura Imam Director Jabez Dayo Lawuyi Director Ashim ..A. Oyekan Director Osa Osunde Director Bala Zakariya’a Director C .O. Okwuosa Director

74 3. Diamond Bank Plc 128 Pascal. G. Dozie Chairman Price Waterhouse Plot 1261, Adeola Emeka Onwuka MD/CEO Coopers Hopewell Street, Urum .K. Eke ED P.O.Box 70381, Victoria Ohis Ohiwerei ED Island, Lagos. Uzoma C. Dozie ED Ngama .L.Yarima ED Mike Ufoeze Director Clement Omkana Director Olubola A. Hassan Director Jeremiah .T. Useni Director Ishaya. A. Shekarri Director Nnaemeka . A. Achibe Director Ambrose . B. C. Orjiako Director Chris. I. Ogbechie Director

4. Ecobank Nig. Plc 29 Omo-oba .A. O. Odimayo Chairman Price Waterhouse 2, Ajose Adeogun Street, Mr. Offiong Ambah MD/CEO Coopers P.O. Box 72688, Mr. Patrick Akinwutan ED Victoria Island, Lagos Arc. T.C. Awagu Director Olor’ Ogun S.F. Kuku Director The Otunba A. Ojora Director Alhaji Mu’azu Anachie Director

5. Equitorial Trust Bank Ltd 62 Mike Adenuga Chairman Akintola William

Plot 1092, Adeola Odeku, Ike Oraekwuotu MD/CEO Deloitte & Touche P.O.Box 74440, Victoria Shankar Basu DMD Island, Lagos Charles Uwaechie ED Felix. O. Akintola ED Yetunde Adegbola Director Niyi Adewumi Director M. O. Kukoyi Director Festus Igbomor Director

75 Adewale Sangowawa Director Kola Adegbola Director

6. 79 Gregory Peter Obi Chairman Akintola Williams Fidelity Bank Plc Reginald Ihejiahi MD/CEO Deloitte & Touche

2, Kofo Abayomi Street, Willie.M. Obiano ED P.O.BOX. 72439, Victoria Abdul-Rahaman Esene ED Island, Lagos. Godwin.N. Kanu Director Mohammed Magoro Director C. I. Eze Director Elias . E. Nwosu Director Bessie.N.Ejeckam Director Nnamdi.I.Oji Director Bessie Rewane Director Yahaya Umar Director S. O. Lawani Director C. O. Maduako Director

7. First Bank of Nigeria Plc 404 Umaru Abdul Mutallab Chairman Akintola Williams Samuel Asabia House, 35, Ajekigbe J. Moyo MD/CEO Deloitte & Touche Marina, Oladele Oyelola ED P.O.Box 5216, Lagos Aderemi W. Babalola ED Alex . C. Oti ED Lamido S. A. Sanusi ED Bola H. Adesola ED Ajibola . A. Afonja Director Aboh John Oche Director Duba Garba Director Hassan O. Oyekanmi Director Muhammadu Ibrahim Director Mahmoud Abdullahi Director Udo-Aka Udo Director Ayoola . O. Otudeko Director

76 8 First City Monument Bank 59 Jonathan.A.D. Long Chairman Price Waterhouse Plc. Ladi Balogun MD/CEO Coopers Primrose Tower, 17A, Henry J. Semenitari ED Tinubu Street Maurice Phido Akpoture ED P.O. Box 9117, Lagos Godwin T. S. Adokpaye Director Tijani Hashim Director Nwakoby . A. Martina Director Ladi Jadesimi Director Bismarck Rewane Director Johnnie Udofa Director

9 First Inland Bank Plc 144 Muhammadu Danmadami Chairman Akintola Williams

4/6 Adetokunbo Ademola Okey Nwosu MD/CEO Deloitte & Touche Lamba Alhaji Zannah DMD Victoria Island Dayo Famoroti ED Lagos Isa Muhammad Ladan ED Aminu Ibrahim & Co

Danjuma Ocholi ED 26 Post Office Road Adebayo A. Awelenje Director Kano Mohammed Hassan Director Kano State Garba .M. Noma Director Ishmael I. Anyadiegwu Director Ernest Oji Director A. A. Peters Director Pat Bassey Director Kenneth Odogwu Director M.I. Yahaya Director Zakari Ibrahim Director O’tega Emerhor Director E. O. Efobi Director

10 GT Bank Plc 73 G.P.Chikelu Chairman KPMG Professional Plural House, Plot 1669, O. A Aderinokun MD/CEO Services

77 Oyin Jolayemi, J. K. O. Agbaje DMD P.O.Box 75455, Victoria Mosun Olusoga ED Island, Lagos Jide Ogundare ED Cathy Echeozo ED Adetokunbo.B. Adesanya Director Mohammed.K. Jada Director Victor .G. Osibodu Director E.U Imomoh Director Oluwole . S.Oduyemi Director

11 Intercontinental Bank Plc. 174 Raymond Obieri Chairman Price Waterhouse Intercontinental Plaza, Erastus.B.O. Akingbola MD/CEO Coopers Danmole Street, P.M.B. Abiola Otaniyi ED 80150, Victoria Island , Nelson Nweke ED Lagos Sheriff . M. Yusuf ED Akin Ajayi ED Olayinka Adebiyi ED Cletus Okoro ED Chris .A. Alabi Director Hycinth . U. F. Enuha Director Isyaku Umar Director Patrick . I.Amenechi Director Samuel Adegbite Director Ikechi Kalu Director

78 12 IBTC Chartered Bank Plc. 62 Oludolapo.I. Akinkugbe Chairman Price Waterhouse I.B.T.C. Place, Walter Atedo Nari.A.Peterside MD/CEO Coopers Carrington Crescent, Rasheed .A.Kolarinwa DMD P.O.Box, 71707, Victoria Olusola David-Borha ED Island, Lagos Joe Ubiaja Ukpoma ED Ahmed Dasuki Director Ifeoma Esiri Director Samuel Unuigbe Director M.I.Wushishi Director BHagwan .I. Mahtari Director R.I. Mahtari Director Moses .O.Adedoyin Director Olayinka Omotosla Director

13 Nigeria International Bank 13 Charles. S. Sankey Chairman KPMG Professional Ltd Emuwa Emeka MD/CEO Services 1, Idowu Taylor Street, Olufowose Ebenezer Director P.O. Box 6391, Edet. J. Amana Director Victoria Island, Lagos Muhammadu. H. Koguna Director I.O. Oladapo Director Khalid Qurashi Director Dele Babade Director Ade Ayeyemi Director Zdenek Turek Director

14 Oceanic Bank Plc. 135 Micheal C.O. Ibru Chairman Price Waterhouse Herbert Macaulay Way, Cecilia.A.O. Ibru MD/CEO Coopers Wuse Zone 6, V.O. Ibru ED P.M.B. 5068, Abuja Charles Mekwunye ED Francis Okumagba Ag. ED S. E. Okor Director Abimbola . O. Naiwo Director Edward Sido Director Bunu Sheriff Musa Director

79 Werner Stauffacher.E.C Director E. C. Anthony Omoruyi Director

15 PlatinumHabib Bank Plc 95 Abdul-Lateef Kola Abiola Chairman Price Waterhouse

Plot 707, Adeola Hopewell Francis Atuche MD/CEO Coopers Street, P.M.B. 80054 Ignatius .C. Ukpata ED Victoria Island, Lagos Ahmed Kuru ED Patrick . O. . Utomi Director Bayo . O. Adewakun Director Zakir Mahmood Director Murtala.S.M. Yar’Adua Director Lawal Ja’afar Isa Director Abdulfatai.A.Kekere-Ekun Director Micheal . O. Ajukwu Director Martin . O. Famoriyo Director 16 Stanbic Bank (Nig.) Ltd. 5 Matthew.T.Mbu Chairman Price Waterhouse

Plot 688 Ahmodu Tijani Milton. A. Weeks MD/CEO Coopers Close, Off Sanusi Fafunwa T.Hassan-Odukale Director Street Victoria Island, Hassan Adamu Director Lagos. Micheal Owen Tidbury Director

17 Sterling Bank Plc 71 S. S. Baffa Chairman PriceWaterHouse

20 Marina W. Babatunde Dabiri MD/CEO Coopers Yemi Adeola ED P.M.B. 12735 Lanre Adesanya ED Lagos Ben Akabueze ED Garba Yusuf Imam ED Sundaram Ranjan ED S. A. Adegunwa Director Yinka Adeola Director Aliyu Alkali Director Bashir M. Borodo Director Biodun dabiri Director

80 Yemi Idowu Director Ashok G. Kalmankar Director Harrison Kuti Director

18 Standard Chartered Bank 6 Oladele Olashore Chairman KPMG Professional Ltd Simon.J. Millet ED Services

Plot 688 Ahmodu Tijani Wallace David ED Close, Off Sanusi Fafunwa Shehu Malami Director Street Victoria Island, Ebenezer Essoka Director Lagos. Dennis Helen Director Ann Grant Director

19 Spring Bank Plc 188 Segun Agbetuyi Chairman In the process of

5A, Elsie Femi Pearse Mike Chukwu MD/CEO appointing Ifeatu Onejeme ED auditor(s) Off Ademola Odeku Tolu Fadahunsi ED Victoria Island Kola-Daisi O. B. A. ED Lagos Anya. O. Anya Director O.C. K. Unegbu Director Cosmas Maduka Director Edwin Mmuoemenam Director Anthony Adeniyi Director Ibrahim .S. Mohammed Director M. A. Adetunji Director

20 SKYE Bank Plc 142 Musiliu Adeola . K.Smith Chairman Ernest & Young

Plot 708/709 Akinfemiwa. A. A MD/CEO K. Durosinmi Etti DMD Adeola Hopewell Segun Oloketyi ED Victoria Island O. A. Ademulegun ED Lagos Kolawole .A. Awodein Director I.A. Adewusi Director M. O. Onasanya Director

81 Jason. O. Fadeyi Director A.A. Adeniran Director Anthony Ukpo Director Micheal .G. Tarfa Director Niran Sule Akinsuyi Director Olufemi Somolu Director Vinjay Tuteja Director

21 Unity Bank Plc 200 L.A. Mabogunje Chairman In the Process of

32 Ademola Adetokunbor Falalul Bello MD/CEO Appointing Bola Shagaya ED Auditor(s) Victoria Island Lamis Dikko ED Lagos Adedeji Adeleke Director Umaru.S. Ndanusa Director Muhammad Babangida Director Samaila Mamman Director Kayode Olupitan Director Kunle Adeagbo Director Evans Woherem Director Rislanuddeen Mohammed Director 22 Union Bank of Nigeria Plc 384 Musa.G. Yakubu Chairman Akintola Williams

36, Marina, P.M.B. 2027, Godwin.A.T. Oboh MD/CEO Deloitte & Touche Lagos Ado Abdullahi ED Akinola Ishola ED Micheal.A. Okonkwo ED Mahmoud. L. Alabi ED B.B. Ebong ED Balama Manu ED A.I. N. Obigwe ED E. C. Edozie Director O. Olusanya Director Eme Ufot Ekaette Director Ibrahim.A. Gobir Director Festus . B. Odimegwu Director

82 Paul. R. V. Belabo Director John.O.O. Akinleye Director 23 United Bank for Africa Plc 456 Kayode Sofola Chairman Akintola Williams UBA House, 57, Marina, Elumelu.A.Onyemaechi MD/CEO Deloitte & Touche P.O.Box 2406, Lagos Bello Garba ED Oduoza.Philips ED Godwin Ize-Iyamu ED Osadolor.V. Aminogho ED S.O.S. Iroche ED Faith Tuedor-Matthews ED Chika Mordi Ed Junaid Dikko Director Isreal C. Ogbue Director Okwechime R. Ada Director Willy Kroeger Director Jean Herskovits Director Khalid.A. T. Al-Mansour Director Alessandro Deodato Director

24 Wema Bank Plc 134 Olapade Mohammed Chairman KPMG Professional

Wema Towers, 4th Floor, Bisi Omoyeni MD/CEO Service 54, Marina, P.M.B. 12862, Yomi Adenusi ED Lagos. Folarin Olutimehin ED Adeyinke Adegbite ED Adelodun Olaiya Director Omololu Meroyi Director J. O. Oni Director 25 Zenith Bank Plc 114 Mr Macaulay Pepple Chairman Price Waterhouse Plot 84, Ajose Adeogun Mr Jim Ovia MD/CEO Coopers Street, P.O.Box 75315, Mr Godwin Emefiele DMD Victoria Island, Lagos. Peter Amangbo ED Elias Egbin-Akenzua ED Apollos Ikpobe ED E. M. Egwuenu Director

83 S. P. O. Fortune-Ebie Director L.F. O Obika Director Steve Omojafor Director Babatunde Adejuwon Director

Section 113333

Frequently Asked QQuestionsuestions About The NDIC

84 Introduction

The Nigeria Deposit Insurance Corporation (NDIC) , is an independent agency of the Federal Government of Nigeria. The NDIC protects you against the loss of your insured deposits if an NDIC-insured bank or other deposit-taking financial institutions (primary mortgage banks or community banks) fails. The NDIC Decree

No 22 of 1988 now Cap. 301 Laws of the Federation 1999 (as amended), established the Corporation as a body corporate with perpetual succession and a common seal. The NDIC commenced operations in March 1989.

As part of a continuous effort to enlighten the public, this section covers some of the frequently asked questions (FAQs) about the Deposit Insurance System in

Nigeria. This is meant to facilitate the understanding of the DIS by the nation’s banking public.

QQQuestionQuestion 1:1:1: WWWhat What Is A DDDepositDeposit IIInsuranceInsurance SSSystemSystemystem????

Answer: A Deposit Insurance System (DIS) is a financial guarantee to depositors, particularly the small ones, in the event

85 of a bank failure. Deposit Insurance ensures that the depositor does not lose all his money in the event of a bank failure. Thus, it engenders confidence in, and promotes the stability of the banking system by assuring savers of the safety of their funds. Deposit Insurance makes a bank failure an isolated event, hence it eliminates the danger that unfounded rumours will start a contagious bank run.

QQQuestionQuestion 2:2:2: IIIs Isss DDDepositDeposit IIInsuranceInsurance The SSSameSame AAAsAsss A CConventionalonventional InsuranceInsurance????

Answer: No. Deposit insurance is different from a conventional insurance in several respects. Some of the differences include the following:

a. Deposit insurance is a regulatory tool aimed at ensuring the safety, soundness and stability of a nation =s financial system, thereby protecting the macro-economy at large. On the other hand, a conventional insurance policy is designed only to protect the micro-interest of the policyholder.

2) Deposit insurance is usually a tripartite agreement involving the deposit insurer, the participating institutions and the depositors whereas a conventional insurance is a bilateral agreement between the insurance company and

86 the insured (policy holder).

3) Under deposit insurance, the participating institution pays the premium while the direct beneficiary of the protection offered is the depositor who does not pay any premium. In the case of conventional insurance, the beneficiary, who is the insured, pays the premium.

d. Best practice indicates participation in deposit insurance to be compulsory, whereas under a conventional insurance arrangement, participation is generally voluntary.

e. Under deposit insurance, best practice indicates that the amount of coverage should be limited, whereas in the case of conventional insurance, coverage may be total.

Question 3: WWWhat What Does The NDIC DDepositeposit IIInsuranceInsurance CoverCover????

Answer: The NDIC insurance covers all types of deposits received at an insured deposit-taking institution, including demand deposit, savings accounts, and time deposits. NDIC deposit insurance covers the balance of each account, Naira-for-Naira, up to the insurance limit, including principal and any accrued interest up to the date of the insured bank’s closure.

87 Question 444:4::: AAAre Are All FFFinancialFinancial IIInstitutionsInstitutions PPParticipantsParticipants In TTTheThe System?

Answer: No. The NDIC insures deposits in only licensed deposit- taking financial institutions in Nigeria such as Universal Banks (deposit money banks), Community Banks and Primary Mortgage Institutions (PMIs ).

Question 555:5: How do you assess premium?

Answer: Premium for the Deposit Insurance Scheme is paid by all participating institutions. The premium is assessed based on 15/16 of 1 per cent or about 0.94 per cent of participating institutions’ total assessable deposit liabilities as at 31 st December of the preceding year. The assessable deposit liability is total deposit with the exception of some deposits listed in Section 20 of the NDIC enabling Act of 1988 (as amended). There is a possibility of a reduction in premium payable as indicated in section 10(2) of the NDIC Decree No. 22 of 1988 which provides that once the Insurance Fund is adequately built up, a portion of the net operational surplus of the Corporation would be used to reduce the annual premium payable by insured institutions. Besides, the proposed amendment to the NDIC Act is seeking to make premium rate flexible to enable the Corporation carry out appropriate reviews to reflect the

88 dynamism of the banking business as well as the developments in the overall macro-economy.

Question 666:6: How does the NDIC protect the Deposit Insurance FunFund?d?

Answer: The NDIC protects the Deposit Insurance Fund (DIF) by investing the Fund in safe financial instruments such as Treasury Bills, Federal Government Bonds and instruments of similar nature. Secondly, the Corporation ensures that all its overhead and administrative expenses are met from its investment income. The DIF is used only for paying insured deposits when a participating institution fails as well as granting financial assistance to deserving participating institutions.

Question 777:7::: Does the Supervisory Functions of the NDIC duplicatduplicatee that of the CCentralentral BBBankBank of NNNigeriaNigeria (CBN)(CBN)????

Answer: No. There is no duplication of supervisory functions rather what exists is collaboration. For instance there is a framework whereby the Corporation collaborates effectively with the Central Bank of Nigeria through a joint committee on supervision at which both organizations are represented at very senior level. Secondly, in order to avoid duplication of supervisory functions, the two institutions share banks between themselves for

89 examination purposes on an annual basis and when such examinations are concluded the examination reports are exchanged. The supervisory efforts of the two institutions are sometimes conducted jointly when the need arises. In deed, the involvement of the NDIC in bank supervision has reduced the examination cycle from about once in two years to once a year in spite of the increase in the number of banks.

The Corporation supervises banks basically, to protect depositors. Banking supervision is therefore an essential element of a Deposit Insurance Scheme as it seeks to reduce the potential risk of failure and ensures that unsafe and unsound banking practices do not go completely unchecked. It also provides the oversight required to preserve the integrity of and promote public confidence in the banking system. The Corporation carries out its supervisory responsibilities through the on-site examination and the off-site surveillance of insured

institutions.

Question 888:8: HHHow How DDDoesDoes TTTheThehehe NDIC PProtectrotect BBBankBank DDDepositorsDepositors AAAgainstAgainst LossLoss????

Answer: The NDIC protects bank depositors against loss through:

a. Deposit Guarantee

90 This is perhaps the most significant and distinct role of the Corporation. As a deposit insurer, NDIC guarantees the payment of deposits up to a maximum of x50,000.00 (x200,000.00 has been proposed in the NDIC Amendment Act before the National Assembly) to a depositor in the event of the failure of a participating financial institution. Balances in all deposit accounts held in the same right and capacity by a depositor in all branches of the closed insured institution, net of outstanding debts, are aggregated to determine the maximum insured amount.

b) Bank Supervision

The Corporation supervises banks so as to protect depositors, ensure monetary stability, and effective/efficient payment system as well as promote competition and innovation in the banking system. Banking supervision seeks to reduce the potential risk of failure and ensures that unsafe and unsound banking practices do not go completely unchecked. It also provides the oversight functions required to preserve the integrity of and promote public confidence in the banking system. c)c)c) Distress Resolution

The Corporation is empowered to provide financial and technical assistance to failing or distressed banks in the interest of

91 depositors. The financial assistance can take the form of loans, guarantee for loan taken by the bank or acceptance of accommodation bills. On the other hand, the technical assistance may take the following forms: take-over of management and control of the bank; change in management; and/ or assisted merger with another viable institution.

Question 999:9::: How are the Insured Sums Collected?

Answer: Insured sums are collected by depositors filing their claims through the completion of relevant forms provided by the Corporation. In addition, they have to furnish the Liquidator with account documents such as unused chequebooks, old cheque stubs, passbooks, fixed deposit certificates etc. The depositor would also be required to identify him/herself with a valid identification document like driver’s licence or International Passport. After verification of ownership of the account as well as the account balance, the depositor would be duly paid the insured sum at a designated Pay Centre which is usually not far from the branch where he/she maintains the account. However, where claims are filed later but within the statutory period of 18 months such payments would be made by agent banks duly appointed by the Corporation.

Question 101010:10 : What Should A Depositor Of A Failed Bank Do If He oorr She Loses Passbook or Savings Documents?

Answer: The depositor would be required to present a Police report along with a sworn affidavit duly certified by the Court. The depositor would also be required to identify him/herself with a valid Identification document like driver’s licence or International Passport

Question 111111:::: DDDoes Does TTThe Thehehe NDIC PProtectrotect TTThe Thehehe IIInterests Interests Of CCCreditors Creditors Or Shareholders Of A BBankankank????

Answer: No. The primary mandate of the NDIC is to protect depositors. However, through supervision to ensure safety and soundness of banking institutions, the interests of creditors and shareholders are also protected. In the event of bank failure, creditors and shareholders could be paid liquidation dividends after depositors had been fully reimbursed.

Question 11121222:::: What is Liquidation dividend?

Answer: These are payments made to depositors of failed institutions in excess of the insured sum. While the insured sums are paid from the Corporation’s Deposit Insurance Fund (DIF), liquidation dividends are paid from funds realized from

93 the sale of the assets and recoveries from debtors of the failed institution.

Question 11131333:::: WWWhy Why IIIs Isss TTThe Thehehe DDDeposit Deposit IIInsurance Insurance CCCoverage Coverage LLLimited Limited To A FFixedixed SumSum????

Answer: The System is designed to protect small depositors since the small depositors are generally more in number and less informed about the safety and soundness of depository institutions. Unlimited coverage could induce excessive risk- taking, promote moral hazard and weaken market discipline.

Question 11141444:::: IIIs Isss TTThe The IIInsurance Insurance Protection Limit IIIncreased Increased By PlaciPlacingng One’s Funds In Two Or More Types OOOf Offf DDDeposit Deposit Accounts In The Same BankBank????

Answer: No. The Deposit Insurance limit is not increased merely by dividing funds owned in the same right and capacity among different types of deposits in the same bank. For example, current and savings accounts owned by the same depositor, in the same right and capacity, in the same bank are added together and insured up to the maximum insured sum.

Question 11151555:::: IIIf Ifff A DDepositorepositor Has DDDepositDeposit AAAccountsAccounts IIInInnn DDDifferentDifferent IIInsuredInsured Banks, WilWilll The Deposits Be Added Together For The Purpose Of Determining Insurance CoverageCoverage????

Answer: No. The maximum insurance limit is applicable to deposit in each of the participating banks. In the case of a bank having one or more branches, the main office and all branch offices are considered as one bank. In summary, if a person has many accounts in one bank, all the deposits are taken together as one account even if the deposits are in various branches of the same bank. On the contrary, however, if a depositor has accounts in more than one bank, they are insured independently up to the maximum insured sum per bank.

Question 11161666:::: If A Husband And Wife Or Any Two Or More Other PersoPersons,ns, Have, In Addition To The IndividuallyIndividually----OwnedOwned Accounts Of Each, A Valid JoJointint Account In The Same Insured Bank, Is Each Account Separately InsuredInsured????

Answer: Yes. If each of the co-owners has personally signed a valid mandate card and has a right of withdrawal on the same basis as the other co-owners, the joint account and each of the individually-owned accounts are separately insured up to the insured maximum sum.

Question 117777:::: If A Person Has An Interest In More Than One Joint Account, What Is The Extent Of His Or Her Insurance Coverage???

Answer: As long as the combination of the joint accounts is not the same, the account will be insured separately up to the maximum insured limit. Where the joint accounts are owned by the same combination of individual then the accounts will be added together and the total is insured up to the maximum insured sum.

Question 118888:::: Are Accounts Held By A Person As Executor, AdministAdministrator,rator, Guardian, Custodian, Or In Some Other Similar Fiduciary Capacity Insured Separately From His Or Her Individual AccountAccount????

Answer: Yes. If the records of the bank indicate that the person is depositing the funds in a fiduciary capacity such funds are insured separately from the fiduciary =s individually-owned account. Funds in an account held by an Executor or Administrator are insured as funds of the deceased =s estate.

96 Funds in accounts held by guardians, conservators or custodians (whether court-appointed or not) are insured as funds owned by the ward and are added to any individual accounts of the ward in determining the maximum coverage. Account in which the funds are intended to pass on the death of the owner to a named beneficiary, are considered testamentary accounts and are insured as a form of individual account. If the beneficiary is a spouse, child or grand-child of the owner, the funds are insured for each owner up to a total of the maximum insured sum separately from any other individual accounts of the owner. In the case of a Revocable Trust Account, the person who holds the power of revocation is considered the owner of the funds in the account.

QQQuestionQuestion 119999:::: When An Account Is Held By A Person Designated As AAgentgent For The True Owner Of The Funds, How Is The Account InsuredInsured????

Answer: The account is insured as an account of the principal or true owner. The funds in the account are added to any other accounts owned by the owner and the total is insured to the maximum sum.

Question 202020:20 ::: Is An Account Held By Either A Company Or PartnershPartnership,ip, Insured Separately From The Individual Accounts Of Shareholders Or PartnersPartners????

Answer: Yes. If the Company or Partnership is engaged in an independent activity, its account is separately insured to the maximum insured sum. The term AIndependent activity @ means any activity other than one directed solely at increasing insurance coverage.

Question 22212111:::: If A DepositoDepositorr Has More Than The Maximum Insured Amount As Deposit In A Closed Bank, Is He Entitled To Any Further Claim For The Amount Of His Deposit In Excess Of The Maximum Insurance Paid By The NNDICDICDICDIC????

Answer: Yes. In a situation where the amount of depositors’ fund in a closed bank exceeds the maximum insured amount, the owners of such accounts will share, on a pro-rata basis, in any proceeds from the liquidation of the bank =s assets with other general creditors including the Corporation.

98 Question 222222:::: Where aarere the NDIC Offices Located?

Answer: The Nigeria Deposit Insurance Corporation has its Head Office in Abuja. Also, the Corporation has Offices located in Lagos, Kano, Benin and Enugu. The specific locations of the Corporation’s Head Office as well as its other offices are as indicated below:

Head Office Plot 447/448 Constitution Avenue P. M. B. 284, Garki Abuja Tel. 09-5237710-21 Fax: 09-5237718 E-mail: [email protected] Website: www.ndic-ng.com

Lagos Office Mamman Kontagora House 23A, Marina P. M. B 12881 Lagos. Tel: 01-2647810-847 Fax: 01-2647848

ZonalZZZonal Offices (3)(3)(3)

Benin 28A & B, Benoni Hospital Road Off Airport Road, G. R. A. P. M. B. 1043, Benin, BENIN CITY Tel: 052-253183, 257079,254246 Fax: 052-253183

Enugu 10 Our Lords’ Street Independence Layout P. M. B. 1210 ENUGU Tel: 042-457292, 455325, 456101. Fax:Fax:- 456770

Kano Plot 458, Mohammed Mohammed Avenue Hotoro Quarters, Off Maiduguri Road Kano Tel: 064-662469, 662479, 662483 Fax: 064-662471

100

101