Report Of The Managing Director/CDirector/CEOEOEOEO
I am delighted to present the report of the activities and operations of the Nigeria Deposit Insurance Corporation (NDIC) for the financial year ended 31 December, 2009. The year 2009 started on a cautious note against the backdrop of heightened global financial crisis which started in 2007 and snowballed into recession of many economies including those of USA and many European countries. The Nigerian economy and the financial system, which had their fair share of the global economic meltdown, staged a modest recovery in the second half of year 2009, largely as a result of the series of pre-emptive measures taken by the nation’s Monetary Authorities.
In 2009, the NDIC celebrated its 20 th Anniversary of successfully discharging its mandate of protecting depositors and contributing to financial system stability in Nigeria. As in the last 20 years, the Corporation during the year continued to focus on improving service delivery to the depositing public in fulfillment of its mandate of depositor protection. In this 20 th edition of the NDIC Annual Report, an overview of the activities of NDIC and its modest achievements in 2009 are presented. Let me reiterate that NDIC had continued to be guided by strict observance of the principles of transparency, professionalism, integrity, accountability and independence in the discharge of its mandate. The highlights of the Annual Report are encapsulated in the remaining sections of my report.
1 1.0 Deposit Insurance Premium In line with the principle of fairness in deposit insurance pricing and the commitment to the reduction in the overall premium burden on banks, the NDIC continued to implement the Differential Premium Assessment System (DPAS) for the 24 universal banks in the system. At the end of 2009, the maximum rate paid by an insured bank was 73 basis points, a basis point lower than the maximum rate paid in 2008. The minimum paid by the least risky bank was 55 basis points as against 54.50 basis points paid in 2008 whilst the mean rate for all the banks in 2009 was about 61.19 basis points. A basic challenge in the implementation of the new method was the need for banks to render timely, complete, reliable and consistent information and data that would enable NDIC to adequately measure the risk posed to the system. Another major challenge in 2009 was that many of the licensed microfinance banks and primary mortgage institutions did not pay premium to NDIC.
2.0 Ensuring Adequacy of the Deposit Insurance Coverage An appropriate coverage limit is one of the key determinants of an effective deposit insurance system. Such a limit, will serve to enhance credibility of the deposit insurance system as a key component of the financial safety net arrangement. As part of the determination to proactively respond to changes in the environment within which it operates, NDIC initiated a research work on deposit insurance coverage limit with a view to making appropriate adjustment in the deposit insurance coverage levels which were hitherto fixed at N200,000 for universal banks and N100,000 for microfinance banks (MFBs) and Primary Mortgage Institutions (PMIs). The preliminary survey report of
2 the research had been completed while the final report was expected to be completed in early 2010. When completed, the report would enable the Board of NDIC to review the existing coverage levels for licensed deposit-taking financial institutions in the system as appropriate.
3.0 Developing Effective Risk Management Framework Within NDIC As a deposit insurer for all licensed deposit-taking financial institutions in Nigeria, we operate in a dynamic environment, with diverse internal and external risk exposures. The NDIC had thus recognized that management of risks is an integral part of sound management. As a risk minimiser, NDIC had to closely monitor the exposure of the Deposit Insurance Funds (DIF) to losses and ensure early intervention to minimize disruption and costs to the financial system. In 2009, the implementation of the NDIC’s Enterprise Risk Management (ERM) framework commenced. This was aimed at ensuring that all significant risks to NDIC were identified, measured, managed, monitored, controlled and communicated in a systematic, coordinated, efficient and effective manner.
4.0 Failure Resolution Activities In 2009, the licence of Societe Generale Bank (SGBN), one of the 14 banks that was adjudged insolvent and failed to meet the N25billion minimum recapitalization requirement as at the end of December, 2005 was restored by the Court. That development brought the number of banks closed after the consolidation exercise to thirteen (13). As at the end of 2009, NDIC had obtained court winding-up orders for eleven (11)
3 out of the thirteen (13) banks and was thus appointed official liquidator. The shareholders of the remaining two (2) banks, namely: Fortune International Bank and Triumph Bank were still challenging the revocation of their banks’ licences in court, while the litigation in respect of the revocation of the banking licence of Peak Merchant Bank Ltd was yet to be resolved. Also, during the year, the Court of Appeal in Abuja reinstated the banking licence of Savannah Bank of Nigeria Plc (SBN) which had been revoked by the CBN in 2002 and also ordered the return of all the assets of the bank to the shareholders. With these developments, the total number of banks whose licences were revoked by the CBN between 1994 and 2009 stood at 48.
The NDIC continued with the liquidation of the remaining 34 out of 35 failed banks that were closed prior to 2006 and the 11 out of the 13 banks closed in 2006. In that respect, payment of insured deposits and liquidation dividends, payment to creditors and shareholders of the banks in-liquidation were made in 2009. It would be recalled that in 2006, NDIC implemented the Purchase and Assumption (P&A) as aresolution option to wind up the affairs of the 11 banks for which NDIC had been appointed liquidator. In the process, all private sector deposits of those banks were assumed and some of their assets purchased by the acquiring healthy banks. In implementing the (P&A) option, the NDIC was confronted with challenges such as legal constraints and the burden of the acquisition of the risk assets of the failed banks that were not purchased with a view to realizing them.
4 As at the end of December 2009, NDIC had made a total payment of N7,147.23 million to insured depositors of the 48 banks-in-liquidation while the sum of N77,102.46 million had been paid as liquidation dividends to 249,784 uninsured depositors in those banks-in-liquidation. During the year, additional liquidation dividends were also declared for the uninsured depositors of closed Trade Bank, Afex Bank and Allstates Trust Bank. In addition, it is important to note that a 100 percent final dividend had been declared for 11 out of the 34 banks that were in liquidation before 2006. Also as at end of December 2009, a total dividends of N1,182.68 million had been declared in favour of the general creditors of 7 out of the 34 banks-in-liquidation while the sum of N727.40 million had been paid to those creditors who filed their claims.
5.0 Supervisory Activities of NDIC Banking supervision is one of the key activities of NDIC in protecting depositors as well as promoting the safety and stability of the Nigerian banking system. In 2009, NDIC continued to monitor the insured financial institutions through both On-Site Examination and Off-Site Surveillance procedures. During the year, NDIC jointly conducted the special examination of the 24 deposit money banks with the CBN to ascertain their true financial condition and to enable the Regulatory Authorities adopt necessary supervisory measures that would restore and sustain public confidence in the banking system.
Some of the examination reports revealed serious weaknesses in corporate governance. The weaknesses in corporate governance
5 manifested in, poor risk management; weak board and management oversight; inaccurate financial reporting; abuse and fraudulent use of subsidiaries; poor book-keeping practices; non-compliance with banking laws, rules and regulations; and non-performing insider-related credits, among others. Other weaknesses discovered included declining asset quality and attendant large provisioning requirements and undue exposure to the capital market through share loans and margin loans as well as to the oil and gas sector. All the observed weaknesses culminated in huge non-performing loans and insolvency of varying degrees in many of the banks. The development led to the removal of the executive managements of 8 out of the existing 24 banks and the injection of a bail-out sum of N620 billion by the CBN as liquidity support to the problem banks. All these were undertaken to ensure that depositors were adequately protected and that the system remained safe and sound.
During the same period, the NDIC examined 133 other financial institutions out of which 124 were microfinance banks (MFBs) while 9 were primary mortgage institutions (PMIs). The NDIC was able to achieve all these despite the major challenge of inadequate supervisory staff. Presently, the NDIC is making efforts to engage more staff to boost its supervisory capacity.
6.0 Staff Capacity Building The NDIC remained committed to the training of its staff to realize the most out of its human resources, regarded as a critical success factor for
6 the attainment of its vision and mission. Hence in 2009, local and overseas trainings were given to staff to enhance their competency and efficiency in the discharge of their responsibilities towards achieving the statutory mandate of NDIC.
7.0 Corporate Social Responsibility As in previous years, the NDIC, as part of its corporate social responsibility and in appreciation of the role of human capital in the economic growth and development of the country, continued to be actively involved in voluntary activities which were outside its statutory mandate by supporting programmes and projects for the benefit of higher institutions of learning in the country. In that regard, a total of 24 higher institutions in Nigeria had so far benefited from the first and second phases of the scheme at a total cost of N241.3 million out of the total sum of N261 million earmarked for the projects from the inception of the scheme.
8.0 Enhancing Public Awareness, Education and Understanding of the Deposit Insurance System To support the public policy objectives of providing a well managed deposit insurance arrangement that would protect depositors, promote confidence and ensure financial system stability, the NDIC during the year continued to initiate educational and promotional activities to maintain and improve public awareness and understanding of the deposit insurance system (DIS) in Nigeria. Specifically during the year, the NDIC carried out series of awareness campaign which included public lectures, press briefings, advertorials, Trade Fair, jingles in radio
7 and television and the distribution of NDIC publications free of charge. Outreach to schools was one of the integral parts of the public education programme of NDIC. In 2009, the NDIC organized the maiden edition of its National Essay competition with the theme “The Role Of NDIC in Promoting Public Confidence In The Nigerian Financial System” for the final year students of Nigerian Universities.
Following the licensing of microfinance banks (MFBs) and primary mortgage institutions (PMIs) in Nigeria, deposit insurance coverage had to be extended to these institutions. In view of the relative newness of this action, the NDIC used all available opportunities to sensitise licensed MFBs and PMIs on the system.
Other initiatives to enhance public awareness by NDIC included:
Development of a new robust and interactive Website: www.ndic.org.ng Production and wide circulation of various hand-bills on the mandate, operations, achievements and challenges facing NDIC.
All those efforts were geared towards increasing public awareness of deposit insurance system and to facilitate public understanding of NDIC’s role and contribution within the nation’s financial system.
9.0 International Co-operation In 2009, NDIC continued its membership of the International Association of Deposit Insurers (IADI) and further strengthened linkages with other
8 deposit insurers in other parts of the World. The NDIC organized and participated actively in several international exchange programmes and activities with the objective of contributing to the development of deposit insurance systems and promoting its image internationally. Various staff of NDIC were exposed to courses and workshops organized by IADI and other leading deposit insurers. The knowledge they gained in DIS and financial institution resolutions from those programmes continued to impact positively on the strategic direction and operations of NDIC. In keeping with its commitment for knowledge sharing, and in furtherance of its international networking, the NDIC hosted two senior staff of the Deposit Insurance Board of Tanzania on training/attachment.
10.0 Conclusion and Going Forward. The NDIC witnessed series of challenges in 2009, but I am happy to say that we sustained our focus in the discharge of our corporate mandate. Within the provisions of its enabling Act, the constraints imposed by the challenges of the global financial crisis and other developments at the local level, the NDIC creditably and effectively discharged its mandate of protecting depositors of deposit-taking financial institutions and contributing to financial system stability in 2009. We can say with confidence and all sense of modesty that with the key support of our strategic partners, we have been able to make a significant difference in ensuring and promoting safety and soundness in the Nigerian financial services industry.
9 Looking into the future, our major objective would be to continuously pursue our core mandate of depositor protection in all its ramifications with the use of relevant information technology and devices. The NDIC would continue to improve on its overall organizational efficiency in order to contribute to maintaining public confidence in the banking system and to realize its vision to remain a global player as one of the leaders in depositor protection. An important principle consistently adhered to in the Corporation is the advancement of its most important resource, its people. Hence, employee welfare will be further enhanced by providing training opportunities to improve skills, proficiency and competency as well as strengthen the NDIC’s newly introduced merit- based performance management system.
Finally, I would like to express my profound gratitude to the Federal Ministry of Finance, the Central Bank of Nigeria and members of the Board of NDIC for their immense cooperation and support during the year. I also want to thank the NDIC’s team of committed and diligent employees at various levels who had contributed variously in sustaining our relevance and value adding to the nation’s financial system. It is my sincere hope that this cooperation will produce more fruitful results in subsequent years.
Umaru Ibrahim, mni. Ag. Managing Director/CEO
10
Message From The Chairman
It is my pleasure to present the Annual Report and Statement of Accounts of the Nigeria Deposit Insurance Corporation (NDIC) for the year ended 31 st December, 2009. The report reviews important developments in the banking industry, highlights the activities of the NDIC as well as provides information on insured banks and other insured financial institutions during the year under review.
Macroeconomic/Socio-Political Environment Like the preceding year, the political climate in 2009 was not only stable but suggestive of the country’s strong resilience in the face of serious national challenges. Political stability is imperative and key to both economic growth and development as it remains one of the foremost attractions for the inflow of foreign capital and investment.
During the year, a number of volatile political events that had put to test the country’s commitment to democratic governance and her corporate existence were either successfully doused or in the process of being addressed. These included some hotly contested election results in some States of the Federation, as well as the robust debates on the electoral reforms.
11 The most intriguing of the political events of the year, which had significant repercussions on the nation’s socio-political and economic stability, was the continued restiveness in the Nigeria Delta Region. The landmark amnesty declaration by the President to the militants in the Niger Delta region abated the crisis. The gesture of amnesty by the President to all militants in the region was aimed at bringing to an end the persistent tension in the country which had negative impact on the economy. The decision was hailed by all Nigerians, including the militants themselves and the international business community. While it lasted, the crisis in the Niger Delta, took a huge toll on both human lives and the nation’s revenue generation capacity. The visible outcome of the Presidential amnesty was the return of relative stability to the region as evidenced by the reduction in hostage-taking and a resultant increase in oil output with corresponding increase in the nation’s revenue.
Banking Industry In 2009 The environment in which insured banks and other insured financial institutions operated in 2009 was shaped largely by developments in the international economy as well as the economic policies/reform programmes of the CBN aimed at sustaining the momentum of macroeconomic growth and stability. During the year, the implementation of those reform programmes continued to exert significant influence on the banking as well as other sectors of the economy. Of significance during the year was the appointment of a new Central Bank Governor, Malam Sanusi Lamido Sanusi. His governance strategy placed greater emphasis on full disclosure, enthronement of
12 good corporate governance and effective risk management by both the regulators and the operators, which eventually revealed the distressed state of some insured banks. Indeed, concerned about the poor level of corporate governance, unguided credit boom and the unfortunate deterioration in asset (loan) quality of insured institutions, and what effect all that might have on the health of the industry and the economy, the CBN in partnership with the NDIC conducted special examinations of universal banks to, among other things, ascertain the quality of their assets and the level of their exposure to both the capital market and the oil and gas sector. The findings from the examinations, which revealed huge non performing loans, poor risk management, weak corporate governance as manifested in massive insider abuse, among others, led to the removal of eight (8) Chief Executive Officers of the distressed banks and members of their executive management teams and their replacement with new executive managements appointed by the CBN.
However, in a pre-emptive move to prevent run on the affected banks and to continue to sustain depositors’ confidence in the banking system, the CBN injected N620 billion to the problem banks to ensure that there was no cessation of banking services and to restore the confidence of the banking public. Although panic by the banking public was averted, the banking industry, for the rest of the year continued to maintain a cautious approach to credit extension. This might not be unconnected with the need to rebuild capital against the possibility of further credit
13 write-downs, mostly related to non-performing loans to commercial real estates, oil and gas sector, and stock market.
In spite of daunting challenges, a number of banks continued during the year with the pursuit of their domestic and regional expansion programmes with some of them opening subsidiaries in some African countries. The industry, during the review period, continued to witness heightened competition for deposits, especially with the harmonization of financial year end. The industry also witnessed growth in non- traditional banking delivery channels with IT-based services increasingly complementing branch banking.
I wish to observe that in the light of the developments in the banking industry, particularly on the revelation of the poor asset quality of several banks, the total assets of the industry shrank by 9.06% between December 2008 and December 2009. However, it was salutary that total deposit liabilities increased by about 15% even though it was at a lower growth rate as against 62% growth in 2008.
Corporate Governance During the year under review, sound corporate governance continued to be one of the NDIC’s guiding principles. It is noteworthy that the year witnessed the reconstitution of a new Board for the NDIC after more than a year of governance without one. The new Board, chaired by my humble self, was inaugurated on August 20, 2009.
14 The year also witnessed the disengagement of the former Managing Director/Chief Executive Officer of the Corporation, Alhaji G. A. Ogunleye and the former Executive Director of Operations, Professor P. N. Umoh following the completion of their mandatory maximum 10-year of service tenure in NDIC. Consequent upon that, the NDIC Board appointed the Executive Director (Corporate Services), Alhaji Umaru Ibrahim, mni, as the Acting Managing Director/Chief Executive Officer. It is remarkable and gratifying to note that despite the vacuum their departure created, pending their replacement, the NDIC continued to discharge its mandate effectively, under the able leadership of the Acting Managing Director/Chief Executive Officer. Indeed, the ability of the Acting Managing Director/Chief Executive Officer to manage the affairs of NDIC satisfactorily, in the absence of two other senior management staff, was made possible by the sound corporate culture and operational competence established in NDIC over the years. That cascaded from top to bottom and with the guidance of all Board members who brought their respective wealth of experience to bear. I am pleased to say that NDIC remained effective in the discharge of its mandate.
As in previous years, NDIC continued to be guided by the provisions of its enabling Act and the requirements of information disclosure to its various stakeholders. With a wake-up call for corporate governance and consumer protection resounding across the globe, the NDIC could not be left behind both in terms of its own internal governance and the governance of the institutions it supervised. This had in fact informed total commitment of NDIC to the reform measures embarked upon by
15 the CBN which saw the NDIC in a joint bank examination exercise with the CBN to ascertain the true health status of the Nigerian banks in 2009 as earlier mentioned.
Internally, efforts were made to strengthen governance by maintaining organizational arrangements that promoted and ensured independence, transparency, accountability and integrity. The NDIC had continued to hold these values with passion and zeal as it considered them to be critical to achieving the objectives of its mandate. At the Board level, five (5) committees were created to assist the Board in discharging its various oversight functions. The committees were: Finance and General Purpose Committee; Corporate Strategy Committee; Debt Recovery Committee; Audit Committee; and the Establishment Committee. At departmental and unit levels, the Enterprise Risk Management Unit (ERMU) was added to the NDIC’s organizational structure in February 2009. The objective of the new Unit was to develop and implement an appropriate ERM framework for NDIC, which would assist in managing the risks inherent in the task of implementing the deposit insurance system in the country. The implementation of the ERM Framework would involve a continuous identification and assessment, on an enterprise-wide basis, those significant risks that could impede the achievement of the NDIC’s mandate and articulate appropriate strategy to effectively mitigate such risks.
16 Going Forward The task of implementing a deposit insurance system is certainly a business that requires a lot of commitment and proactive measures. The scam in the country’s financial system which came to light in 2009 confirmed beyond any iota of doubt that supervision of the financial system needed to be taken a step higher beyond what had been the practice. But for the timely intervention by the regulatory/supervisory authorities, the threat posed by the scam would not only have dealt a severe blow to the deposit insurance funds but would have significantly slowed down the pace of an already epileptic economic development in the country as the intermediation role of banks as mobilisers of deposits and savings from surplus units and the extension of credits to the deficit units of the society would have been severely truncated. Going forward, therefore, the NDIC, in addition to existing mechanisms, intends to reposition itself further to meet the challenges of its mandate in the ensuing three areas.
(i) Strengthening of Supervisory Capacity Although the reenacted 2006 NDIC Act had significantly addressed previous constraints in the effective implementation of the deposit insurance mandate, the NDIC sought to further enhance its performance and its relevance to its stakeholders by proposing an amendment to the Act. Accordingly, it would intensify the follow-up of the proposed review of the existing Act with the National Assembly, which would give it the powers to pay insured amount to depositors in the event of imminent or actual suspension of payment by insured institutions; review the books
17 of subsidiaries of universal banks to minimize the possibility of risk transfer; deal with erring banks and their directors/ officials; and protect the NDIC’s assets against creditors who might obtain judgment against closed insured institutions.
(ii) Inter Agency Cooperation The landmark special bank examination jointly carried out by CBN and NDIC in 2009 which exposed enormous financial scandals in the industry testifies to what level of efficiency can be achieved by mutual trust and cooperation between the regulatory and supervisory agencies in the financial system. The NDIC therefore, intends to build on the professional rapport and confidences established with the CBN and extend same to other regulatory agencies in the financial system such as the Securities and Exchange Commission (SEC) and National Insurance Commission (NAICOM) whose businesses impact significantly on the banking industry. While several avenues could be used to achieve this objective, the NDIC would use the auspices of the Financial Services Regulation Coordinating Committee (FSRCC), the structure created for the inter-agency cooperation among regulators and supervisors in the financial system.
(iii) Readiness Timeliness of intervention in actual or anticipated problem of an insured institution and prompt payment of insured amount in the manner being solicited for in the proposed review of the NDIC Act are very central to the implementation of the deposit insurance system in the country.
18 Recent events at both the international and country levels had shown that failures could be sudden, and, if not properly handled, costly. Accordingly, the NDIC would continue to enhance its level of alertness and sensitivity to happenings in the financial and economic environment and respond to apparent risks and threats promptly. It would also continue to invest in its people, infrastructure and processes with a view to ensuring effective performance and high level of readiness for any intervention.
Conclusion I wish to end my message by thanking all members of the NDIC Board, the Senior Management as well as the highly motivated and professional employees of NDIC for job well done during the year under review. The task had not been easy. Public expectation was high and the stress in the system very visible. But thanks to the professionalism, high level of integrity and perseverance displayed by all of us, the year ended well. We look forward to better times ahead as the Board has resolved to continue to motivate staff and provide conducive environment to enhance performance of NDIC.
Ambassador (Dr.) Hassan Adamu (Wakili of Adamawa), CON Chairman
19
SECTION 1
MANDATE, CORE VALUES AND STRATEGIC PLAN
1.0 Introduction The NDIC is a statutory body established under the NDIC Act No 16, 2006. The NDIC key role is to provide financial guarantee to depositors in the event of the failure of a member institution and to administer the deposit insurance system in Nigeria. As part of the nation’s financial safety net participants, the NDIC has major roles to contribute to the stability of the financial system, and to provide incentives for sound risk management in the Nigerian financial services industry.
1.1 NDIC’s Public Policy Objectives The NDIC aims at meeting the following public policy objectives: • Protecting small, uninformed and less financially sophisticated depositors by providing an orderly means of compensation in the event of failure of their insured financial institutions. • Contributing to the financial system stability by making incidence of bank runs less likely; and • Enhancing public confidence and systemic stability by providing a framework for the resolution and orderly exit mechanism for failing and failed insured institutions.
20 1.2 NDIC’s Functions Section 2 of the NDIC Act 2006, stipulated the following functions for the Corporation: i) insuring all deposit liabilities of licensed banks and such other deposit-taking financial institutions operating in Nigeria within the meaning of Sections 16 and 20 of the Act so as to engender confidence in the Nigerian banking system; ii) giving assistance in the interest of depositors, in case of imminent or actual financial difficulties of banks particularly where suspension of payments is threatened and avoiding damage to public confidence in the banking system; iii) guaranteeing payments to depositors, in case of imminent or actual suspension of payments by insured banks or financial institutions up to the maximum amount as provided for in Section 20 of the Act; iv) assisting monetary authorities in the formulation and implementation of banking policies so as to ensure sound banking practice and fair competition among banks operating in the country; and v) pursuing any other measures necessary to achieve the functions of the Corporation provided such measures and actions are not repugnant to the objectives of the Corporation.
1.3 NDIC’s Mandate The deposit insurance system being implemented by the NDIC was designed as a risk-minimizer with powers to insure deposits of all
21 licensed deposit-taking financial institutions, monitor their health status and ensure orderly resolution when they fail. Derived from its functions, the mandate of the Corporation is as follows: i) Deposit Guarantee The NDIC guarantees payment to depositors of all participating institutions up to a maximum limit in accordance with its statute in the event of failure so as to engender confidence in the nation’s banking system. The limit currently stands at N200,000 per depositor of universal banks and N100,000 per depositor of MFBs and PMIs. ii) Bank Supervision The NDIC supervises banks to protect depositors, contribute to monetary stability and promote an effective payments system as well as competition in the banking system. Supervision in addition to other objectives, seeks to reduce the risk of failure while ensuring that unsafe and unsound practices are minimised. The NDIC carries out this responsibility through both on-site examination and off-site surveillance in collaboration with the CBN. iii) Distress Resolution The NDIC provides financial and technical assistance to deserving failing participating institutions, in the interest of depositors. The financial assistance could be in the form of loans, guarantee, or accommodation bills. Similarly, the technical assistance includes assumption of control and management of a failing institution, change of management, or
22 assisted merger with another viable institution. In the event that the licence of an insured institution is revoked, the NDIC decides on the resolution option to use. The responsibility for distress resolution is shared with the CBN. iv) Bank Liquidation The NDIC is solely responsible for the orderly and efficient closure of failed insured institutions. The closures are done with minimal disruption to the banking system. After closure, the assets of the failed insured institutions are realised in the most cost-effective manner and the proceeds appropriated among the various claimants in accordance with relevant laws. Depositors have seniority of claim on a failed bank’s assets over other stakeholders such as preferred creditors, general creditors, and shareholders.
1.4 Core Values and Beliefs To be effective in the discharge of its mandate, NDIC is guided by some core values and beliefs. As articulated in its Strategic Plan (2007 – 2009), the four core values and beliefs guiding NDIC employees as they strive to fulfill the Corporation’s mission and vision are as follows: i. Professionalism: The NDIC requires its staff to demonstrate a high level of ethics and professionalism in performing their duties. Accordingly, NDIC staff are expected to:- • seek knowledge to improve their skills and performance; • strive to attain excellence in all aspects of their work; • seek to exceed set targets;
23 • seek innovative and creative solutions to problems; • abide by all codes of conduct and professional ethics/good corporate governance at all times; and • be objective and factual in their work presentation and constructive in their criticism. ii. Transparency: The NDIC is committed to doing what is right and just at all times. Thus, NDIC employees are required to:- • adhere to the highest ethical standards in performing their duties; • accept responsibility for their actions; • act and negotiate in good faith and in the best interest of NDIC; • create an atmosphere of mutual trust and confidence; and • display the highest level of integrity. iii. Team Work : Conscious of the demands of the environment in which it operates, the NDIC charges its employees to:- a. promote and reinforce co-operation with other players within the internal and external boundaries of NDIC; b. acknowledge the contributions of others ; and c. provide and solicit support to and from, colleagues. iv. Respect and Fairness : Management partners with staff to ensure that:- • employees treat each other with mutual respect;
24 • employees value and respect the opinions of each other; • employees are given equal opportunities and treated with fairness; • career advancements are based on merit; • interpersonal conflicts are addressed timely and constructively; and • there is a conducive work environment.
1.5 The Corporate Strategic Plan In recognition of the need to reposition NDIC to effectively implement its mandate, a 3-Year (2007 – 2009) Strategic Plan themed “ Raising The Bar ” was prepared. Under the Plan, departments were re-aligned while some new departments/units were created. The deliverables under the 3–Year Strategic Plan whose implementation commenced in 2007 included: - Capacity Building - Implementing of Enterprise Risk Management - Deploying a new Performance Management System - Implementing Differential Premium Assessment System - Implementing Risk Based Supervision. 1.5.1 Broad Strategic Goals OF The Plan i. Manage and mitigate risks to which NDIC is exposed; ii. Have a world-class workforce with acceptable work culture; iii. Improve staff performance in the organization through relevant capacity building and implementation of a robust performance management system;
25 iv. Timely and efficient resolution of failing and failed insured financial institutions; v. Enhance operational efficiency; vi. Implement differential premium system; vii. Implement risk based supervision of insured institutions; viii. Promotion of the understanding of deposit insurance mandate by stakeholders; ix. Maximization of stakeholders' satisfaction; and x. To share experience and expertise in deposit insurance.
1.5.2 Strategies To Achieve The Goals i. Enhance ability to anticipate, react to and manage risks; ii. Improve deposit insurance awareness; iii. Maintenance of efficient and cost effective operations; iv. Review of the premium assessment system; v. Building of a highly skilled and efficient workforce; vi. Implementation of a service charter; vii. Enhancement of international collaboration, networking and profile.
26 1.5.3 Progress Report On The Strategic Plan/Initiatives The level of implementation of the plan, is as presented in Table 1.1.
Table 1.1 NDIC 2007/2009 STRATEGIC PLAN: STATUS REPORT S/N Broad Strategic Goals Extent of Outstanding Issues Implementation 1 Manage and mitigate Enterprise Risk World Bank support to risks to which NDIC is Management Unit had NDIC on enterprise risk exposed been established; management capacity building; and All staff members of the Unit had received training Implementation of in Malaysia; Enterprise Risk Management framework. A risk management framework for the Corporation had been developed and released to all Departments as exposure draft;
A firm of Consultants had been engaged to train about 40 NDIC staff on risk management.
2 Have a world -class A culture audit had been Culture reorientation . workforce with completed; acceptable work culture Embarked on continuous capacity building in all key business areas through training and attachment.
3 Improve staff A performance The performance performance through the management system management system is implementation of a based on the balanced yet to be fully robust performance scorecard framework had implemented. management system been developed;
27 S/N Broad Strategic Goals Extent of Outstanding Issues Implementation
Performance Management Unit had been established.
4 Timely and efficient The adoption of Purchase In c ollaboration with CBN , resolution of failing and and Assumption approach revise the Contingency failed insured financial to failure resolution had Planning Framework for institutions improved the timelines Systemic Distress to make and efficient resolution of it an effective tool for failed institutions. crisis resolution.
5 Enhance operational Upgraded bandwidth and Recruitment of new staff efficiency ICT interconnections; with IT background to enhance the capacity of Engaged a Consultant to staff to manage ICT set up disaster recovery infrastructure infrastructure;
Engaged Phillips Consulting to advise on IT security;
Initiated the help desk system to respond to enquiries during and after working hours;
Provided majority of staff with PCs and Laptops;
Embarked on continuous upgrade of ICT and Office automation; and
Reviewed the Organisation Structure to enhance effectiveness and efficiency.
6 Im plement Risk -based Differential Premium Review of DPAS; and supervision and Assessment Differential Premium System(DPAS) had been
28 S/N Broad Strategic Goals Extent of Outstanding Issues Implementation assessment system adopted; Full transition to the R isk - Based Supervisory A Pilot risk-based approach. examination of some banks had commenced in collaboration with CBN;
7 Promotion of the Sponsored television and Further i mprove NDIC understanding of deposit radio programme to website to ensure it is insurance mandate by educate and enlighten the regularly up-dated and stakeholders public about Deposit contain current Insurance and promote information about the consumer literacy and NDIC. protection;
Maintained adequate information with the Press;
Sponsored Essay Competition amongst undergraduates in the Nigerian Higher Institutions;
Constituted a public awareness Committee;
Organized annual workshop for business Editors and Financial Correspondents;
Developed a more robust and interactive web-site – www.ndic.org.ng ;
Pasted enlarged NDIC decal (logo) on the entrance of bank head offices and branches for ease of visibility;
29 S/N Broad Strategic Goals Extent of Outstanding Issues Implementation Produced various versions of hand-bills on NDIC mandate, achievements and challenges and circulated same widely to key stakeholders
8 Maximiz ation of The Corporation had Ensure consumer stakeholders’ satisfaction taken steps to ensure: protection through financial literacy Prompt payment of programmes; and guaranteed sums; Development of Special Effective supervision of Resolution Framework for insured institutions; and handling systemic crisis.
Maximization of liquidation dividends
9 To share experience and Participated in several expertise in deposit International activities of insurance the International Association of Deposit Insurers (IADI);
Organized Regional Conferences/ Workshops/Seminars;
Hosted some senior staff of other deposit insurance agencies from Africa on training/attachment.
30
Section 2
Insurance Activities and Management of Deposit InsuranceInsurance
Funds (DIF)
222.02.0 Introduction In this section, we discuss the insurance activities of the NDIC with respect to pricing (premium) and coverage as well as the two insurance funds being managed by NDIC.
222.12.1 Deposit Insurance Pricing
As in the previous year, the Differential Premium Assessment System
(DPAS), which was adopted in 2007, had a base premium rate of 50 basis points payable by all insured universal banks and a range of add- ons, subject to a maximum of 30 basis points for the most risky banks.
31 During the year, all the 24 universal banks were assessed based on the
DPAS. Thus, at the end of the period under review, the maximum rate paid by an insured bank was 73 basis points, a basis point lower than the maximum rate paid in 2008. The maximum rate of 73 basis points paid in 2009 was significantly lower than the 94 basis points paid under the flat rate system and also less than the 80 basis points, being the maximum rate payable under the DPAS. The minimum paid by the least risky bank in the system was 55 basis points as against the minimum
54.50 basis points paid in the previous year. The mean rate for all the insured universal banks was about 61.19 basis points in 2009 as against
62 basis points recorded in 2008.
A basic challenge in the implementation of the new method was the need for banks to render timely, complete, reliable and consistent information and data that would enable NDIC to adequately measure the risk posed to the system. Meanwhile, NDIC had commenced the review of the DPAS
32 model in order to make it an effective tool for promoting sound risk management in insured banks.
222.22.2.2.2 Deposit Insurance Premium from Other DepositDeposit----takingtaking Financial Institutions During the period under review, many of the licensed microfinance banks
(MFBs) and primary mortgage institutions (PMIs) did not pay any premium to NDIC. As at the end of 2009, the sum of N219.211 million was collected from 567 MFBs out of 910 existing ones whilst N635.13 million was collected from 59 PMIs out of 101 existing ones.
222.2...3333 Deposit Insurance Coverage
During the period under review, the percentage of depositors fully covered in the 24 deposit money banks increased slightly from about 89% of total number of depositors (or 26,885,149 depositors) as at the end of 2008 to
90% of total depositors (or 36,071,179 depositors) as at the end of 2009 at the current limit of N200,000. At the same time, 10% of total depositors (or 4,055,820 depositors) were partially covered in 2009 as against 11% (or 3,446,465 depositors) as at the end of the previous year.
These statistics are depicted in a pie chart in Chart 2.1
33 CHART 2.1 FULL AND PARTIAL COVERAGE AT N200,000
10%
Fully covered Partially Covered
90%
222.42.4 Management of Deposit Insurance Funds (DIFs)
Section 10(2) of the enabling Act 16 of 2006 empowers the NDIC to establish a separate DIF for each category of insured institutions in which all assessed premiums paid should be deposited and the NDIC would utilize such fund to discharge its statutory mandate of deposit guarantee and provision of financial assistance for the respective insured institutions.
In that respect, the NDIC maintained two DIFs: one for insured universal banks and the second for insured other deposit-taking financial institutions, namely: MFBs and PMIs.
34 The DIF for insured universal banks recorded a significant growth during the year owing mainly to the growth in premium collected. As at the end of
December, 2009, the DIF stood at N224.392 billion depicting an increase of 33.33% o ver the cumulative total of N168.3 billion reached in 2008.
The DIF total as at the end of December, 2009 was equivalent to 14.1% of insured deposits of the universal banks in the system at the existing
N200,000 coverage limit. Shown in Chart 2.2 is the g rowth of the DIF of the insured universal banks in the last five years, that is, from 2005 to
2009.
CHART 2.2 DEPOSIT INSURANCE FUND FOR UNIVERSAL BANKS (2005 -2009)
400
N'billion 200
0 2005 2007 2009
Year
35 Like the case of the universal banks, the deposit insurance fund for other deposit-taking financial institutions known as Special Insured Institutions
Fund (SIIF) recorded a significant growth even though quite a number of
MFBs and PMIs were yet to start remitting premiums to NDIC as at the end of the period under review. As at the end of December, 2008, the total SIIF was N716.94 million. However, by December 2009, the SIIF increased to N1,085.71 million representing 51.44% increase over its level in December 2008. It is instructive to note that the NDIC had to set aside part of its surplus to finance the SIIF in order to ensure the rapid build-up of the fund in view of the imminent call on it arising from the poor financial condition of many of the MFBs in particular. Between 2007 and 2008, a provision of about N8.47 billion was made. Hence, the total SIIF fund as the end of 2009 stood at N9.55 billion.
Under Section 13(1) of the enabling Act 16 of 2006, the NDIC is obliged to invest money not immediately required in Federal Government Securities or in such other securities as the Board may from time to time determine.
36 It is important to note that both funds were invested in the allowable securities vide FGN Bonds and Treasury Bills. Thus, at the end of
December, 2009, the total investment portfolio stood at N232.29 billion, an increase of 29.58% over the cumulative total of N179.26 billion reached at the end of 2008.
37 Section 3
Surveillance Of Insured Financial Institutions
3.0 Introduction Banking supervision is one of the key activities of NDIC aimed at protecting depositors as well as promoting the stability and safety of the Nigerian banking system. In line with its mandate as a risk minimiser, the NDIC engages in the supervision of banks through continuous monitoring of their health status to reduce the probability of failure and to check unsafe and unsound banking practices. Banking supervision also provides the oversight required to preserve the integrity of, and promote public confidence in, the banking system. In 2009, NDIC continued with its on-site and off-site surveillance of insured institutions which were carried out primarily through three (3) departments, namely: Bank Examination, Insurance & Surveillance and Special Insured Institutions (SII) Departments. These activities are reviewed in this section.
3.1 Insured Universal Banks’ Surveillance In 2009 3.1.1 On-Site Surveillance With the coming of a new Governor at the CBN and the consequent re- invigoration of the bank supervision function, the Bank Examination Department of NDIC had to alter its examination programme for year 2009. Instead of the planned Routine Examination of ten banks, the Department jointly conducted, with the CBN Banking Supervision Department, Special Examination of each of the 24 deposit money banks
38 operating in Nigeria. The new Central Bank Governor had called for the Joint Special Examination of the banks to ascertain their true financial conditions to enable the Regulatory Authorities take prompt corrective actions to restore and sustain public confidence in the banking system. The NDIC also conducted twenty eight (28) special investigations arising from petitions and complaints from the banking public and other stakeholders during the year.
Details of the comparable number of examinations by type, conducted by the NDIC are presented in Table 3.1.
TABLE 3.1 Universal Banks Examined On-site By NDIC From 2007 to 2009 Year Routine Target Special* Special Joint Total Examination Examination Examination Investigation CBN/NDIC Investigation 2009 Nil Nil 24 28 Nil 52 2008 2 6 Nil 25 1 34 2007 10 - Nil 20 1 31 *Joint CBN/NDIC Special Examination Source: Bank Examination Department
The findings of the joint special examinations validated and corroborated many of the weaknesses in corporate governance noted by the NDIC Examiners in the reports of Routine Examinations conducted in previous years. The corporate governance weaknesses in some of the banks included the following:
Failure to implement effective Risk Management Framework;
39 Manipulation of Public Offer of shares and the resultant bubble capital; Inaccurate financial reporting; Deliberate falsification of income; Inadequate provisioning for bad quality assets; Concentrated lending to the oil & gas sector and undue exposure to margin loans in the capital market; Excessive insider dealings and abuse; Reckless and fraudulent management; Extremely weak boards that lacked proper understanding of what was happening in their respective banks; and Abuse and fraudulent use of subsidiaries.
The effects of the foregoing were: prevalence of huge non-performing assets that required huge provisioning, diversion and conversion of bank assets and earnings, illiquidity, and technical insolvency.
Indeed, the percentage of non-performing loans in some of the banks was in excess of 40% of their total loans.
The findings of the Joint Special Examination gave rise to unprecedented regulatory intervention which included, among others, the removal of the executive managements in 8 of the 24 banks and the appointment
40 of new ones, the injection of liquidity support in the sum of N620 billion to strengthen the liquidity position of the affected banks and hence meet their obligations to depositors and other customers as they fall due. In addition, there was an order on two other banks to recapitalize by June 2010.
Apart from the Joint Special Examination, the Department investigated several petitions from the banking public against the banks. Many of the petitions related to ATM frauds on customers’ accounts, and excessive charges on loans and advances. From the number of complaints received on ATM-related frauds and the outcome of the investigations, it became obvious that the banks should do a fundamental re-thinking of the operations of the product to assure the users of the safety of their funds.
3.1.2 Off-Site Surveillance In 2009, the NDIC through its Insurance and Surveillance Department (ISD), performed its off-site monitoring activities over the 24 Universal banks in the industry. Specifically, NDIC assessed the financial conditions and performance of the insured banks on monthly basis by analysing Call Reports rendered through the electronic Financial Analysis Surveillance System (e-FASS). The evaluation of the financial conditions culminated in production of the Quarterly Bank and Industry Reports with performance rating of each bank which formed the basis for remedial supervisory action and other recommendations that could influence banking policy.
41
The intervention of CBN in eight (8) banks, led to the removal of their executive managements and injection of =N=620 billion liquidity support fund. The CBN also directed two (2) other banks to recapitalize by June 2010. Those measures prompted closer off-site supervision of the affected banks by NDIC to ensure effective protection for the depositors of the affected banks as well as contribute to the stability of the financial system and to enhance transparency in financial reporting.
In specific terms, the objectives of the NDIC’s monitoring exercise included the following, among others: a) Keep track of financial condition of the intervened banks on a continuous basis; b) Establish the emerging trend since the CBN’s intervention; c) Ascertain the implications of the emerging trend for the banking industry in general and for NDIC, in particular; d) Provide information that would aid informed decision making both for recapitalization and/or resolution; and e) Develop, in collaboration with the CBN, a framework that would not only ensure the viability of individual banks as a going-concern but also promote the stability of the entire financial system.
The monitoring exercise involves obtaining information on basic indices such as Asset Quality, Capital Adequacy, Liquidity, Debt Recovery, Repayment of CBN Facility and Recapitalization Efforts. In order to effectively monitor the progress in the 10 banks on which the CBN
42 imposed various supervisory measures, the NDIC designed templates on which the affected banks sent their monthly status reports.
In 2009, the Department applied its Differential Premium Assessment System (DPAS) in assessing and collecting deposit insurance premium from banks. Furthermore, the Department conducted on-site deposit review on twelve (12) banks to verify the composition of deposit liabilities and re-affirm the premium payable by those banks. Based on the outcome of the verification exercise, a few banks were made to pay additional premium while refund was made to one bank.
3.2 Supervision of Special Insured Institutions As part of its supervisory functions, NDIC through the Special Insured Institutions Department (SIID), was engaged in the on-site examination and off-site surveillance of licensed Microfinance Banks (MFBs) and Primary Mortgage Institutions (PMIs) during the year. The Department in collaboration with the Other Financial Institutions Department (OFID) of CBN also continued with the implementation of Microfinance Policy in 2009.
3.2.1 On-Site Surveillance In 2009, NDIC examined a total of 133 institutions out of which 124 were MFBs while 9 were PMIs. This represented an increase of over 84% above the number of MFBs and PMIs examined in 2008.
43 TABLE 3.2 MFBs and PMIs Examined On-site By NDIC Year Number of MFBs Number of PMIs Total Examined Examined 2009 124 9 133 2008 68 4 72 2007 95* 30 125 Source: Special Insured Institutions Department (SIID) *Community Banks (CBs)/Microfinance Banks (MFBs)
The major findings of the on-site examination of most of the licensed MFBs and PMIs included, among others, weak corporate governance; poor record keeping and internal control; weak earnings arising from declining asset quality and diminution in the value of investment due to the meltdown in the Nigerian capital market; granting of fewer micro credits; and poor fund management practices such as keeping huge idle funds in their correspondent banks. The on-site examinations also revealed that some of the institutions were illiquid and technically insolvent and had to close shop since they could no longer meet their obligations to depositors.
3.2.2 Special Investigations During the year, the Department was involved in joint CBN/NDIC Special Investigations of some of the MFBs and PMIs based on petitions received from depositors bordering on fraudulent practices by the Management.
3.2.3 Off-Site Surveillance The off-site surveillance activities in 2009, involved the receipt of statutory returns from MFBs and PMIs on a quarterly basis, the
44 capturing and analysis of the returns as well as premium assessment and collection.
In 2009, only 590 out of the 1,011 licensed special insured financial institutions (910 MFBs and 101 PMIs) rendered quarterly returns to the NDIC. On the average, 40 of the returns were from PMIs while 550 were from the MFBs. The analysis of the quarterly reports from the MFBs and PMIs showed that most of them concentrated the bulk of their earning assets in placements with other banks and investments in money market instruments. They therefore neglected the core areas of their operations which should be the financing of the business activities at the micro level of the economy. Similarly, the analysis of the quarterly reports indicated that most of the MFBs and PMIs were carrying poor quality assets with declining earnings that impacted negatively on their capital. SECTION 4
RESOLUTION AND MANAGEMENT OF FAILED INSURED FINANCIAL INSTITUTIONS
4.0 Introduction This section gives relevant information on Purchase and Assumption (P&A) transactions (i.e. the failure resolution mechanism adopted for the banks closed in 2006), as well as Claims Settlement and Administration activities in 2009. The section also provides information on the recovery
45 of debts owed to the failed banks, investment realization as well as disposal of fixed assets in 2009.
4.1 Claims Resolution Operations During the year, the NDIC continued with the liquidation exercise of 34 out of 35 failed banks that were closed prior to 2006 and of the 11 out of the 13 banks closed in January 2006. In that regard, the principal activities carried out included payment of insured deposits, liquidation dividends as well as payment to creditors and shareholders of the banks in-liquidation.
The year 2009 witnessed the restoration of the banking licence of Societe Generale Bank of Nigeria (SGBN) on the order of the Court. SGBN was one of the 14 banks closed in January 2006 arising from their insolvency and inability to meet the N25 billion minimum recapitalization requirement at the deadline of 31 st December 2005. That action reduced the number of banks closed in January 2006 to thirteen (13) during the year. As at the end of 2009, the NDIC had winding-up orders for eleven (11) out of the 13 closed banks in 2006. The affected banks- in-liquidation were: i. African Express Bank Plc ii. Allstates Trust Bank Plc iii. Assurance Bank Nig. Ltd iv. City Express Bank Ltd v. Eagle Bank Plc vi. Gulf Bank Plc
46 vii. Hallmark Bank Plc viii. Lead Bank Plc ix. Liberty Bank Ltd x. Metropolitan Bank Ltd, and xi. Trade Bank Plc
The shareholders of the remaining two (2) closed banks, namely: Fortune International Bank Plc and Triumph Bank Ltd were still in Court challenging the revocation of their banking licence.
On February 5, 2009, the Court of Appeal in Abuja reinstated the banking licence of Savannah Bank of Nigeria Plc (SBN) which had been revoked by the CBN on 18 th February, 2002. The presiding judge also ordered the return of all the assets of the bank to the owners. In compliance with the Court order, the hand-over ceremony of SBN’s Head Office was performed on 9 th February, 2009. The physical handover of other branches, particularly those outside Lagos, could not commence immediately because the Management of the bank lacked the manpower and other resources to effect immediate takeover. However, by the end of the year, about 47 branches had been handed over while the remaining branches were expected to be handed over early in 2010.
During the last quarter of 2009, NDIC engaged the services of Akintola Williams Deloitte & Co. to review the Statement of Receipts and Payments of Savannah Bank. The review covered the period January 2002 to April 2009. The exercise was aimed at attesting to the
47 transparency of the transactions recorded while the NDIC was overseeing the assets of the bank. The audit firm had since submitted its report on the review and same had been forwarded to the Management of the bank.
Meanwhile, the litigation in respect of the revocation of the banking licence of Peak Merchant Bank Ltd, one of the banks closed before 2006, was yet to be resolved as at the end of 2009. With the above development, the total number of banks whose licences were revoked by CBN since 1994 stood at 48 as at December 31, 2009. The names of the closed banks arranged according to the year they were closed were as listed in Table 4.1.
TABLE 4.1 BANKS UNDER LIQUIDATION AS AT DECEMBER 2009 S/N BANK IN LIQUIDATION DATE OF CLOSURE REMARKS
1 Financial Merchant Bank Ltd 21-Jan-1994
2 Kapital Merchant Bank Ltd 21-Jan-1994
3 Alpha Merchant Bank Plc 8-Sep-1994
4 United Commercial Bank Ltd 8-Sep-1994
5 Republic Bank Limited 29-Jun-1995
6 Abacus Merchant Bank Ltd 16-Jan-1998
7 ABC Merchant Bank Ltd 16-Jan-1998
8 Allied Bank of Nigeria Plc 16-Jan-1998
9 Amicable Bank of Nigeria Plc 16-Jan-1998
10 Century Merchant Bank Ltd 16-Jan-1998
11 Commerce Bank Plc 16-Jan-1998
12 Commercial Trust Bank Ltd 16-Jan-1998
48 13 Continental Merchant Bank Plc 16-Jan-1998
14 Cooperative & Commerce Bank Ltd 16-Jan-1998
15 Credite Bank of Nigeria Ltd 16-Jan-1998
16 Crown Merchant Bank Ltd 16-Jan-1998
17 Great Merchant Bank Ltd 16-Jan-1998
18 Group Merchant Bank Ltd 16-Jan-1998
19 Highland Bank of Nigeria Plc 16-Jan-1998
20 ICON (Merchant Bankers) Ltd 16-Jan-1998
21 Ivory Merchant Bank Ltd 16-Jan-1998
22 Lobi Bank of Nigeria Ltd 16-Jan-1998
23 Mercantile Bank of Nigeria Ltd 16-Jan-1998
24 Merchant Bank for Africa Ltd 16-Jan-1998
25 Nigeria Merchant Bank Plc 16-Jan-1998
26 North-South Bank Limited 16-Jan-1998
27 Pan African Bank Limited 16-Jan-1998
28 Pinacle Commercial Bank Ltd 16-Jan-1998
29 Prime Merchant Bank Ltd 16-Jan-1998
30 Progress Bank of Nigeria Ltd 16-Jan-1998
31 Royal Merchant Bank Ltd 16-Jan-1998
32 Victory Merchant Bank Ltd 16-Jan-1998
33 Premier Commercial Bank Ltd 20-Dec-2000
34 Rims Merchant Bank Ltd 20-Dec-2000
35 Peak Merchant Bank Ltd 28-Feb-2003 Under Litigation
36 Allstates Trust Bank Plc 16-Jan-2006
37 Afex Bank Limited 16-Jan-2006
38 Assurance Bank Nig. Limited 16-Jan-2006
39 City Express Bank Plc 16-Jan-2006
40 Eagle Bank Limited 16-Jan-2006
41 Fortune International Bank Plc 16-Jan-2006 Under Litigation
42 Gulf Bank Plc 16-Jan-2006
43 Hallmark Bank Plc 16-Jan-2006
44 Lead Bank Plc 16-Jan-2006
49 45 Liberty Bank Plc 16-Jan-2006
46 Metropolitan Bank Limited 16-Jan-2006
47 Trade Bank Plc 16-Jan-2006
48 Triumph Bank Limited 16-Jan-2006 Under Litigation
4.2 Purchase and Assumption (P & A) Transactions As a complementary measure to sustain public confidence under the bank consolidation programme, the Federal Government, through the Central Bank of Nigeria (CBN), provided full coverage to private sector depositors of those banks that were closed in January, 2006 due to their insolvency. Given the guarantee of full coverage to the private sector depositors, the NDIC adopted the Purchase and Assumption (P&A) failure resolution mechanism. The P&A entailed inviting the healthy banks to bid for the purchase of the assets and assumption of the deposit liabilities of the failed banks. The choice of the P&A was based on some public policy considerations which, among others, included the following:
Giving depositors easy access to their funds without conditions; Facilitating continuity of banking services in the same premises used by the failed banks; Encouraging depositors to establish banker-customer relationships with the acquiring banks; and Promoting banking culture which is critical to savings mobilization for economic development.
50 As at 31 st December 2009, P&A arrangements had been concluded for all the eleven (11) banks closed in 2006 for which NDIC had obtained winding-up orders from the court. The private sector deposits were assumed and some assets of the closed banks were acquired by various healthy banks as detailed in Table 4.2.
It is noteworthy that Zenith Bank Plc acquired both private and public sector deposits of the defunct Eagle Bank Limited. Therefore, the transaction did not involve invoking the guarantee provided by the CBN to private sector depositors.
In the course of facilitating the P&A transactions, NDIC was confronted with many challenges. Some of the challenges encountered included the following: Legal challenges by erstwhile bank owners and directors; Failure by acquiring banks to purchase risk assets; Escalation in bank liquidation and related costs; and Breakdown of some servers containing databases of the closed banks which constrained access to vital information.
The NDIC could not arrange P&A for the remaining two banks whose winding-up orders had not been obtained. The court actions prevented the NDIC from discharging its role as deposit insurer and liquidator.
Generally, acquiring banks also showed little interest in the loan assets of the banks-in-liquidation but were more interested in the physical
51 assets especially business offices. The NDIC, as liquidator, was therefore saddled with the recovery of the non-performing loans of the banks for which P&A transactions were concluded just as in the banks- in-liquidation through pay-out mechanism. The delay in obtaining winding-up orders and the challenges in court had also resulted in increased bank liquidation and related costs. Some of the costs included the salaries of banks’ and auxiliary staff particularly security personnel as well as rent for over-staying in leased premises.
4.3 Migration of Data of Banks Closed Post-Consolidation The IT systems of the 13 banks closed in January 2006 were significantly different from one another both in terms of software and operating systems. Most licences of the softwares used by these banks had also expired while some of the servers had broken down. That situation delayed NDIC’s access to customers’ records for reconciliation purposes. A firm of IT Consultants was engaged during the year to migrate the data in the various servers into a single server at the NDIC Lagos Office. The migrated databases were being used to reconcile customers’ accounts and respond to inquiries.
52 TABLE 4.2 CLOSED BANKS UNDER PURCHASE AND ASSUMPTION (P&A)
S/N CLOSED BANKS ASSUMING HANDOVER BANK DATES 1. Afex Bank Plc UBA Plc 9 October 2007 2. Allstates Trust Bank Plc ECOBANK Plc 16 October 2006 3. Assurance Bank Nig. Afribank Plc 16 August 206 Ltd 4. City Express Bank Ltd UBA Plc 9 July 2007 5. Eagle Bank Ltd Zenith Bank Plc 14 January 2008 6. Gulf Bank Plc UBA Plc 14 January 2008 7. Hallmark Bank Plc ECOBANK PLC 24 July 2007 8. Lead Bank Plc Afribank Plc 11 August 2006 9. Liberty Bank Ltd UBA PLC 23 June 2008 10. Metropolitan Bank Ltd UBA Plc 11 June 2007 11. Trade Bank Plc UBA Plc 15 January 2007
As at 31 st December 2009, the databases of eight (8) of the closed banks, namely: Allstates Trust Bank, Metropolitan Bank, Afex Bank, City Express Bank, Trade Bank, Hallmark Bank, Gulf Bank and Eagle Bank had been extracted from their original servers and migrated into the single server maintained for the 13 banks. Efforts were still being made to extract relevant information from the servers of the remaining affected closed banks.
4.4 Claims Settlement and Administration Claims Settlement and Administration involved verification, processing and payment of deposit claims filed by proven depositors, creditors and shareholders of banks-in-liquidation. The function also included payment of liquidation dividends to uninsured depositors and creditors of closed banks.
53 Consistent with the provisions of the NDIC Act 2006, the NDIC only provided funds for the payment of insured deposits from the Deposit Insurance Fund (DIF) while liquidation dividends to uninsured depositors, creditors and shareholders of 34 out of 35 banks closed prior to bank consolidation were being paid from the proceeds of the sale of physical assets and recoveries made from debtors. However, in the case of the 11 banks for which P&A arrangement had been concluded, the CBN guaranteed payment in full to all their private sector depositors. Accordingly, the NDIC paid the insured deposits while the CBN funded the gap between the value of the assets purchased by the acquiring banks and balance of private sector deposits that remained outstanding. As the failed banks’ assets were being realized by NDIC, the CBN was being paid liquidation dividend along with other eligible claimants. The NDIC continued the payment of insured deposits and liquidation dividends in respect of the thirty four (34) banks-in-liquidation prior to 2006 through ten (10) Agent Banks that were appointed for that purpose.
4.4.1 Payment of Insured Deposits During the year ended December 31, 2009 NDIC continued with the payment of insured deposits to depositors of some banks in liquidation. Table 4.3 shows the cumulative payments from 1994 to 2009. As indicated in the table, the NDIC paid a total of N7,147.23 million as at December 31, 2009 to insured depositors.
54 4.4.2 Payment of Liquidation Dividends To Uninsured Depositors The payment of liquidation dividends to uninsured depositors continued during the year under review as shown in Table 4.3. The sum of N77,102.46 million was paid as liquidation dividends as at 31 st December, 2009 to 249,784 depositors. The above payments included the uninsured portion of private sector depositors of 11 of the 13 banks closed post- consolidation which was refunded to the CBN since it had earlier funded them. The payment of liquidation dividends or excess amount to public sector depositors of the 11 banks-in-liquidation following their closure in 2006 was made from proceeds of their residual physical assets and debt recoveries.
During the year, the NDIC declared additional liquidation dividends to depositors of Trade Bank, Afex Bank and Allstates Trust Bank at the rates shown in Table 4.4.
TABLE 4.4 Additional Liquidation Dividend Declared In 2009 S/N BANKS -IN - AMOUNT % RATE LIQUIDATION DECLARED (N ) PER N1 DEPOSIT 1. Afex Bank Plc 32 820,248,000 2. Trade Bank Plc 1,725,635,931 25 3. Allstates Trust 3,134,836,585 19 Bank Plc Total 4,860,472,517
Out of the thirty-four (34) banks-in-liquidation prior to 2006, eleven (11) banks had declared final liquidation dividends of 100 percent of total
55 deposits indicating that all their depositors had fully recovered their deposits. The affected closed banks were: i) ABC Merchant Bank Ltd (in-liquidation) ii) Alpha Merchant Bank Plc (in-liquidation) iii) Amicable Bank of Nigeria Ltd (in-liquidation) iv) Continental Merchant Bank Ltd (in-liquidation) v) ICON Ltd (Merchant Bankers) (in-liquidation) vi) Kapital Merchant Bank Ltd (in-liquidation) vii) Merchant Bank of Africa (in-liquidation) viii) Nigeria Merchant Bank Plc (in-liquidation) ix) Pan African Bank Ltd (in-liquidation) x) Premier Commercial Bank Ltd (in-liquidation) xi) Rims Merchant Bank Ltd (in-liquidation) 4.4.3 Payment of Liquidation Dividends to General Creditors and Shareholders As shown in Table 4.5, seven (7) banks had declared liquidation dividends to their general creditors as at December 31, 2009. The sum of N1,182.68 million was declared out of which NDIC had paid the sum of N727.40million to 740 creditors who filed their claims.
56 TABLE 4.5 LIQUIDATION DIVIDENDS PAID TO CREDITORS AS AT DECEMBER 31, 2009 S/N Bank in -liquidation Number of Amount Declared Amount Paid Creditors for General to General Creditors Creditors (=N=M) (=N=M) 1. Alpha Merchant Bank Ltd 16 86.78 73.37 2. Amicable Bank of Nig. 91 48.48 42.34 Ltd 3. Merchant Bank for Africa 13 247.62 4.070 Ltd 4. Nigeria Merchant Bank 135 111.34 111.33 Plc 5. Pan African Bank Ltd 34 251.84 222.81 6. Rims Merchant Bank Ltd 389 262.2 231.59 7. Eagle Bank Plc 62 174.42 41.89 Total 740 1,182.68 727.40
The payment of liquidation dividends to shareholders of Alpha Merchant Bank (in-liquidation) continued in 2009. The sum of N372.65 million had been paid out of the N600 million declared as at 31 st December 2009 as shown in Table 4.6.
TABLE 4.6 Liquidation Dividends Paid to Shareholders As At December 31, 2009
S/N Name of Bank (in - Number of Amount Amount paid to liquidation) Shareholders Declared for Shareholders paid shareholders (N M) (N M) 1 Alpha Merchant Bank Plc 440 600 372.65 2 Nigeria Merchant Bank 2 620 620 Plc 3 Pan African Bank Ltd 2 293 293 Total 1,513 1,285.65
57 4.5 Statutory Audit In line with the policy of transparency and accountability, the NDIC retained the services of 26 auditing firms to independently review and audit the accounts of the banks in-liquidation during the year 2009. This process enhanced the integrity and reliability of the bank liquidation activities of NDIC for the benefit of the depositors and other concerned stakeholders.
4.6 Asset Management Operations The primary function of the Asset Management Operations of NDIC was to efficiently dispose and manage the assets of all banks-in-liquidation. These assets included loans and advances, physical assets and investments. In carrying out this function, the NDIC’s Asset Management Department (AMD) liaised with the Claims Resolution Department (CRD) and the Legal Department in various areas.
The funds realized from the assets enabled NDIC to pay liquidation dividends to various categories of claimants.
4.6.1 Realisation of Loans and Advances Recovery of loans and advances, was one of the most critical liquidation activities of asset management operations. The realization of risk assets of banks-in-liquidation facilitated the discharge of NDIC’s duties in the following areas:
58 Payment of meaningful liquidation dividends to uninsured depositors of failed banks; Settling other creditors and shareholders of banks in liquidation; and Settling liquidation expenses.
The sum of N178.9billion was being owed to the 45 banks currently in liquidation as at the date of their closure. Out of that, N20.79 billion had so far been recovered by NDIC from the erstwhile debtors of the banks-in-liquidation between 1994 and 2009 as shown in Table 4.8. The sum of N2.97 billion was the total recovery made from outstanding loans and advances owed to banks-in-liquidation in 2009 as shown in Table 4.7. It should be noted, however, that a substantial portion of accrued interest on loans and advances had been waived/written-off by NDIC in order to encourage re-payment of the outstanding debts. Debt recovery was pursued through direct staff efforts as well as litigations as explained below.
(i) Direct Efforts of Staff The staff of the AMD carried out their activities as follows: issuance of demand letters to debtors; meetings with debtors to reconcile and/or negotiate settlement of outstanding debts; review of re-payment proposals sent by debtors and presenting same to NDIC Management for consideration;
59 liaising with Receiver Manager, Recovery Agents and Solicitors appointed by the defunct banks to recover debts prior to their closure; and liaising with co-lenders with respect to recovery/management of syndicated facilities.
(ii) Recovery Through Litigation The NDIC resorted to litigation in recovery of mostly insider and other facilities that might be criminal in nature, contentious facilities and recalcitrant debtors with substantial balances. This involved: assigning accounts to external solicitors for recovery through the courts; providing detailed information on the accounts assigned to lawyers; identifying relevant documentary evidence such as loan offer and acceptance letter, loan agreements, statement of account, correspondence etc to prove the indebtedness; and giving evidence and tendering documents by Account Officer as witness in court.
4.6.2 Realization of Investments Some of the banks-in-liquidation had investments in stocks and subsidiaries, equity participation in other unquoted investment outlets as well as foreign accounts. It was part of the responsibility of NDIC to realize the investments as the liquidator. To ensure transparency, integrity and accountability, NDIC engaged the services of reputable
60 professionals such as Stockbrokers, Accountants and Financial Service Providers for the valuation and sale of identified investments in quoted and unquoted companies.
During the period under review, the sum of N18.12 million was realized from investments made by banks in-liquidation . That development brought the total recovery from year 2008 to December 2009 to N1,853 billion. The crash in the stock market adversely affected the price of stocks. Consequently, NDIC had to differ the disposal of some stocks to a later date in anticipation that they would appreciate thereby enhancing their value.
4.6.3 Realization of Physical Assets Effective management of physical assets of banks-in-liquidation included identification, securing and taking possession. The physical assets included Plants & Machineries, Land and Buildings, Motor Vehicles, Equipment and other Chattels. The NDIC engaged reputable professional Estate Surveyors and Valuers to value the properties. The items were sold to interested members of the public through the process of advertisement and bidding to ensure transparency and accountability.
The sum of N19.24 billion was realized from the disposal of the physical assets of banks-in-liquidation as at December 31, 2009 as shown in Table 4.8. Out of that amount, funds realized from landed property amounted to N15.47 billion while N2.40 billion and N1.362 billion were
61 realized from the sale of chattels as well as vehicles and generating sets respectively.
4.6.4 Credit Documentation and Investigation The NDIC maintained Risk Assets Registers for all the banks in liquidation. The Risk Assets Register was an excel formatted data record of each bank in liquidation containing the details of all their debtors. The excel formatted record showed the following fields of information: Bank Name, Customer’s Name, Account No, Account Type, Address of the Customer, Balance as at closure, Repayment, Waiver, Write-off and Outstanding Balance. Also, customers’ records were updated with the amount recovered from the debtor as per recovery instruction thereby establishing the outstanding balance in the account of each customer at any point in time.
4.6.5 Major Challenges Faced In Asset Management Operations As in previous years, the major challenges faced by NDIC in its asset management operations included: poor documentation and inadequate information about the borrowers or the debt in establishing outstanding debt. protracted legal process as cases were frequently adjourned by the courts. Frivolous motions were filed by debtors to delay judicial process and frequent use of legal technicalities to frustrate the cause of justice. uncollateralized loans. difficulty in identifying assets of judgement debtors.
62 dispute on balances outstanding by the debtors especially with respect to interest rates and other charges. large outstanding insider-related debts usually characterized by poor documentation and insider abuse. unwillingness by debtors (especially prominent individuals) to pay their debts due to poor borrowing culture. poor business environment manifesting itself in the form of tortuous legal/judicial process and poor infrastructure. global economic meltdown which impacted negatively on the Nigerian economy.
63
Table 4.7 SUMMARY OF RISK ASSET RECOVERIES AS AT DECEMBER 31, 2009
CUM RECOVERY TOTAL LOANS & FROM INCEPTION ADVANCES AS AT TO DECEMBER S/N BANKS IN LIQUIDATION CLOSURE 2008 TOTAL CUM. RECOVERY RECOVERY FROM FROM INCEPTION JAN - DEC 2009 TO DEC 2009 N MILLION N MILLION N MILLION N MILLION 1 Abacus Mer Bank Ltd 1,213.87 41.81 - 41.81 2 ABC Mer, Bank Ltd 565.37 77.34 - 77.34 3 Afex Bank Ltd 9,847.81 3,795.05 11.79 3,806.84 4 Allied Bank Nig. Plc 2,535.48 389.24 1.05 390.29 5 Allstates Trust Bank Plc 25,414.95 768.93 2,115.08 2,884.01 6 Alpha Merc. Bank Plc 1,030.72 902.69 0.81 903.50 7 Amicable Bank Plc 328.99 25.81 - 25.81 8 Assurance Bank Ltd 6,369.79 216.85 22.28 239.13 9 Century Mer.Bank Ltd 809.81 31.66 - 31.66 10 City Express Bank Plc 13,323.06 600.88 26.02 626.90 11 Comm.Trust Bank Ltd 570.59 153.72 0.03 153.75 12 Commerce Bank Ltd 1,643.59 274.32 0.25 274.57 13 Conti. Mert.Bank Plc 1,712.28 414.68 - 414.68 14 Co-op. Com. Bank Plc 2,305.38 555.51 10.61 566.12 15 Credite Bank Nig. Ltd 479.92 22.34 1.31 23.65 16 Crown Mer.Bank Ltd 340.31 10.75 - 10.75 17 Eagle Bank Ltd 217.62 4.12 4.77 8.89 18 Fin. Merch Bank Ltd 447.19 107.16 40.62 147.78 19 Great Merch Bank Ltd 393.44 16.12 - 16.12 20 Group Merch Bank Ltd 741.81 36.73 - 36.73 21 Gulf Bank Ltd 21,269.06 60.55 30.15 90.70 22 Hallmark Bank Plc 29,716.74 1,536.45 218.72 1,755.17 23 Highland Bank Plc 114.05 19.78 0.07 19.85 24 ICON Merc Bank Ltd 140.62 181.00 0.49 181.49 25 Ivory Merch Bank Ltd 1,491.37 50.74 6.82 57.56
26 Kapital Mer Bank Ltd 344.27 273.41 - 273.41 27 Lead Bank Plc 12,380.78 850.18 117.91 968.09 28 Liberty Bank 5,191.10 9.43 67.43 76.86 29 Lobi Bank Ltd 291.60 82.5 0.11 82.61 30 Merc Bank of Afr. Ltd 2,048.81 235.09 - 235.09 31 Mercantile Bank Plc 1,217.60 244.84 4.62 249.46 32 Metropolitan Bank Ltd 8,258.00 643.94 96.41 740.35 33 Nig. Merc. Bank Plc 1,243.15 224.31 8.79 233.10
64 34 North-South Bank Plc 932.04 31.89 0.30 32.19 35 Pan African Bank Ltd 1,282.45 665.73 0.31 666.04 36 Pinacle Com Bank Ltd 1,551.90 155.97 - 155.97 37 Premier ComBank Ltd 1,102.00 27.51 0.14 27.65 38 Prime Mer. Bank Ltd 838.11 49.30 - 49.30 39 Progress Bank Plc 1,880.94 472.37 2.10 474.47 40 Republic Bank Ltd 232.56 33.93 - 33.93 41 Rims Mer. Bank Ltd 1,900.88 44.87 5.00 49.87 42 Royal Mer Bank Ltd 1,131.07 48.35 - 48.35 43 Trade Bank Plc 11,901.30 3,223.48 178.87 3,402.35 44 United Com Bank Ltd 1,864.58 181.27 - 181.27 45 Victory Mer Bank Ltd 301.47 21.10 - 21.10 TOTAL 178,918.43 17,813.70 2,972.86 20,786.56
Table 4.8 SALES PROCEEDS FROM SALE OF PHYSICAL ASSETS AS AT DECEMBER 31, 2009
LANDED VEHICLES/GEN. CHATTELS PROPERTY SET [=N=Millio S/NO BANK [=N=Million] [=N=Million] n] TOTAL [=N=Million]
1 Abacus Merchant Bank Ltd. 0 2.71 3.66 6.37
2 ABC Merchant Bank Ltd 0 3.83 3.40 7.23
3 Afex Bank Plc 25.13 - 124.88 150.01
4 Allstates Trust Bank Plc 2,126.56 5.21 7.02 2,138.79
5 Allied Bank Plc 682.87 64.71 38.67 786.25
6 Alpha Merchant Bank Plc. 122.24 0.07 0.71 123.02
7 Amicable Bank of Nig. Plc 8.00 7.14 17.55 32.69
8 Assurance Bank Ltd. 1,297.80 456.40 - 1,754.20
9 Century Merc. Bank Ltd. - 6.80 10.51 17.31
10 City Express Bank PLc 503.00 - 155.00 658.00
11 Commerce Bank Ltd. 125.14 41.47 31.28 197.89
12 Commercial Trust Bank Ltd. 36.08 10.30 25.38 71.76
13 Continental Merc. Bank Plc. 984.33 11.57 22.36 1,018.26 Co-operative & Commerce 14 Bank Plc. 726.72 13.10 32.79 772.61
15 Credite Bank Nigeria Ltd. 15.00 14.09 14.89 43.98
16 Crown Merchant Bank Ltd. 15.00 5.66 3.80 24.46 17 Eagle Bank - 885.00
65 885.00 -
18 Financial Merchant Bank Ltd. - - 10.33 10.33
19 Great Merchant Bank Ltd. 4.27 1.88 0.96 7.11
20 Group Merchant bank Ltd. - 2.16 4.68 6.84
21 Gulf Bank 294.28 - 175.52 469.80
22 Hallmark Bank Plc 1,900.35 - 1,315.51 3,215.86
23 Highland Bank of Nig. Plc 12.97 5.54 7.99 26.50 ICON Ltd. [Merchant 24 Bankers] Ltd 667.45 3.47 20.88 691.80
25 Ivory Merchant Bank Ltd 56.00 3.76 1.53 61.29
26 Kapital Merchant Bank Ltd. - 41.36 0.24 41.60
27 Lead Bank Plc 847.26 188.85 - 1,036.11
28 Liberty Bank Plc 796.00 - 90.00 886.00
29 Lobi Bank of Nig. Ltd. 83.11 3.90 11.70 98.71
30 Mercantile Bank of Nig. Plc. 362.81 6.99 42.22 412.02
31 Metropolitan Bank Limited 95.40 0.67 85.00 181.07
32 Merchant Bank of Africa Ltd. 287.04 1.87 16.87 305.78
33 Nigeria Merchant Bank Ltd. 123.55 4.89 0.50 128.94
34 North-South Bank Nig. Plc. 213.00 1.20 16.39 230.59
35 Pan African Bank Ltd. 338.81 6.52 4.92 350.25
36 Pinacle Commercial Bank Ltd. - 12.19 18.38 30.57 Premier Commercial Bank 37 Ltd. 37.43 3.96 9.90 51.29
38 Prime Merchant Bank Ltd. - 2.28 5.39 7.67
39 Progress Bank of Nig. Plc 136.13 15.50 39.64 191.27
40 Republic Bank Limited 170.00 0.10 6.38 176.48
41 Rims Merchant Bank Ltd. 402.40 2.98 1.42 406.80
42 Royal Merchant Bank Ltd. - 2.84 3.88 6.72
43 Trade Bank Plc 1,097.17 376.66 - 1,473.83
44 United Commercial Bank Ltd. - 29.12 15.68 44.80
45 Victory Merchant Bank Ltd. - 0.31 6.63 6.94
TOTAL 15,478.30 1,362.06 2,404.44 19,244.80
66
67 Section 5
Corporate Support Infrastructure 5.0 Introduction This section discusses in detail some of the various activities and efforts carried out to specifically support the attainment of the corporate mission and vision of NDIC in 2009.
5.1 Legal Services In 2009, the Legal Department continued to cover meetings of the Board, the Executive Committee of the Board (EXCO) and the Management Consultative Committee (MCC) of NDIC. It also provided, on a regular basis, professional legal services which included legal advice and opinions on various issues confronting NDIC.
As in previous years, the Department played a significant role in supporting the operations of NDIC as highlighted here. It managed a number of criminal prosecutions of persons charged for various financial malpractices in banks under the Failed Banks (Recovery of Debts and Other Financial Malpractices in Banks) Act and civil litigations involving NDIC. With respect to banks under liquidation, the Department monitored and coordinated debt recovery cases filed in courts to recover various sums of money from debtors of the banks under liquidation. The Legal Department similarly monitored the pending petitions for winding- up orders and the appointment of the NDIC as liquidator in respect of the remaining three banks, i.e., Peak Merchant Bank, Fortune
68 International Bank and Triumph Merchant Bank whose cases were still pending in court.
The Department also provided overall guidance and support through its involvement in vetting and drafting of legal agreements in respect of contracts between NDIC and third parties and also conducted legal searches at the Corporate Affairs Commission as well as various land registries across the country. It also coordinated the proposed review of the NDIC’s enabling Act 2006. The Department in collaboration with the Editorial Board of the Nigerian Banking Law Report (NBLR) presented volumes 5 & 6 of the Nigerian Banking Law Report to the public at the 20 th Anniversary of NDIC.
5.2 Internal Audit The Internal Audit Department carried out comprehensive review (Mid - Year and End of-Year Audit) of the activities of all Departments/Units, Lagos Office and the five (5) Zonal Offices. In addition, cash/stock count and verification of the NDIC’s assets were conducted on a quarterly basis during the year. All these were done with a view to safe- guarding the assets and ensuring an effective and efficient internal control system in NDIC. Audit observations and recommendations arising from those reviews that were approved by Management for implementation were passed to the affected Departments/Units/Zones for compliance.
69 The Department carried out verification of payments made by the NDIC to staff and third parties to ensure compliance with laid-down policies and procedures. This was done through the Pre-payment and Post- payment review. In addition, the Department inspected all purchases made by the various departments to ensure strict compliance with laid- down rules and regulations. It should be emphasized that the Department also conducted the review of Claims Resolution and Asset Management Departments in order to keep NDIC Management abreast of its liquidation activities. All observations and recommendations were communicated to the two Departments for implementation after due approval by Management.
In fulfillment of its anti-corruption mandate, the Department, through its Anti-Corruption and Transparency Unit (ACTU), organized sensitization workshop for staff at the Head Office on the ills of frauds and fraudulent practices. In the same vein, the Department through ACTU, participated in anti-corruption programmes of ICPC and EFCC on various issues bordering on anti-corruption and transparency during the year.
5.3 Strategy Development During the year, the Strategy Development Department, as part of its primary functions, co-ordinated the NDIC’s planning activities. It monitored the implementation of the corporate strategic plan by reviewing the quarterly implementation reports from all departments/units and holding strategy sessions with them. The review revealed some major achievements, which included the take-off of the
70 Enterprise Risk Management Unit to implement the Enterprise-wide Risk Management framework; continued implementation of the Differential Premium Assessment System (DPAS); substantial progress in the adoption of risk-based supervision method; timely resolution of closed insured financial institutions using the Purchase and Assumption option; significant development in installing new performance management system; upgrade of ICT and other office automation for enhanced operational efficiency; and capacity building in key operational areas.
Furthermore, the Department collaborated with Human Resources, Finance and Internal Audit Departments to appraise the challenges posed by the implementation of e-payment in NDIC. The outcome of the exercise contributed to the seamless implementation of the e-payment initiative. In the same vein, the Department carried out the documentation of inventory of business processes in NDIC which served as a vital input in the development of departmental/unit scorecards and performance measures carried out by the Performance Management Unit in 2009. The SERVICOM Unit of the Department continued to provide the platform for effective service delivery in NDIC during the year under review.
It is noteworthy that the Knowledge Management Unit in the Department took off during the year under review. Being a new Unit, the Department was able to create awareness of its take-off and functions, while appropriate framework was being developed to build a reservoir of knowledge and practices in NDIC.
71 5.4 Communications And Public Affairs The Communications and Public Affairs Unit (CPAU) continued to perform its primary function of creating public awareness on the NDIC’s mandate and activities through the print and electronic media. It also maintained an effective working relationship with the NDIC’s major stakeholders and other strategic partners.
During the year, the CPAU, in collaboration with other departments/Units, coordinated and anchored the 20 th anniversary celebration of NDIC. The celebration provided a unique platform for NDIC to showcase its landmark achievements as well as to further sensitize the public on its mandate and activities. The Unit, in collaboration with some departments, also coordinated the Corporation’s participation in the 2009 Lagos International Trade Fair held in November 2009. The NDIC annual workshop for Business Editors and Finance Correspondents in 2009 was successfully organized by the Unit in Kaduna.
In fulfillment of the NDIC’s corporate social responsibility (CSR), the Unit, in collaboration with Human Resources Department and beneficiary institutions of higher learning, coordinated the commissioning of various projects sponsored by NDIC. In a related gesture, the Unit hosted several students from various tertiary institutions on excursion visits to NDIC in 2009.
72 In furtherance of the NDIC’s international networking, the Unit facilitated the attachment/training of two senior staff of Deposit Insurance Board of Tanzania by the Research Department of NDIC.
5.5 Enterprise-Wide Risk Management In February 2009 the Enterprise Risk Management Unit (ERMU) was added to the organizational structure of NDIC. The objective of the new Unit was to develop and implement ERM framework for NDIC, which would assist in managing the risks inherent in the task of implementing the deposit insurance system in the country. The implementation of the ERM would involve continuous identification and assessment, on an enterprise-wide basis, those significant risks that could impede the achievement of the NDIC’s mandate and articulate an appropriate strategy to effectively mitigate such risks.
It is noteworthy that soon after its establishment, the Unit, guided by best practices, had established the ERM framework for NDIC, encompassing four key processes, namely: Risk Identification, Risk Analysis and Assessment, Monitoring as well as Control and Risk Reporting. The Unit had also developed a Risk Policy Manual to effectively guide the implementation of ERM framework. The Manual specified the responsibilities of the Board and Senior Management as well as the roles of ERMU, Internal Audit Department, Departmental Risk Officers and other personnel that would be involved in ensuring successful implementation of the ERM framework.
73 5.6 Administrative Services The Administration Unit was saddled with the responsibility for safeguarding the physical assets of NDIC. It also coordinated other services in NDIC such as Procurement, Security and Insurance, Major Projects, Transport, Repairs and Maintenance of plant/equipment, generators, utilities, and the Zonal Offices.
The Unit in 2009, continued to liaise with the various teams of Consultants comprising of a Project Manager/Consultant Architect, Civil and Structural Engineers, Mechanical & Electrical Engineers and Quantity Surveyors that were engaged to handle major capital projects of NDIC. The on-going projects included development of Lagos Office at Ikoyi Lagos, development of Head Office Annex at Plots 445/446 Abuja and development of Training Centre at Lekki Phase 1, Lagos.
The Unit was able to complete repair and other installation works at the properties rented for the newly established Zonal Offices in Ilorin and Bauchi which took off during the year. Other activities which the Unit successfully handled in the course of the year included processing of tender for supply and installation of A/C chillers, elevators (lifts), furniture, purchase of office equipment, general maintenance and replenishment of consumable items.
74 5.7 Human Resources Management And Development In 2009, the NDIC drew heavily on the commitment and service orientation of its people in facing the year’s challenges. The Human Resources Department (HRD) had primary responsibility for managing the NDIC’s core capital which is human capital with a view to achieving its mandate of depositor protection. The Department continued to recruit, develop, motivate and sustain a dynamic workforce, capable of grappling with the present and future challenges of promoting and supporting safe, sound, stable, efficient and competitive banking industry. The HRD drew up an Action and Implementation Plan for each quarter of the year under review as a strategy for the realization of an effective human resource management in NDIC.
To further strengthen its human resource capacity, the NDIC embarked on an all embracing training programme to balance the technical, behavioural and managerial skills of its staff. Based on the input provided by the Departments/Units/Zonal Offices, a Training Needs Assessment precedent to the development of a comprehensive training plan was carried out. This was reviewed by the Training Advisory Committee (TAC) and recommended for Management’s consideration. The implementation of the approved plan, carried out on a quarterly basis to cater for all categories of staff, commenced in 2009. To this end therefore, a total of 169 staff attended various overseas training programmes while 430 staff benefitted from relevant local courses. Also, efforts were made to identify reputable training organizers in order
75 to ensure value for money in the implementation of the training programmes in 2009.
The HRD ensured prompt payment of subscription fees for staff who were members of recognized and approved professional bodies. In order to ensure that maximum benefits were derived from those professional bodies, it coordinated the attendance and participation of staff members that were sponsored to attend programmes such as the Mandatory Continuing Professional Education programmes (MCPE), Annual General Meetings (AGMs) and Conferences organized by these relevant professional bodies.
Staff promotion exercise for year 2009 was successfully conducted by the Department and it resulted in the promotion of 91 members of staff to various grades effective January 1, 2009. The 2009 Senior Staff Promotion examination was conducted by the Financial Institutions Training Centre (FITC) in conjunction with the Senior Staff Promotion Committee of NDIC. In line with the Corporation’s policy on Staff Conversion and Upgrading, 5 members of staff who obtained additional qualifications were either converted or upgraded to relevant grades in 2009. Accordingly, the HRD had processed the appropriate financial assistance as bonus/subsidy to eligible staff in line with the policy of NDIC on attainment of additional qualifications.
In 2009, the former Managing Director/Chief Executive and the Executive Director (Operations), completed their tenor of service and
76 disengaged from NDIC as earlier reported. 13 staff members also disengaged from the services of NDIC during the year. A breakdown of the disengagement showed that eight (8) left as a result of retirement, one (1) each by termination of appointment and dismissal from service, while three (3) staff died in active service. Also, it is instructive to note that as at December 31, 2009 five (5) Departmental Director retired in compliance with the directive from the Office of the Head Of Service of the Federation which required that any Director in Ministries, Departments and agencies (MDAs) of Federal Government that had served for 8 years as Director to retire. The Department processed all relevant papers with respect to the affected staff.
Regular salaries and allowances were processed and paid to all eligible staff and salary variations were also captured for the period under review. In compliance with the present Federal Government policy, the Department processed and forwarded staff pension contribution to Finance Department for remittance to the Pension Fund Custodians . During the year, the accrued pension benefits for all staff were remitted to their various Retirement Savings Accounts (RSA) . The pension of retired staff under the old pension scheme continued to be processed by HRD and paid through the accredited Pension Fund Administrators as and when due. Staff loans were processed and approved for staff in accordance with laid down policy.
In the course of the year, HRD deployed series of programmes that addressed the well-being of employees using a holistic approach that
77 involved both body and mind. In compliance with the newly introduced National Health Insurance Scheme (NHIS) and the appointment of the Arewa Health Management Services as the Health Maintenance Organization (HMO) to NDIC, the Department coordinated the registration of staff under the scheme. As at December 2009 the NHIS had made available a total of 633 permanent cards through the HMO which were already distributed to staff of NDIC. The NDIC conducted a survey on the effectiveness of the NHIS and benefits derivable by staff from the scheme. In the light of the observations that emerged from the survey, a meeting was held between the Management of NDIC, Management of NHIS and the Arewa HMO to find solutions to the complaints made by staff.
The Department also processed the registration and renewal of club membership for Executive staff in accordance with policy. That was in furtherance of the resolve of NDIC to encourage its Executive staff to use their membership of clubs to network and to create awareness on deposit insurance system.
In order to strengthen information flow and interaction between management and staff, the Department organized the meeting of the Joint Consultative Committee (JCC) comprising elected members and Management representatives in Lagos on 4 th December, 2009. At that meeting issues affecting staff productivity were discussed and the suggestions were presented to Management for consideration.
78 The NDIC also undertook measures to recruit qualified and competent employees during the year. In that regard, a total 10,458 candidates participated in the first screening test which took place in the 6 geo- political zones of the country. The Department coordinated the exercise in collaboration with the consultants engaged for the recruitment. The Department, also jointly with the consultants, short-listed candidates in 2009 for the second screening test which was scheduled to take place in the first month of year 2010.
5.8 Finance In 2009, the Finance Department continued to perform its core activities which included planning and controlling NDIC’s financial affairs through the budgeting process; maintaining its financial records; ensuring the availability of funds at all times for its activities; timely payment of salaries/allowances; and investing the deposit insurance funds in eligible securities to ensure safety and liquidity. The Department also produced monthly Management Information Reports.
During the year, statutory and other payroll deductions were remitted as and when due to the relevant authorities, such as the Pension Fund Custodians, Federal Mortgage Bank, tax authorities, and staff Cooperative Societies. The Sun Accounting system of NDIC was upgraded from version 4.26 to version 5.3. The Vision Financial Reporting System was also upgraded from version 5 to 10. Also, the Department facilitated the auditing of the financial statements of NDIC
79 as at December 31, 2008 by the joint external auditors: KPMG Professional Services and Akintola Williams Deloitte.
5.9 Information Technology (IT) To support the NDIC’s bid towards becoming a world-class organization, the enhancement of IT systems continued throughout the year 2009. The Information Technology Department (ITD) thus continued with its mandate of providing quality Information and Communications Technology (ICT) services for the realization of NDIC corporate objectives. In particular, the Department proceeded with great zeal to implement some of the key recommendations on the second phase of the Information Systems Strategy (ISS) project. The implementation of the roadmap for the IT Security Strategy and Architecture framework developed for NDIC, which involved identification and evaluation of the level of vulnerability in the use of IT, was pursued vigorously in 2009.
The Department provided the necessary support for the upgrade of the General Ledger Software (Sun Accounts), Vision Budget Software and e- Payment Software that were used in NDIC during the year. Similarly, the Department ensured the smooth running of e-FASS, HRMS, FILMS, Alice Library System, Store System and other IT Applications that were critical to the operations of NDIC in 2009. To complement the training needs of NDIC, the Department and Systems Specs conducted a training programme on Human Manager System for relevant staff of HRD during the year under review.
80 The Department coordinated the development of a more robust and interactive Website ( www.ndic.org.ng ) to replace the former one that had not been efficient. Similarly, the Department provided independent internet access as well as other IT equipment to the new Zonal Offices in Ilorin and Bauchi to facilitate their operations.
The Department provided appreciable support in the migration of data of the closed banks under the P&A failure resolution option into a single database for prompt retrieval of information and generation of reports. Also, the Department ensured the availability of the Local Area Networks (LANs) and Wide Area Network (WAN) in NDIC during the year. It also facilitated the provision and installation of computer equipment in NDIC to enhance staff productivity.
5.10 Performance Management The Management of the NDIC had always been committed to efficient service delivery. As such, high level of performance was necessary if the goals of NDIC as well as customer satisfaction were to be achieved in the dynamic environment. The Performance Management Unit was the vehicle for driving the NDIC’s performance at both the individual staff level and the corporate level. The Unit during the year, continued to work closely with the Consultants engaged by Management for the purpose of implementing the Balanced Scorecard model of Performance Management which NDIC adopted for managing performance.
81 A major progress made by the Unit in the year on the design and implementation of the new Performance Management System was the delineation of the roles of two departments and a unit, namely: Strategy Development and Human Resources Departments and the Performance Management Unit. The two Departments and the Unit were expected to play key roles under the new Performance Management System and specifically facilitate the development of scorecards, performance metrics and service level agreements. Other areas in which progress was made by the Unit included training of NDIC staff and creation of awareness on the new Performance Management System; review of Employee Competency Profiling and Gaps; development of Performance Measurement Framework; and development of Optimum Manning Levels. It was noteworthy that the PMU, in conjunction with the Consultants, worked closely with all Departments and Units during the year 2009 to fast track the installation and implementation of the new Performance Management System.
82
Section 6
Review of NDIC Enabling Act, Research Activities and Institutional Relationships
6.0 Introduction
The NDIC’s efforts to review its enabling Act; research activities to improve NDIC operations; and institutional relationship building to develop as well strengthening existing links with NDIC local and international partners in 2009 are discussed in this section.
6.1 Review of the NDIC Enabling Act A comprehensive and adequate legal framework is crucial for the effective implementation of a deposit insurance system (DIS). Depending on the mandate given to the deposit insurer, the statute establishing the DIS should unambiguously specify the powers and authority of the deposit insurer, its source of funding, the participating deposit-taking financial institutions and the conditions for their participation in the least. The enabling legal framework for the establishment of DIS in Nigeria was the Nigeria Deposit Insurance Corporation (NDIC) Act No. 22 of 1988 now repealed and re-enacted as the NDIC Act No 16 of 2006
The NDIC Act of 1988, which also provided for the establishment of NDIC, was implemented for eighteen (18) years before it was repealed and re-enacted as the NDIC Act No. 16 of 2006. During those years, it
83 was observed that the legal framework governing the operations of the NDIC had some inherent inadequacies. The NDIC Act of 2006 addressed some of the challenges encountered by the NDIC in the discharge of its mandate under the 1988 Act. However, current developments in the international financial system, in general, and the Nigerian financial services industry, in particular, had necessitated the need to strengthen supervisory framework of the Regulatory Agencies to enable them meet the current challenges. Recent developments in the Nigerian banking system had necessitated the need to amend the 2006 Act to ensure operational efficiency of NDIC. Indeed, one of the obvious lessons learnt from the recent global financial meltdown was the imperative for the introduction of measures that would enhance the regulation and supervision in the financial services industry.
As part of the strategies for strengthening regulatory capacity for sustained economic growth as well as enhance its effectiveness as deposit insurer, NDIC had made proposals for the amendment of the NDIC Act, 2006 to the National Assembly to review its enabling Act. The proposed review was expected to provide NDIC with more enforcement powers that would enhance its ability to discharge its mandate more effectively than hitherto.
The proposed review of the NDIC Act, 2006 that was with the National Assembly by the end of 2009 was expected to address the following areas, among others:
84 ► Granting powers to NDIC to pay insured amount to depositors in the event of imminent or actual suspension of payment by an insured institution, even before revocation of licence. That power would facilitate prompt depositor reimbursement and would reduce their pain as a result of bank failure; ►►► Having powers to review the books of subsidiaries of universal banks so as to minimize the possibility of risk transfer and/or risk warehousing; ► Seeking independent enforcement powers to deal with erring banks and their directors/officials; and ► Protection of the Corporation’s assets against creditors who obtain judgment against closed insured institutions.
The National Assembly had been quite supportive in the ongoing review of the NDIC Act.
6.2 Research Activities In 2009, the Research Department conducted various research activities deemed necessary for the effective operation and improvement of DIS in the rapidly changing economic environment and financial market.
6.2.1 Publication of A Book On Deposit Insurance With guidance from the Management and inputs from the various departments and units, the Research Department during the year under review produced a book titled: 20 Years of Deposit Insurance in Nigeria . The motivation for the book project, which sought to
85 complement the earlier publication entitled A Decade of Deposit Insurance in Nigeria: Issues and Challenges , was the desire of Management of NDIC to commemorate the 20 th Anniversary of Deposit Insurance Practice in Nigeria. Despite the comprehensive nature of the earlier publication in relation to the time it was published and the efforts by the NDIC to publicize it, the larger public still remained largely unaware of the existence of the DIS and they were not well informed of its features.
The book was therefore an additional effort by NDIC to educate the public on the main features, benefits and limitations of deposit insurance in Nigeria. It was also expected to serve as a reference document for interested members of the public who might wish to know the contributions of NDIC to the safety, growth, and development of the financial system in Nigeria within the twenty years of its existence. The book covered areas such as the mandate and powers of the NDIC; legal issues in implementing the DIS; funding issues; and deposit insurance coverage. Other areas covered in the book related to the role of NDIC as a supervisor, receiver and liquidator, public awareness activities, inter-agency cooperation, corporate social responsibility and institutional reforms undertaken by NDIC in the twenty years of its existence. Also, the book examined the implications of the bank consolidation programme carried out by the CBN in 2004/2005 on deposit insurance as well as prospects and lessons for the future.
86 6.2.2 Monitoring of Developments And Other Research Publications In 2009, the Research 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 meant essentially for the staff. The Department also coordinated the publication and distribution of the NDIC 2008 Annual Report and Statement of Accounts.
The NDIC’s publications, served as invaluable reference materials for many relevant institutions, the academia and policy makers in the Nigerian financial services industry during the year under review. The publication had continued to project the image of NDIC favourably in the international community.
6.2.3 Study On The Maximum Deposit Insurance Coverage An appropriate coverage limit is one of the key determinants of an effective DIS. Such a limit, which provided adequate coverage for the average depositor, without exacerbating moral hazard, serves to enhance credibility of the DIS as a key component of the financial safety net arrangement. Depositor confidence in banking system would thereby be heightened. At establishment, the coverage limit for the nation’s banking system was set at N50,000 per depositor per insured institution. About 18 years later, in 2006, the limit was increased by 300 percent to N200,000. Also, with effect from January 2008, the coverage
87 limit for the Microfinance Banks (MFBs) and Primary Mortgage Institutions (PMIs) was fixed at N100,000.
As part of its determination to proactively respond to changes in the environment within which NDIC operated, the Board of the NDIC directed the Management to conduct a study to review the existing coverage limit of N200,000 for universal banks and N100,000 for MFBs and PMIs as contained in the NDIC Act, 2006. In line with that directive, the Research Department during the review period, conducted a survey to solicit for information on the deposit structure of the universal banks, microfinance banks and primary mortgage institutions in the system. The Preliminary Survey Report had been completed while the final report was being put together as at the end of the year.
6.3 Institutional Relations In 2009, the NDIC mounted several institutional relationship building aimed at developing as well as strengthening existing links with its local and international partners. Locally, financial system stability requires close collaboration among the various safety-net participants. The NDIC during the year, continued to interface with other financial safety net players in Nigeria to address regulatory gaps as well as enhance coordination among regulatory institutions.
Like in previous years, the NDIC’s major partner among the safety-net players was the Central Bank of Nigeria (CBN). Both institutions shared a common aim of promoting the stability of the nation’s banking system.
88 At the operational level, the NDIC in 2009 partnered with the CBN on bank supervision and failure resolution matters. Coordination was undertaken through a standing Committee on Banking Supervision made up of Management staff from NDIC and the CBN.
6.3.1 Membership of the Financial Services Regulation Coordinating Committee (FSRCC)
As a member, NDIC participated actively in the activities of the Financial Services Regulation Coordinating Committee (FSRCC) during the year under review. The FSRCC was established in 1994 to coordinate and harmonize set standards as well as supervisory efforts given the existence of multiple regulators/supervisors in Nigeria. Its establishment was to ensure and promote a safe, sound and virile financial system in the country. The FSRCC which had hitherto been passive was reactivated during the year under review. The current key areas of focus of the FSRCC were macro prudential, enthronement of effective risk management practices and sound corporate governance in the financial system. The FSRCC Secretariat remained in the Banking Supervision Department (BSD) of the CBN.
The main aims and objectives of FSRCC are as follows: a) To make for a coordinated supervision of financial institutions especially conglomerates; b) To reduce arbitrage opportunities usually created by differing regulatory and supervisory standards among regulatory authorities in the country;
89 c) To deliberate on problems experienced by any member in its relationship with any financial institution; and d) To articulate strategies for the promotion of safe, sound and efficient practices by financial intermediaries.
The membership of FSRCC is currently made up of: i) Central Bank of Nigeria (CBN); ii) Nigeria Deposit Insurance Corporation (NDIC); iii) Federal Ministry of Finance (FMF); iv) Securities and Exchange Commission (SEC); v) National Insurance Commission (NAICOM); and vi) National Pension Commission.
The Nigeria Stock Exchange (NSE), Abuja Security & Commodity Exchange (ASCE), the Nigerian Financial Intelligence Unit (NFIU) and Directorate of State Security (DSS) are observers.
6.3.2 Membership of The Bankers’ Committee In view of the fact that NDIC functions included assisting monetary authorities in the formulation and implementation of banking policy so as to ensure sound banking practice and fair competition among banks in the country, the NDIC participated in the activities of the Bankers’ Committee as a member. The Committee, chaired by the Governor of Central Bank of Nigeria (CBN), comprised the regulatory and supervisory authorities of insured universal banks, namely: the CBN and NDIC, and all the Managing Director/CEOs of the 24 insured universal banks
90 operating in Nigeria. The Committee met on a quarterly basis during the year under review.
6.3.3 Cooperation And Exchange With Other Deposit Insurance System In 2009, the NDIC actively participated in a number of international conferences and dialogues that were aimed at improving deposit insurance systems across the globe. As a member of the International Association of Deposit Insurers (IADI), the NDIC continued to participate in various fora organized by both IADI and its member agencies across the globe to enhance knowledge and experience sharing on issues relevant to deposit insurance.
In particular, NDIC participated in the 2009 Conference of the Africa Regional Committee (ARC) of the IADI which was hosted by the Deposit Protection Fund Board (DPFB) of Kenya at Sarova Whitesands Beach Resort & Spa, Mombasa, Kenya. The theme of the 2009 Regional Conference was “ The Role of Deposit Insurance in the Stability of the Financial System” . The Regional Conference was organized to further the ARC’s objectives which were to build capacity within the existing deposit insurance systems in the African Region and to create awareness on the importance of having well managed deposit insurance systems for the benefit of countries that were yet to put in place such systems in Africa. It was designed to share experiences on the challenges deposit insurers faced in the process of carrying out their functions as members of financial safety net players in their various jurisdictions.
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The Regional Conference looked at the experiences of other Regions of IADI as well as developments globally, especially with the recent global financial crisis which had led to the collapse of some financial institutions in comparatively stronger economies than Africa. Papers presented at the Regional Conference focused on the role of deposit insurance in the stability of the financial system as well as country experiences of the interrelationship among safety net players.
The NDIC participated effectively in all IADI Standing Committees and Executive Council Meeting in 2009. Also, NDIC attended the 2009 IADI Annual General Meeting as well as the FSI-IADI-BCBS Conference held at The Bank For International Settlements, Basel, Switzerland in September, 2009. The theme of the 2009 Conference was “ The Core Principles For Effective Deposit Insurance System ”. The Conference provided opportunity for the participants to interact and share experience of their respective countries on the practice of the DIS and how they compared with the standards set in the Core Principles document which was adopted by the Basel Committee on Banking Supervision (BCBS) and IADI in June 2009.
6.3.4 Training/Attachment Programmes In recognition of the fact that deposit insurance was knowledge-based, staff of various grades in NDIC, through international networking with other regulatory/supervisory agencies across the globe, benefited from training programmes organised by reputable foreign institutions in 2009.
92 Some of the institutions that organized training programmes were the Federal Reserve System (FED), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Financial Stability Institute (FSI) and Financial Services Authority (FSA) of UK.
During the year, NDIC actively participated in the activities of the Committee of Banking Supervisors of West and Central Africa (CBSWCA). The CBSWCA was initiated in 1994 as a liaison group essentially made up of Banking Supervision Organisations from twenty- six (26) countries from West and Central Africa. One of the objectives of the CBSWCA was to facilitate experience sharing amongst its members.
Also, in keeping with its commitment to knowledge-sharing and in furtherance of its international networking, the NDIC, during the year, provided training/attachment opportunities for two senior staff of Deposit Insurance Board (DIB) of Tanzania.
93 Section 7
Public Awareness And Corporate Social Responsibility
7.0 Introduction This section highlights some of the initiatives undertaken by NDIC in 2009 to enhance public awareness about DIS and to improve public understanding of its benefits and limitation. The section also discusses the voluntary activities executed by NDIC outside its statutory mandate so as to enable it positively impact on its various stakeholders.
7.1 Public Awareness And Education Some of the key considerations involved in providing deposit insurance protection for depositors are: Ensuring the design of an effective system; and Ensuring that the public understands how the system works to protect their savings within the financial system.
The above considerations lent support to the deposit insurance public policy objective and mission to contribute to the stability and confidence in the financial system. The effectiveness of a DIS in maintaining banking system stability relies heavily on a high level of public awareness and understanding of the system. Educating depositors and the banking public about the DIS and its benefits had always been part of the NDIC’s business strategy to achieve its mission of contributing to the stability of Nigeria’s financial system.
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Part of the major on-going initiatives of NDIC in that respect had been to enhance public awareness about deposit insurance and to improve public understanding of its benefits and limitations. To that end, the NDIC in 2009 devoted considerable efforts to advertising by placing advertisements in major national daily newspapers to provide information to a wider audience across the nation. Also, NDIC published advertisement supplements in some magazines. In addition to print materials, the NDIC through the Managing Director/Chief Executive Officer and the two Executive Directors - Operations and Corporate Services - made various presentations either as lecture, guest or keynote speakers to diverse audiences in 2009. Other initiatives undertaken to enhance public awareness by NDIC included:
Development of a new robust and interactive Website: www.ndic.org.ng Production of various hand-bills on the mandate, operation, achievements and challenges facing NDIC and circulation of same to various stakeholders. Development of Help-Desk facility to enhance communication between NDIC and its stakeholders especially depositors, as well as to provide an effective grievance redress mechanism. Pasting of enlarged NDIC decal (logo) on entrances of bank head offices and branches for easy visibility.
All the efforts were geared towards increasing public understanding and awareness of deposit insurance and promoting an understanding of the
95 NDIC’s role and contribution within the nation’s financial system. In addition to its various publications which were available to the public, free of charge, other awareness initiatives of the NDIC in 2009 included the followings in the ensuing sub-sections.
7.1.1 Nationwide Depositor Awareness Campaign During the year under review, NDIC intensified its nation-wide deposit insurance awareness/depositors’ enlightenment campaign on radio and television. The nationwide depositor-awareness television campaign which was targeted at depositors of the banks in liquidation was of particular significance in the efforts to get depositors of the failed banks to come forward for their claims.
Following the licensing of Microfinance Banks (MFBs) and Primary Mortgage Institutions (PMIs) by the CBN, deposit insurance coverage had to be extended to these institutions. In view of the relative newness of the introduction of DIS to these institutions, the NDIC used all the available opportunity to sensitise licensed MFBs and PMIs on the new system during the year. For example, the various conference organised by the Committee of Microfinance Banks in Nigeria (COMBIN) for stakeholders at Lagos, Owerri and Abuja as well as the National Workshop on Sustainability of Microfinance Banks in Nigeria organised by Chartered Institute of Bankers of Nigeria (CIBN) held at Owerri, Ibadan and Kaduna, were effectively utilised for that purpose in 2009.
96 7.1.2 Workshop For Business Editors and Finance Correspondents Association of Nigeria (FICAN) During the year, NDIC organized the annual workshop for Business Editors and Finance Correspondents Association of Nigeria (FICAN). The theme of the 2009 FICAN Workshop which took place in Kaduna from October 29 – 30 was: “Developments In The Nigerian Financial System: Causes and Remedy ”. The 2009 FICAN Workshop which was the seventh in the series of similar workshops was specifically designed to improve the Business Editors’ as well as the Financial Correspondents’ understanding of issues relating to the developments in the Nigerian financial system and the role of deposit insurance in promoting financial system stability. In his keynote address, Mr. G. A. Ogunleye, (OFR), the erstwhile Managing Director/Chief Executive Officer of NDIC, highlighted the developments in the Nigerian financial system, with emphasis on the banking sector (post consolidation), which led to the emergence of 25 banks (later reduced to 24), the regulatory intervention of 2009, and the way forward.
7.1.3 Participation In 2009 Lagos International Trade Fair The NDIC participated in the 2009 Lagos International Trade Fair held in November, 2009. The forum provided yet another platform to reach out to the NDIC’s diverse target members of the public.
97 7.1.4 National Essay Competition For Final Year Undergraduates In Nigerian Universities Outreach to schools is one of the integral parts of the public education programme of NDIC. During the year, the NDIC organized the maiden edition of the NDIC National Essay Competition for the final year students of the Nigerian Universities. The theme of the 2009 National Essay Competition was “The Role Of NDIC In Promoting Public Confidence In The Nigerian Financial System” .
The broad objectives of the competition were to: Create and promote public awareness of DIS and issues relating to banking and finance among undergraduates in Nigerian Universities; and Engender scholarship and encourage reading and research among Nigerian University Undergraduates.
The National Essay Competition took place in each of the six geo- political zones across the country. It was held in Kano (North West); Port Harcourt (South South); Lagos (South West); Enugu (South East); Bauchi (North East); and Abuja (North Central). A total of 360 students participated in the Essay writing. Award ceremonies for winners were scheduled to take place in 2010.
98 7.2 Corporate Social Responsibility In 2009, the NDIC as in previous years was actively involved in voluntary activities executed outside its statutory mandate, and which were basically intended to positively impact on its various stakeholders. During the year, the NDIC pursued its social responsibility programmes in the following areas:
7.2.1 Financing Projects in Tertiary Institutions In fulfillment of NDIC’s social responsibility goals, and in an effort to promote educational excellence, the NDIC during the year continued to pursue a project-based support programme to institutions of higher learning in the country.
The NDIC sponsored the following academic development-related projects in the following higher institutions in the country in the period under review:
(i) University of Nigeria Nsukka (UNN), Enugu State The construction of Lecture Block and Offices were commissioned on February 19, 2009. Additional sum of N3.3million was disbursed for the purchase of furniture.
99 (ii) Ahmadu Bello University (ABU), Zaria, Kaduna State The 1st installment of N5million was disbursed in 2008. Final installment of N4.56million was approved and disbursed in 2009. The project, construction of the Staff Office Block (Deanery) at the Faculty of Social Sciences, was commissioned on 30 th July, 2009.
(iii) National Mathematical Centre, Abuja The date for the commissioning of the development of a 10Kva Solar Photovoltaic Energy Powered Electricity System sponsored by NDIC in 2009 was yet to be fixed before the year ended.
(iv) Adekunle Ajasin University, Akungba, Ondo State The final tranche of N10million for the construction of Research Centre of the University which was ongoing in 2009 had been processed while disbursement would be made in early 2010.
(v) IBB University, Lapai, Niger State The institution was yet to submit a new date for the commissioning of the construction of a Cybercafe’ with Remote Sensitivity for the Male and Female Hostels of the University which was completed in 2009.
(vi) Jubilee University, Wukari, Taraba State A sum of N10million had been disbursed to Jubilee University Wukari in Taraba State in 2009 under the 2nd phase of project support to institutions of higher learning by NDIC.
100 (vii) Ebonyi State University, Abakaliki The sum of N10million was disbursed by NDIC for the upgrading of ICT/Research Centre. The project was commissioned on 20 th March, 2009.
(viii) Adamawa State University, Mubi The sum of N10million was disbursed by NDIC for the construction of office block for Department of Fisheries & Aquaculture. The project was commissioned on 6 th February, 2009.
7.2.2 Publication of Nigerian Banking Law Reports Beyond the support to the educational institutions, the NDIC also took the responsibility for the publication of the Nigerian Banking Law Report. As earlier reported, the Legal Department of NDIC collaborated with the Editorial Board of the Nigerian Banking Law Report (NBLR) to present volumes 5 & 6 of the Nigerian Banking Law Report to the public at the NDIC 20 th Anniversary celebration in 2009. The publication was a compendium of decided banking-related cases in Nigeria. This was part of the Corporation’s contribution to the development of legal profession in Nigeria.
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Section 8
CORPORATE GOVERNANCE
8.0 Introduction Governance generally refers to processes, structure and information in directing and overseeing the management of an organization. For a DIS, it also covers relationship between the deposit insurance agency and the authority that confers its mandate or to which it is accountable.
During the year under review, sound corporate governance continued to be one of the guiding principles and business strategies of NDIC. Various efforts were made to strengthen internal governance by maintaining organizational arrangements that promoted independence, transparency, accountability and integrity within the context of the NDIC’s statutory obligations as prescribed in its governing statute. The NDIC Act No 16 of 2006 clearly states NDIC’s objects, powers and duties as well as its roles as a risk-minimizer and a component of the nation’s financial safety-net.
Apart from acting in good faith and in the best interest of NDIC, members of the Board also took steps to exercise care and diligence in discharging their oversight responsibility during the year.
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9.1 Composition of The Board of Directors The Nigeria Deposit Insurance Corporation (NDIC) Act No. 16 of 2006, sections 5 to 7 provide for the constitution of the Board of the NDIC as well as indicated its powers. As the highest governing body, the Board has the responsibility for the overall policy formulation, general administration, management and superintendence over the affairs of NDIC. The Board is the approving authority for administrative matters, such as recruitment and remuneration of employees as well as fundamental operational matters such as the termination of a bank’s insured status, review of DIS design features, supervisory intervention and failure resolution options.
According to Section 5 of the NDIC Act No. 16 of 2006, the Board of NDIC is composed of 12 members as follows: a part time Chairman; the Managing Director/CEO; two Executive Directors; a representative each of the Central Bank of Nigeria and the Federal Ministry of Finance not below the rank of a Director; and six other members, one each from the six geo-political zones of the country. The Chairman and other members of the Board, apart from the Managing Director/Chief Executive Officer and the two Executive Directors, are to serve on a part time basis. Also, the NDIC’s enabling Act provides that the Board be appointed by the President, Commander-in-Chief of the Armed Forces of Nigeria, subject to the confirmation of the Senate and is also expected to meet at least once quarterly.
103 During the year, the Senate, confirmed the nominations of twelve (12) eminent Nigerians as members of the new Board of the NDIC which had hitherto operated without a substantive Board since 2007 when it was dissolved. On August 20, 2009 the new Board of Directors of NDIC was inaugurated by the erstwhile Hon. Minister of Finance, Dr. Mansur Muhtar, OFR.
Members of the new Board of Directors at inauguration were as follows: 1) Ambassador (Dr.) Hassan Adamu (Wakili of Adamawa), CON. - Chairman 2) Mr. G. A. Ogunleye, OFR, - Managing Director/CEO 3) Prof. Peter N. Umoh, FCIB, - Executive Director (Operations) 4) Alhaji Umaru Ibrahim, mni, - Executive Director (Corporate Services) 5) Chief Davidson Oghenekevwode 6) Chief Oyebisi L. Ilaka 7) Mr. Lawan Zakaria Gana 8) Mr. Rasaq Tunde Lawal 9) Mr. Abdulrahman Dikko 10) Bennedikter C. Molokwu (Ms) 11) Director, Home Finance - Representative of the Federal Ministry of Finance (FMF). 12) Director, Banking Supervision Department (BSD) - Representative of the Central Bank of Nigeria (CBN).
A look into the profile of the Directors would reveal sound educational background and variety of specialization which included commerce, law, diplomacy, business and financial services. Their diverse backgrounds and experience had made them eminently qualified for their appointment as they would bring their various wealth of experience to bear in their oversight responsibility in NDIC.
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The Board, as constituted in 2009, was the third of its kind in the twenty-year history of NDIC. It had Mr. A. B. Nyako, Director of Legal Department of NDIC as Board Secretary.
Prior to the inauguration of the new Board for NDIC in August 2009, all the responsibilities of the Board in terms of oversight as well as approvals that were beyond the Senior Management were referred to the Hon. Minister of Finance. Some of the important responsibilities discharged by the Hon. Minister before the new Board was inaugurated included the approval of the 2008 Senior Staff Promotion and the approval of the 2009 NDIC budget.
The major significant developments witnessed in NDIC’s governance during the year were the disengagement on November 22, 2009 of the erstwhile Managing Director/CEO, Mr. G. A. Ogunleye, OFR, and the Executive Director (Operations), Prof. Peter N. Umoh, FCIB. The two disengaged from the service of NDIC after completing their tenure of ten (10) years consisting of two (2) terms of five (5) years each. Consequent upon that, the Board of Directors appointed the Executive Director (Corporate Services), Alhaji Umaru Ibrahim, mni, as the Acting Managing Director/CEO.
8.2 Achievements Of The Board In 2009 Between August when the new Board was inaugurated and December 2009, three separate Board meetings were held and attendance was
105 satisfactory. At the 76 th Meeting of the Board, the Board successfully approved the 2010 NDIC Annual Budget, thus providing NDIC with the necessary financial powers for its operations in year 2010.
8.3 Board Committees To assist the Board in discharging its various oversight functions, apart from the Executive Committee (EXCO), the NDIC Board of Directors set up five (5) Committees in 2009. The Committees were as follows: Finance and General Purpose Committee; Corporate Strategy Committee; Debt Recovery Committee; Audit Committee; and the Establishment Committee.
8.3.1 Membership and Mandate of the Board Committees During the period under review, the members of the various Committees of the Board and their mandate were as presented in Table 8.1 below.
Table 8.1
Mandates and Composition of the NDIC Board Committees in 2009 Committee Mandate Composition Name Finance and General Consider the quarterly L. Z. Gana - Chairman Purpose Committee report of the financial Managing Director/CEO - Member position of NDIC. ED (Corporate Services) Consider the proposed Director, Home Finance, Rep. of FMF annual budget as Aliyu Dikko submitted by the Chief L. O. Ilaka Management and Ms. B. C. Molokwu recommend same to the Director (Finance) - Secretary Board. Monitor Budget Implementation. Recommend for approval of the Board the
106 appointment of External Auditor. Advice the Board on compliance with extant financial regulations and circulars. Any other function as may be assigned by the Board. Corporate Strategy Responsible for Chief R. T. Lawal – Chairman Committee stimulating the NDIC’s Managing Director/CEO - strategic direction. ED (Operations) Consider NDIC corporate Director, BSD, Rep. of CBN strategic plan before Ms. B. C. Molokwu Board approval. Director, Home Finance (Rep. FMF) Any other function as L .Z. Gana may be assigned by the Head (SDD) - Secretary Board.
Debt Recovery Advice on debt recovery Ms. B. C. Molokwu - Chairman Committee process in respect of ED (Operations) - Member banks-in-liquidation. Chief L. O. Ilaka Consider proposals for Davidson Oghenekevwode interest waiver within the Director, BSD, Rep. of CBN thresholds that requires Chief R. T. Lawal Board approval. Head ( AMD) - Secretary Advise on the recovery of debts from high profile debtors and political office holders. Any other function as may be assigned by the Board Audit Committee Ensure compliance with Davidson Oghenekevwode - Chairman the financial policy of the Director, Home Finance (Rep. FMF) NDIC. Director, BSD, Rep. of CBN Any other function as Chief R. T. Lawal may be assigned to it by Aliyu. A . Dikko the Board. Head (Audit) - Secretary Establishment Disciplinary Matters. Aliyu. A .Dikko - Chairman Committee Staff matters. ED (CS) - Member Recruitment. Director, BSD, Rep. of CBN Any other function as L .Z. Gana may be assigned to it by Davidson Oghenekevwode the Board. Chief L. O. Ilaka Head ( HRD) – Secretary
8.3.2 Executive Committee of the Board (EXCO) The Managing Director/Chief Executive Officer, The Executive Director (Operations) and Executive Director (Corporate Services) constituted the
107 members of the Executive Committee (EXCO) of the Board. As members of Senior Management, they were appointed by the President and Commander-in-Chief of the Armed Forces of the Federation on a five year term. As clearly stated in the enabling Act, they were also eligible for re-appointment for a further period of five years. The EXCO held its meetings on a weekly basis and deliberated on the implementation of policy decisions of the Board as well as on other matters within its competence. The Executive Committee of the Board did not end the year with its full complement of members as the Managing Director/CEO and the Executive Director (Operations) disengaged in November 2009 as earlier reported and new ones were yet to be appointed as at the end of the year under review.
8.4 Other Statutory Commitments Of The Board And Management The NDIC complied with the relevant provisions of its enabling Act as in previous years. Similarly, it complied with the provisions of other relevant Acts of the Federal Government of Nigeria with regard to information disclosure of its operations to its stakeholders and the general public where and when necessary. The NDIC also complied with the guidelines issued by the Offices of the Auditor General of the Federation and Accountant General of the Federation.
Though the NDIC was self-accounting Federal Government Agency, the annual accounts were audited by external auditors in line with the
108 provisions of CAMA and same were published in the NDIC Annual Report and Statement of Accounts which were made available to key stakeholders including: the Public Accounts Committee of the Senate; the Central Bank of Nigeria; and the Federal Ministry of Finance. Other activities of NDIC during the year are also contained therein. The NDIC had always complied with these requirements and circulated copies of the report to the banking public, institutions of higher learning, foreign missions as well as sister DIS agencies around the world as part of its disclosure efforts and in line with the requirement of sound corporate governance practice.
The NDIC complied fully with the provisions of the Fiscal Responsibility Act in terms of the approval of its budget and appropriation of its operating surplus at the end of 2009 financial year. It also complied fully with the provisions of the Pension Reform Act, 2004 in respect of the monthly remittances to the Pension Fund Custodians (PFCs). Also, NDIC remitted all deductions and staff contributions to the National Health Insurance Commission in compliance with the NHIS Act during the year as earlier reported.
As liquidator of closed banks in Nigeria, the NDIC rendered returns in respect of the banks-in-liquidation to the Corporate Affairs Commission (CAC) and the Central Bank of Nigeria (CBN) as required by the Companies and Allied Matters Act (CAMA) 1990, as amended and the Banks and Other Financial Institutions Act (BOFIA) 1991, as amended. The NDIC also responded to status enquiries from relevant stakeholders
109 to determine the extent of indebtedness of some customers of banks in liquidation.
The NDIC also complied with the provisions of the Code of Conduct for Public Officers Act, with particular reference to asset declaration by political appointees in NDIC. Necessary compliance with the provisions of the Act had been effected as and when due. The NDIC also ensured the submission of Federal Character Quarterly Report to the Federal Character Commission (FCC) as and when due throughout the year 2009.
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132 Section 10
THE OPERATING ENVIRONMENT
10.0 Introduction In 2009, the Nigerian economy operated under the direct and indirect effects of the global financial crisis and the efforts made to curtail and contend with them. In particular, the environment in which insured institutions operated during the year was shaped largely by developments in the international economy as well as the economic policies/reform programmes of the government aimed at sustaining the momentum of macroeconomic growth and stability. The Central Bank of Nigeria (CBN) embarked on a number of reform initiatives to improve corporate governance, disclosure requirements, transparency and risk management in the deposit money banks. Among the steps taken by the apex bank included the initiative to influence the cost and availability of credit as well as encourage the flow of credit to productive investments.
During the year under review, a new CBN Governor, Mr. Sanusi Lamido Sanusi, was appointed to replace the former Governor, Professor Charles Soludo, whose tenure expired on June 3, 2009. Until his appointment, Mr. Sanusi was the Group Managing Director of First Bank of Nigeria Plc.
On assumption, the new helmsman at CBN expressed great concerns about the state of corporate governance in banks, the degree of credit
133 boom and consequential deterioration in asset quality of insured institutions and what that portended for the health of the industry and the economy. In the light of this, the CBN and NDIC examiners conducted a special examination of universal banks to, among other issues, ascertain the value and quality of their exposure along with their subsidiaries to the capital market as well as to the oil and gas sector. That development led to the removal of management of eight (8) of the banks and the take-over of the institutions by CBN-appointed managements, which had since been running the banks as going concerns.
Briefly presented in this section is a review of the operating environment for insured institutions in 2009. The environment was impacted by Regulatory, Macroeconomic as well as Socio-Political events. Also, in the section is a brief review of the nation’s banking system during the year.
10.1 The Regulatory Environment As in the previous year, the CBN in 2009 pursued its primary mandate of maintaining monetary and price stability. The apex bank’s monetary operations relied on the lending and deposit rates anchored on the monetary policy rate (MPR). That was complemented with open market operations (OMO), sale of foreign exchange through the Wholesale Dutch Auction System (WDAS), reserve requirements and auction of treasury securities in the primary market. The CBN during the period under review adopted a number of measures aimed at mitigating some
134 of the negative fall-outs of the global financial crisis in order to bring about stability to the Nigerian banking system.
10.1.1 Monetary Policy For 2009 The major objectives of Monetary Policy in 2009 remained the same as in the previous year which was the maintenance of macroeconomic, monetary and price stability with a focus on achieving a single digit inflation rate. Other objectives included gradual reduction in the cost of borrowing by private sector investors through reduced interest rates and maintenance of exchange rate stability. In order to achieve the aforementioned objectives, the following major policy measures were put in place in 2009.
(i) Liquidity Management The framework for monetary policy management in 2009 remained that of monetary targeting. The CBN adopted various policy measures aimed at containing the growth of monetary aggregates in order to achieve monetary and price stability. OMO remained the major tool of liquidity management. The liquidity ratio (LR), one of the complementary liquidity measures, was reduced by 500 basis points from 30 per cent in 2008 to 25 per cent in 2009 in order to enhance the liquidity position of banks and to enable them extend credit to the real sector. Other policy measures implemented in that regard included reduction in the cash reserve requirement (CRR) by 100 basis points from 2.0 per cent to 1.0 per cent with effect from April 14, 2009; and the use of deposits, loans
135 as well as special sales of foreign exchange to ameliorate the impact of the global financial crisis.
(ii) Interest Rate Policy In 2009, the CBN retained the policy of market-based interest rate with decisions on interest rate reviewed on a quarterly basis. The anchor rate to which all other interest rates revolved, which was the MPR, was reviewed downward twice in a bid to improve liquidity in the system and ensure the smooth functioning of the financial markets and the economy in general. The first was in April 2009 when it was reviewed downward by 175 basis points, from 9.75 per cent to 8 per cent. The second was in July 2009 when the MPR was further reduced by 200 basis points from 8 per cent to 6 per cent.
The CBN introduced an asymmetric corridor of interest rates around the MPR whereby the rate on the standing lending facility remained at 200 basis points above the MPR, while the rate on standing deposit facility was fixed at 400 basis points below the MPR. The totality of those measures was aimed at improving the system’s liquidity.
(iii) Exchange Rate Policy The use of the Wholesale Dutch Auction System (WDAS) still remained the major Exchange Rate policy in 2009. During the year, series of measures and strategic initiatives such as increased supply of foreign exchange to all markets and removal of restrictions on foreign exchange transactions were adopted by the apex bank. These were aimed at
136 supporting the CBN objectives of enhancing efficiency in the Foreign Exchange Market through market determination of the Naira exchange rate.
10.1.2 Other Regulatory Developments in 2009 During the year, various Circulars/Guidelines were issued by the nation’s Regulatory Authorities to guide the operations of insured banks. There were also other regulatory developments in the banking sector. Some of the notable ones are highlighted here:
(i) Release of Guidelines For Non-Interest Banking In 2009, the CBN released a draft framework for the regulation and supervision of non-interest banks in the country. The development was sequel to the increasing number of banks and other financial institutions desiring to offer Islamic compliant products and services in Nigeria.
A non-interest bank is a bank which transacts banking business, engages in trading, investments and commercial activities, as well as the provision of financial products and services in accordance with the principles and rules of Islam. Transactions and contracts under this type of banking were non-permissible if they involved interest, gambling, speculation, unjust enrichment, and exploitation, among others.
The document was issued as an exposure draft for comments, suggestions or inputs by stakeholders. The guidelines, which were being issued pursuant to Section 28 (1) (b) of the CBN Act 2007 and the
137 provisions of the Banks and Other Financial Institutions Act (BOFIA 1991 as amended) states: “Non-interest banks would be licensed in accordance with the requirements for new banking license issued by the CBN from time to time”. All applications for fresh licence as indicated by the CBN, should be submitted with the required documents including a non-refundable application fee of N500,000.00 and a minimum capital deposit of N25 billion with the CBN.
Banks offering non-interest banking products and services were not expected to include the word, “Islamic” as part of their registered or licensed name. They would however, be recognized by a uniform logo to be designed and approved by the CBN. The CBN would require all the banks’ signages and promotional materials to carry the logo to facilitate recognition by customers.
All non-interest banks operating in the country must comply with the Generally Accepted Accounting Principle (GAAP) codified in local standards issued by the Nigerian Accounting Standards Board (NASB) and the International Financial Reporting Standard (IFRS)/International Accounting Standard (IAS). For transactions, products and activities not covered by these standards, the relevant provisions of the Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), were expected to apply.
138 (ii) Suspension of The Use Of Commercial Papers (CPs) And Bankers’ Acceptances (BAs) As Off-Balance Sheet Instruments In an effort to ensure full disclosure of their toxic assets and promote transparency in the banking industry, the CBN suspended the use of Commercial Papers (CPs) and Bankers’ Acceptances (BAs) as off-balance Sheet (OBS) instruments by banks and discount houses.
CPs are unsecured promissory notes with a fixed maturity of one to 270 days while BAs are negotiable instruments or time drafts drawn on and accepted by a bank. In a circular titled, “Suspension of BAs and CPs as Off-Balance Sheet Items”, the CBN expressed concern over the abuse of BAs and CPs by deposit money banks and discount houses. The circular contended that CPs and BAs were often used as the instrument of choice for raising liquidity in an attempt to conceal the extent of dependence on the inter-bank market for banks’ funding needs. Consequently, the sell-down of BAs and CPs as OBS instruments had been suspended with effect from the date of the circular. All maturing CPs and BAs were to be either fully liquidated or treated as on-balance sheet items. Furthermore, the circular stated that: “If a bank was likely to exceed its single obligor limit as a result of this circular, CBN’s approval would be required for exemption in line with Section 20(1) of BOFIA, as amended, subject to the loans being performing and a plan for regularization by 31 st March, 2010”.
139 (iii) Maximum Limit On Cheques Payment The CBN directed banks to reject any cheque payment above N10 million, as it would not accept such payments at the clearing house as from January 1, 2010. In a circular addressed to all deposit money banks, the CBN directed that all payments outside the set limit of N10 million should be routed through Central Bank Inter-Bank Funds Transfer System (CIFTS) and Nigerian Inter-Bank System Electronic Fund Transfer (NEFT). As stated by the CBN, limiting the amount of cheque payment would reduce the risk in clearing and settlement arrangement in accordance with international practice. The circular titled, “Maximum Limit on Cheque Payment” which set a maximum limit on cheque payment at N10 million with effect from 1 st January, 2010, the CBN noted, was a further step in its efforts at enhancing the efficiency of the payment system in the country. The apex Bank implored all deposit money banks to properly educate their customers on the implementation procedure of the initiative.
10.2 The Macro-Economy/Socio-Political Environment In 2009, despite the adverse effects of the global financial crisis, some improvements were recorded in the performance of the economy. On the international scene, some measures of rebound were noticeable from the second half of the year in global economic activity. The rebound was driven largely by the unprecedented amount of fiscal stimuli undertaken in both the developed and emerging market economies in the wake of the global financial crisis which led to a rise in manufacturing activity, recovery in housing markets and the restoration
140 of consumer confidence. The response of various national governments and central banks across the globe helped to reduce uncertainties as well as contain systemic risk in the financial system.
At the country level, the reform measures initiated in the banking sector by the CBN continued to gather momentum with moves by the government to establish an Assets Management Corporation of Nigeria (AMCON). The reform aimed at impacting positively on the overall efficiency and stability of the system in a manner that would ensure that banks played their appropriate roles as channels for allocating resources to the real sector. This was also expected to increase credit to the growth-enhancing sectors of the economy and therefore, engender an all inclusive growth, as well as avoid a recurrence of the crises provoked by over exposure to speculative and non-value-adding ventures. However, despite the CBN reform efforts, bank lending remained sluggish given the need to rebuild capital, maintain liquidity and the possibility of further credit writedowns, mostly related to non-performing exposures to commercial real estates and stock markets.
Inflationary pressure moderated in 2009, as the inflation rate assumed a downward trend. The headline inflation rate, as measured by the year- on-year increase in the all item consumer price index, which stood at 15.1 per cent at end of December 2008, trended downward, from 14.4 per cent at the end of first quarter to 10.4 per cent by the end of third quarter 2009. However, it increased to 12 per cent by the end of December 2009, reflecting increase in demand pressure due to
141 festivities and the spate of fuel shortages linked to supply bottleneck and the speculation that petroleum products prices would be fully deregulated. This represented a slight decline from the rate of 12.4 per cent recorded in November 2009. Headline inflation stood at 11.6 per cent and 10.4 percent in October and September respectively. Food inflation which hovered between 12.5 per cent and 12.9 per cent in the third quarter rose to 13.5 per cent in the fourth quarter of the year. That development was attributable to increased liquidity injections by the various tiers of government as well as increases in the prices of some staple food items, transportation and miscellaneous services.
The foreign exchange market remained relatively stable for most part of 2009 in spite of the steady depreciation in the Naira exchange rate recorded particularly between the months of July and September 2009. As shown in Table 10.1, the effective Naira exchange rate at the WDAS depreciated from N146.63/US$1 in July to N151.60/US$1 in August and further to N160.20/US$1 in September 2009. The depreciation during the period was as a result of the surge in demand for the purchase of foreign exchange for the importation of fuel (petroleum motor spirit) by some oil companies and the remittances of dividend in the face of adverse developments in the international oil market.
The Naira exchange rate at WDAS, bureau de change and parallel markets was N148.66/US$1, N150.25/US$1 and N151.25/US$ respectively in December 2009. This showed that at the end of the period the spread between the WDAS, bureau de change and parallel
142 market rates had narrowed considerably reflecting renewed confidence in the management of the nation’s economy. The trend of the Naira exchange rate in 2009 is presented in Table 10.1.
TABLE 10.1 NAIRA EXCHANGE RATE (N/US $) JANUARY-DECEMBER 2009 MONTH WDAS BUREAU DE CHANGE PARALLEL MARKET
JANUARY 143.80 146.30 148.00 FEBRUARY 145.50 150.75 151.75 MARCH 146.08 166.25 169.00 APRIL 145.84 147.83 149.00 MAY 146.22 178.25 180.50
JUNE 146.75 168.75 170.00 JULY 146.63 148.94 151.10 AUGUST 151.60 151.25 153.20 SEPTEMBER 160.20 156.50 154.40 OCTOBER 147.57 152.87 154.00 NOVEMBER 149.37 151.38 152.50 DECEMBER 148.66 150.25 151.25 AVERAGE 148.18 155.78 157.06 Sources: CBN and NDIC Market survey of Bureau de Change and Parallel market
Output of Nigeria’s crude oil declined in the first half of 2009, with an estimated total average daily production of 1.76 million barrels per day (mbd), but increased to 2.15 mbd in the third quarter of 2009. The increase was attributed to the relative peace being experienced in the Niger Delta Region as a result of the on-going implementation of the Federal Government’s amnesty programme. In the international oil market, the average spot price of Nigeria’s reference crude, the Bonny Light which was US$53.65 per barrel in the first half of 2009, rose to US$78.61 in November, 2009.
Nigeria’s gross external reserves as at the end of 2009 amounted to US$42.38 billion representing a decrease of US$10.44 billion or 19.76
143 per cent when compared with US$52.82billion recorded in the corresponding period in 2008. Overall, the net outflow of foreign exchange during the year moderated significantly from US$5.6 billion, US$3.8billion, and US$931.93million to US$138.37million in the first, second, third and fourth quarters, respectively. At US$42.38billion, the external reserve position could finance 20.8 months of imports which exceeded the benchmark minimum of six months of imports under the West African Monetary Zone (WAMZ) arrangement. The decline in the level of external reserves was largely due to a slowdown in oil output especially in the first half of the year as a result of activities of militants in the Niger Delta oil producing areas.
Banking system credit to the private sector slowed considerably in 2009. Annualized growth rate of aggregate domestic credit (net) as at November 2009 was 56.10 per cent, as against the provisional benchmark growth rate of 86.97 per cent for 2009. Despite the various policy measures implemented by the CBN to ensure adequate liquidity in the banking system, reserve money (RM) was largely below the indicative benchmarks for most of 2009. The annualized growth rate of private sector credit was 26.10 per cent in 2009 as against 59.38 per cent in 2008. Net claims on the Federal Government, however, increased by 26.64 per cent as against the decline of 31.21 per cent as at the end of the corresponding period of 2008. The development notwithstanding, the Federal Government remained a net creditor to the banking system. The trends in money supply movement reflected the fall in net foreign assets and the slowdown in credit to the private
144 sector. This implied slack aggregate demand, indicating the need for the continuation of an accommodative monetary policy stance.
Available data on interest rates showed that in spite of the measures taken by the CBN to ease monetary stance and inject liquidity into the banking system, nominal interest rates remained high during the year. As a result, the costs of production and funding were high. Average interest rates for major financial instruments during the year under review are as presented in Table 10.2.
TABLE 10.2 AVERAGE INTEREST RATES (%) JANUARY- DECEMBER, 2009 Month Savings Time Deposit Prime MPR T-Bills FGN Account 7- 1-Month 3-Month 6-Month 12- Lending rate Bond Day Month
January 6.25 8.25 14.28 15.54 15.92 15.83 24.00 9.50 9.50 10.70
February 6.25 17.12 18.04 18.20 18.33 18.37 24.00 9.50 9.50 10.70
March 6.25 17.08 18.04 20.58 20.88 20.88 24.00 9.75 5.24 10.70 16.02 17.79 18.28 18.42 18.29 6.12 10.75 April 6.25 24.00 8.00 14.00 15.50 16.42 16.84 17.17 7.45 10.75 May 6.25 24.00 8.00 18.00 18.83 19.88 20.17 20.25 6.24 11.50 June 6.25 24.00 8.00 15.50 15.50 20.96 21.29 21.42 6.24 10.50 July 6.25 24.00 6.00 10.25 12.50 14.54 14.83 15.29 6.00 6.23 8.60 August 6.25 24.00 13.46 15.38 16.88 17.21 17.50 6.00 5.90 9.75 September 6.25 24.00 7.17 12.92 14.75 15.29 16.21 6.00 6.10 8.50 October 6.25 24.00 7.54 13.54 15.50 15.79 16.71 6.00 6.10 8.80 November 6.25 24.00 12.21 14.98 16.21 16.79 17.33 6.00 6.00 8.80 December 6.25 24.00
Average 6.25 13.05 15.61 17.31 17.65 17.94 24.00 7.40 6.72 10.00 Sources: Bank Returns and CBN Research Department
As evidenced in Table 10.2, interest rates on different classes of deposits witnessed a little upswing and downswing. They were, however, generally stable during the year. That stability could be partly
145 ascribed to the efforts of the Monetary Authorities to control the price, volume and supply of money to the economy.
Savings rate during the year hovered around 6.25 percent. As shown in Table 10.2, rates on 7-day, one-month, three-month, six-month and 12- month deposits averaged 13.05 per cent, 15.61 per cent, 17.31 per cent, 17.65 per cent and 17.94 per cent respectively in 2009. The Prime Lending Rate (PLR) for the entire year averaged 24 per cent. The spreads between the averages of all the deposit rates and the PLR were high throughout the period under review. That meant government’s efforts at moderating the spread between deposits and lending rates were not very successful.
The tempo of activities at the Nigerian capital market was bearish in 2009. The impact of the global economic meltdown and developments in the local environment foisted a downward movement on all indicators of the market. The Nigerian Stock Exchange All-Share Index (ASI), the value-based common index that measures changes in the prices of all quoted companies on the two tiers of the Nigerian Stock Exchange (NSE), dropped by 33.8 per cent or 10,623.61 points to close at 20,827.17 in 2009. It would be recalled that the ASI of the NSE had in 2008 dropped by 45.8 per cent or 26,539.44 points to close at 31,450.78 (1984=100). The level of the Index reflected a significant reduction in prices of equities during the year.
Market capitalization of all quoted companies also declined by N2.0trillion or 28.57 per cent to close at a low of N5.0 trillion or 71.04
146 per cent of the aggregate market capitalization by December 2009 compared with the value of N7.0 trillion or 73.1 per cent of market capitalisation as at the end of December 2008. The development was attributed largely to the price losses recorded by the highly capitalized companies on the floor of the NSE. A review of activities at the NSE in 2009 showed that as in the previous years, the shares of the banking sub-sector continued to dominate transactions at the nation’s capital market as they remained the most actively traded stocks on the floor of the Exchange.
Despite the adverse effects of the global financial crisis, some improvements were recorded in the performance of the economy. Provisional data from the National Bureau of Statistics (NBS) indicated that overall GDP growth for 2009 was put at 6.90 per cent which was significantly higher than the 5.98 percent recorded in 2008. The non-oil sector, as a group, remained the major driver of growth although this was complemented by the sharp increase in the growth of the oil sector GDP following the relative peace in the Niger Delta in the second half of the year.
On the socio-political scene, the political environment in the nation remained relatively stable with politicians strategizing in preparation for the 2011 elections. During the period, the Independent Corrupt Practices and Other Related Offences Commission (ICPC) and the Economic and Financial Crimes Commission (EFCC) continued with their anti-corruption war.
147
In the first half of 2009, the Niger-Delta region of the country experienced insecurity of lives and property, particularly of oil workers. However, in the second half of the year, the spate of attacks on oil production facilities and the kidnapping of both Nigerian and foreign nationals for ransom abated due largely to the successful implementation by the Federal Government of an Amnesty Programme for repentant militants in the Niger-Delta region. That impacted positively on oil production, the growth of the nation’s petroleum sector and the government revenue.
The poor state of the nation’s infrastructure in 2009 impacted negatively on the cost of doing business. Power supply remained epileptic with estimated average electricity generation and consumption standing at 2,230.0MW/h and 2,090.0MW/h respectively in December 2009. This fell short of the 6,000MW/h set by the Federal Government for power generation by the end of 2009. In order to ameliorate the poor power supply situation, the Federal Government continued with the reforms of the power sector and rehabilitation of power plants across the nation in 2009. 10.3 Banking Industry Review And General Performance The nation’s banking industry continued to grapple with the challenges of the global financial crisis as they maintained a cautious approach to credit extension. The avalanche of policies issued by the CBN in 2009 shaped activity in the nation’s banking sector during the period. Specifically, the CBN ordered the Special Examination (SE) of the 24
148 deposit money banks in the industry with a view to ascertaining the exact financial conditions of the banks. Sequel to the outcome of the SE jointly conducted by the CBN and NDIC, the CBN relieved the Managing Director/Chief Executive Officers and Executive Directors of eight (8) banks of their jobs, and appointed new ones for the affected banks. The apex bank also injected a total of N620 billion ‘tier two’ capital as a ‘bail-out’ loan into those banks, citing weak corporate governance; massive insider abuse; poor risk management; and heavy liquidity constraint, as reasons for the action.
In spite of daunting challenges, a number of banks, in 2009, continued the pursuit of their domestic and regional expansion programmes with some of them opening branches in some African countries. The industry during the review period continued to witness heightened competition for deposits, especially with the harmonization of financial year end to December 31 of each year. Total banks’ branch network grew by 6.27 per cent from 5,134 in 2008 to 5,456 during the period under review. The industry also witnessed a corresponding growth in non-traditional banking delivery channels with IT-based services increasingly complementing branch banking.
Presented in Table 10.3 are key macroeconomic indicators as well as some specific indicators for the banking industry. As shown in the Table, total assets of the industry (inclusive of OBS) recorded a slight decrease of 9.06 per cent from N19.261 trillion in December, 2008 to N17.522 trillion in December, 2009. The total deposits of insured banks
149 which accounted for 67.53 per cent of the industry’s liabilities grew by about 15 per cent to N9.99 trillion as at the 31 st December, 2009 from N8.70 trillion as at the end of 2008. The ratio of total deposits to the GDP increased marginally from 36.49 per cent in 2008 to 39.19 per cent in 2009. However, the ratio of total assets to the GDP as evidenced in the Table dropped from over 80 per cent reported in 2008 to 68.75 per cent during the year under review.
Table 10.3 Key Macroeconomic Indicators Macroeconomic 2004 2005 2006 2007 2008 2009 Indicator Gross Domestic 8,563.3 14,572.24 18,222.8 22,907.31 23,842.1 25,487.4 Product at Current Market Prices (N billion) No. of Banks 89 25 25 24 24 24 Inflation (%) 15.0 11.9 8.5 6.6 15.1 12.0 Total Deposits of 1,814.75 2,469.07 3,412.3 5,357.2 8,702.0 9,989.8 Banks (N’billion) Ratio of Total Bank 21.2 16.9 18.9 23.29 36.49 39.19 Deposits to GDP (%) Total Assets of 4,046.00 5,463.1 8,140.2 13,011.60 19,261.02 17,522.86 Banks - inclusive of Off-Balance Sheet Engagements (N’billion) Ratio of Total Assets 47.3 37.5 44.7 56.8 80.78 68.75 of Banks to GDP (%) Total Loans and 1,145.7 1,832.18 2,840.1 4,676.34 7,411.43 8,451.38 Leases of Banks (N’Billion) Source: Bank Returns to NDIC and The CBN
150
Section 11
Financial Condition of Insured Banks In 2009
11.0 Introduction The real performance and the level of soundness of the banking industry in 2009 became apparent following the special examination jointly conducted by both the CBN and NDIC. That exercise exposed the major weaknesses of poor corporate governance, inadequate risk management practices, huge non-performing loans, drastic capital erosion, and severe liquidity problems in the deposit money banks. In this section, we provide an analysis of the financial condition and performance of insured universal banks in 2009.
11.1 Capital Adequacy During the period under review, industry shareholders’ funds declined considerably by 84.30 per cent from N2.80 trillion recorded as at 31 st December 2008 to N448.99 billion as at 31 st December 2009. Similarly, the qualifying capital to total risk-weighted assets ratio in the system decreased from 21.91 per cent to 10.24 per cent during the same period. The industry capital adequacy ratio of 10.24 per cent was marginally above the prudential minimum of 10 per cent. These declines
151 were attributable to the significant increase in the loan loss provision by banks sequel to the joint CBN/NDIC Special Examination of banks in 2009 and the requirement of enhanced disclosure.
Ten banks recorded capital adequacy ratios grossly below the prudential minimum requirement of 10%. The affected banks were Afribank Nigeria Plc with negative 68.9 per cent, Union Bank of Nigeria Plc with negative 4.39 per cent, Wema Bank Plc with negative 1.94 per cent, Equatorial Trust Bank Ltd with negative 48.15 per cent and Oceanic Bank International Plc with negative 18.65 per cent. Others were Intercontinental Bank Plc with negative 6.06 per cent, Bank PHB Plc with negative 22.63 per cent, Spring Bank Plc with negative 68.42 per cent, Finbank Plc with negative 78.20 per cent and Unity Bank Plc with negative 1.93 per cent. This scenario was against the position as at year end 2008 in which only one bank recorded CAR below the prescribed 10 per cent minimum ratio. The deterioration in the banks’ CAR was due to the adjustment in the required provisions made for non-performing loans as recommended during the joint CBN/NDIC special examination. Table 11.1 presents some statistics on insured banks’ capital adequacy as at December 31, 2009 with comparative figures for the previous year.
152 TABLE 11.1 INSURED BANKS’ CAPITAL ADEQUACY
Year Capital Adequacy Indicators 2008 * 2009
448.99 Total Qualifying Capital (N 2,802 billion)
10.24 Capital to Total Risk Weighted 21.91 Assets Ratio (%)
24 Number of Banks 24
* Revised figure
Source: Bank Returns 11.2 Asset Quality.
153 Notwithstanding the negative impacts of the global crisis as well as that of the local stock market, the economy witnessed an increase in total loans extended by universal banks in 2009 though at a much lower rate than the growth experienced in the previous year. The total loans granted by insured banks increased by 20.24 per cent from N7.41 trillion to N8.45 trillion between December 2008 and December 2009. However, the industry witnessed substantial deterioration in the quality of its assets as non-performing loans rose significantly by N2.46 trillion or 530.61 per cent from N463.49 billion as at 31 st December 2008 to N2.92 trillion as at 31 st December 2009. Consequent upon that development, the average ratio of non-performing loans to total loans of the industry increased from 6.25 per cent as at December 2008 to 32.8 per cent as at December 2009. Table 11.2 presents some statistics on the asset quality of insured banks for 2008 and 2009.
TABLE 11.2 ASSET QUALITY OF INSURED BANKS
Year Item 2008 * 2009
7,411.43 8,451.38 Total Loans (N billion)
463.49 2,922.80 Non-Performing Loans (N billion)
2,802 448.99 Shareholders’ Funds (N billion )
6.25 32.8 Ratio of Non-performing Loans to Total Loans (%)
16.78 135.7 Ratio of Non-performing Loans to Shareholders’ Funds (%)
Source: Bank Returns * Revised
The asset quality of insured banks in 2009 relative to what obtained in the year 2008 is further illustrated in Charts 1 1A and 11B.
CHART 11A Proportion of Non -Performing Loans to Total Loans
35 30 25 20 15 10 5 0 2008 2009
CHART 11B Ratio of Non -performing Loans to Shareholders' Funds
150
100
50
0 2008 2009
155 11.3 Earnings and Profitability. The industry recorded unimpressive earnings during the year ended 31 st December 2009. This was not unconnected with the failed margin loans as well as non-performing jumbo oil & gas loans. Presented in Table 11.3 are the earnings and profitability indicators of insured banks in 2009 with comparative figures for 2008.
As evidenced in the table, while the income component witnessed a significant decline, the expenditure component experienced an appreciable increase. Specifically, net interest income declined by 10.77 per cent from N1.08 trillion as at 31 st December 2008 to N961.87 billion as at 31 st December 2009 while the non-interest income, as shown in the Table, dropped by 17.20 per cent from =N=721.34 billion to =N=597.28 billion in the same period. Recoveries from non-performing loans showed a very significant increase of 194.57% from N37.12 billion to N109.35 billion over the same period. Meanwhile, total operating expenses rose by 159.03 percent from N1.18 trillion at the end of 2008 to N3.05 trillion at the end of 2009.
Consequently, the banking industry recorded a net loss position of N1.37 trillion as at 31 st December 2009 which compared unfavourably with the net profit before tax of N658.10 billion recorded as at 31 st December 2008. That position adversely impacted on return on assets which declined from 4.29 per cent in 2008 to negative 64.72 per cent in 2009. In the same vein, return on equity also decreased from 24.11 per cent to negative 9.28 per cent on the comparable dates.
156
TABLE 11.3 EARNINGS AND PROFITABILITY INDICATORS
Indicators Year
2008 * 2009
658.10 -1.373.33 Profit before tax (N billion)
1,937.84 2,125.58 Interest Income(Net) (N billion)
721.34 597.28 Non-Interest Income (N billion)
859.84 1,163.71 Interest Expenses (N billion)
1,176.21 3,046.75 Operating Expenses (N billion)
18.27 22.87 Yield on Earning Assets (%)
24.11 -9.28 Return on Equity (%)
4.29 -64.72 Return on Assets (%) * Revised figures Source: Bank Returns
11.4 Liquidity Profile Table 11.4 presents the liquidity profile of insured banks in 2008 and 2009. As evidenced in the Table, the industry’s average liquidity ratio rose marginally from 44.17 per cent as at the end of 2008 to 44.45 per cent as at the end of 2009. However, loans to deposit ratio declined significantly from 80.84 per cent to 62.73 per cent.
157
TABLE 11.4 LIQUIDITY RATIO OF INSURED BANKS AS AT DECEMBER 31, 2008 AND 2009
Year Items 2008* 2009
44.17 44.45 Average Liquidity Ratio (%)
85.2 84.6 Loans And Advances to Deposits Ratio (%)
2 4 No. of Banks with less than the 25% minimum Liquidity Ratio *Revised Source: Central Bank of Nigeria & Bank Returns
All, except four banks, met the 25 per cent CBN prescribed minimum liquidity ratio in 2009.
11.5 Soundness of the Banking Industry. The industry performance and the level of soundness declined during the year ended 31 st December, 2009 as against the positions as at 31 st December, 2008. Out of the 24 banks in the industry as at the end of 2009, thirteen (13) were rated sound and/or satisfactory, one (1) marginal and ten (10) were rated unsound as against just one (1) unsound bank in the previous year. The market share of assets, credits and deposits of the unsound banks represented 33.56 per cent, 42.65 per cent and 33.65 per cent of the industry’s total, respectively. Those ratios surpassed the threshold for the existence of systemic crisis as stipulated by Regulatory Authorities in Nigeria. That unacceptable and dangerous development in the Nigerian banking market informed the far reaching regulatory actions taken by the CBN to restructure and return the distressed banks to the path of profitability and financial soundness.
158
Section 12
Balance Sheet Structure Of Universal Banks In 2009
12.0 Introduction The balance sheet of a bank gives an idea as to what the bank owns and owes as well as the amount invested by the owners of the bank. It provides information to the Regulatory Authorities, depositors, investors, governments and the general public for evaluating the financial health of a bank. The balance sheet enables the managers and shareholders of a bank to plan future policies and control the assets and liabilities so as to increase the returns on investment and on equity of the owners. Presented in this section is the balance sheet structure of insured banks in 2009 (compared with that of 2008), with particular emphasis on changes in the structure of assets and liabilities, shareholders’ funds and ownership structure as well as insured banks’ deposit liabilities.
159 12.1 Insured Banks’ Structure of Assets
160 The structure of total assets of insured banks (inclusive of OBS) is presented in Table 12.1. As shown in the Table, the total assets decreased slightly by 9.06 per cent from N=19,261.02 billion in 2008 to N=17,522.86 billion in 2009. As a proportion of total assets, the following assets increased: money at call in Nigeria from 0.85 per cent in 2008 to 1.21 per cent in 2009; inter-bank placement from 2.00 per cent in 2008 to 4.18 per cent in 2009; treasury certificates from 0.21 per cent in 2008 to 0.26 per cent in 2009; investment in stabilisation securities from 0.02 per cent in 2008 to 0.21 per cent in 2009; bills discounted payable in Nigeria and negotiable certificates of deposits from zero per cent in 2008 to 0.25 per cent in 2009 respectively; industrial (other) investments from 2.37 per cent in 2008 to 3.43 per cent in 2009; gross loans, advances and leases from 37.00 per cent in 2008 to 40.39 per cent in 2009; and net fixed assets from 2.96 per cent in 2008 to 3.92 per cent in 2009.
Expressed as a proportion of total assets, the following assets decreased: vault cash from 1.36 per cent in 2008 to 1.26 per cent in 2009; balances held with CBN from 3.35 per cent in 2008 to 1.78 per cent in 2009; balances held with other banks in Nigeria from 2.48 per cent in 2008 to 0.79 per cent in 2009; balances held with offices & branches outside Nigeria from 7.82 per cent in 2008 to 6.27 per cent in 2009; placement with discount houses from 3.50 per cent to 1.20 per cent in 2009; treasury bills from 3.89 per cent in 2008 to 2.91 per cent in 2009; Bankers’ Acceptances & Commercial Papers from 4.61 per cent in 2008 to 2.32 per cent in 2009; investments in FGN Development Stock from 0.02 per cent in 2008 to zero in 2009; investment in unconsolidated subsidiaries & associates from 1.30 per cent in 2008 to 0.77 per cent in 2009; other assets (less current loss if included) from 7.33 per cent in 2008 to 5.31 per cent in 2009; and customers’ liabilities (per contra) from 20.34 per cent in 2008 to 13.49 per cent in 2009.
The significant increase in the proportion of inter-bank placement was an indication that the inter-bank market was still very active just like in the preceding year. Similarly, the marginal increase recorded in money at call in Nigeria showed that banks maximised that window of investment opportunity. The significant increase in the proportion of gross loans, advances and leases during the year in
161 question could be explained by the growth in banks’ deposit liabilities. The proportion of provision for loans and loan losses increased markedly to reflect the impact of the directive from the Regulatory/Supervisory Authorities that banks must make full provision for their non-performing loans.
TABLE 12.1 INSURED BANKS’ STRUCTURE OF ASSETS
Percentage Share As At Assets End Of December 2008 200 9
1.36 1.26 Vault Cash
3.35 1.78 Balances Held With CBN
2.48 0.79 Balances Held With Other Banks In Nigeria
Balances Held With Offices & Branches Outside 7.82 6.27 Nigeria
0.85 1.21 Money At Call In Nigeria
2.00 4.18 Inter-bank Placement
3.50 1.20 Placement With Discount Houses
3.89 2.91 Treasury Bills
0.21 0.26 Treasury Certificates Investment in Stabilization Securities 0.02 0.21
0.00 0.25 Bills Discounted Payable In Nigeria
0.00 0.25 Negotiable Certificates of Deposits
4.61 2.32 Bankers Acceptances and Commercial Papers
0.02 0.00 Investments In FGN Development Stock
2.37 3.43 Industrial (Other) Investments
162
37.00 46.39 Gross Loans, Advances And Leases
(1.40) 9.80 Provision For Loans And Loan Losses
1.30 0.77 Investment In Unconsolidated Subs And Associates
2.96 3.92 Net Fixed Assets
7.33 5.31 Other Assets (Less Current Loss if Included)
20.34 13.49 Customers’ Liabilities (Per Contra)
100.00 100.00 Total Assets =N19,261.02 N17,522.86 Total Value Of Assets (N=Billion) Inclusive of OBS billion billion Source: Bank Returns
12.1.1 Insured Banks’ Assets by Market Share Table 12.2 presents market share of banks in the system, both in absolute and proportionate terms for years 2009 and 2008. Of the total assets of all the banks in the industry as at end December 2009, which amounted to N17,522.86 billion, the five largest banks accounted for N8,366.27 billion representing 47.76 per cent compared with N8,640.15 billion representing 44.85 per cent achieved in 2008.
Also, the assets of the top ten banks, as shown in the Table, stood at N12,522.66 billion representing 71.49 per cent of the total assets of the industry as at end December 2009 as against N13,987.13 billion representing 72.62 per cent recorded in 2008. That development had affirmed that the Nigerian banking remained oligopolistic four years after the conclusion of the first phase of the consolidation programme.
163 TABLE 12.2 SIZE OF ASSETS OF TOP INSURED BANKS 200 9
Bank 2008 Assets % of Assets % of Total (N’Billion) Total (N’Billion) Top 5 8,640.15 44.9 8,366.27 47.76 Top 10 13,987.13 72.6 12,522.66 71.49 All Other Banks 5,273.90 27.4 4,993.44 28.50 Source: Computed from bank returns
12.2 Insured Banks’ Structure of Liabilities Table 12.3 presents the structure of liabilities of insured banks in 2009 (compared with the figures for 2008). The following liabilities expressed as a proportion of total liabilities increased: debentures from 0.40 per cent in 2008 to 1.96 per cent in 2009; loans and advances from CBN and other banks from 1.25 per cent in 2008 to 4.02 per cent in 2009; total deposit liabilities (demand, savings and time) from 45.18 per cent in 2008 to 57.02 per cent in 2009.
The significant decline in the shareholders’ funds of insured banks in the period under review could be attributed to the losses insured banks posted as they were required by the regulatory/supervisory authorities to make full provision for their non-performing loans and advances. The appreciable increase in the quantum of deposits could be attributed to the sustenance of public confidence in the banking system as a testimony to the supervisory measures as well as the growth in the Nigerian economy.
The following liabilities, expressed as a proportion of total liabilities declined: shareholders’ funds (share capital, reserve funds, current year profit and loss, preference shares & revaluation reserves) from 16.41 per cent in 2008 to 4.64 per cent in 2009; overdrawn account with CBN from 0.50 per cent in 2008 to 0.02 per cent in 2009; balances held for other banks in Nigeria from 0.22 percent in 2008 to 0.16 per cent in 2009. Following the same trend, balances held for other banks outside Nigeria also took a plunge from 1.47 per cent in 2008 to 0.16 per cent in 2009; money at call also declined from 0.53 per cent in 2008 to 0.09 per cent in 2009;
164 TABLE 12.3 INSURED BANKS’ STRUCTURE OF LIABILITIES
Percentage Share Liabilities As At The End Of December 2008 2009
1.10 1.25 Share Capital
13.25 11.04 Reserve Funds (Including Retained Profit & Loss)
1.75 -8.1 Current Year Profit and Loss Preference Shares 0.17 0.18
0.14 0.27 Revaluation Reserves
0.40 1.96 Debentures
0.50 0.02 Overdrawn Account With CBN
0.22 0.16 Balances Held For Other Banks In Nigeria
1.47 0.20 Balances Held For Other Banks Outside Nigeria
0.53 0.09 Money At Call In Nigeria
25.06 29.74 Demand Deposits
5.69 6.72 Savings Deposits
14.43 20.56 Time/Term Deposits
0.00 0.00 Negotiable Certificate Of Deposits (NCD)
0.00 0.00 Non-Negotiable Certificate Of Deposits (NNCD)
Loans And Advances From FGN, State Governments, CBN, 1.25 4.02 NDIC And Other Banks
14.73 11.05 Other Liabilities (Less Current Year Profit And Loss)
20.34 15.54 Liabilities Per Contra
100.00 100.00 Total Liabilities N=19,261.02 17, 522.86 Total Value Of Liabilities Inclusive of OBS billion Billion Source: Computed From Bank Returns
165 12.2.1 Insured Banks’ Shareholders’ Funds Table 12.4 gives at a glance the adjusted shareholders’ funds of the 24 banks operating in the system in 2009 in comparison with the figures for 2008. The table shows that there was a significant decline in the total adjusted shareholders’ funds for all the insured banks from N2,379.23 billion recorded in 2008 to N448.99 billion as at December 31, 2009. The over N1,930 billion or over 81 per cent decrease recorded in the adjusted shareholders’ funds of insured banks was a direct consequence of the losses many of the banks recorded due to huge amount of non-performing loans. Under the recent banking reforms, banks were required to make full provision for their non- performing loans. As a result, some of them declared huge losses which impacted negatively on their adjusted shareholders’ funds.
As evidenced in Table 12.4, ten (10) insured banks recorded negative figure in their adjusted shareholders’ funds. Seven (7) out of the 24 banks as shown in the table had a total of adjusted shareholders funds figure of about N1,276.67 billion or about 184.34 per cent of the industry adjusted shareholders’ funds in 2009. Zenith Bank Plc topped the pack with N310.02 billion, followed by First Bank Plc with N293.89 billion, Access Bank Plc with N154.30 billion, Guaranty Trust Bank Plc with N141.82 billion and First City Monument Bank Plc with N132.17 billion.
TABLE 12.4 INSURED BANKS’ ADJUSTED SHAREHOLDERS’ FUNDS AS AT DECEMBER 2009 AND 2008 S/N BANKS SHAREHOLDERS’ SHAREHOLDERS’ FUNDS* (N’ Billion) FUNDS* (N’ Billion) 2008 2009 1 Access Bank Nig. Plc 167.22 154.30 2 Afribank Nigeria Plc 127.38 (221.69) 3 Bank PHB Plc 243.24 (126.84) 4 Citibank Nigeria Ltd 29.40 31.68 5 Diamond Bank Plc 95.64 98.31 6 Ecobank Nigeria Plc 43.45 26.02 7 Equitorial Trust bank Ltd 32.38 (46.95) 8 Fidelity Bank Plc 129.55 129.99 9 Finbank Plc 112.86 (123.70) 10 First Bank of Nig. Plc 315.75 293.89 11 First City Monument Bank Plc 137.66 132.17
166 12 Guaranty Trust Bank Plc 130.03 141.82 13 Intercontinental Bank Plc 195.58 (336.35) 14 Oceanic Bank International Plc 211.52 (192.20) 15 Skye Bank Plc 96.55 79.56 16 Spring Bank Plc (48.68) (94.08) 17 StanbicIBTC Bank Plc 67.22 74.61 18 Standard Chartered Bank Ltd 28.47 29.66 19 Sterling Bank Plc 20.58 20.14 20 Union Bank Plc 115.93 (38.56) 21 United Bank For Africa Plc 191.44 114.48 22 Unity Bank Plc 16.94 (4.06) 23 Wema Bank Plc 26.68 (3.22) 24 Zenith Bank Plc 315.39 310.99 Total 2,802.18 448.99 * Adjusted Shareholders’ Funds Source: Bank returns
12.2.2 Ownership Structure The ownership structure of the Nigerian banks in the period under review remained diversified thereby reflecting the public liability status of most of the banks. Table 12.5 shows that government shareholdings in banks reduced substantially to below 10 per cent in each of them, except for Spring Bank Plc, Finbank Plc and Unity Bank Plc.
Also, the table shows that ten out of twenty four banks had foreign ownership during the year under review. Of that number, four had substantial proportion of foreign ownership of above 50 per cent. With respect to private ownership of banks in Nigeria, Table 12.5 shows that twenty-three of them had Nigerian private ownership in 2009.
167 TABLE 12.5 INSURED BANKS’ OWNERSHIP STRUCTURE AS AT DECEMBER 31, 2009 S/N BANKS OWNERSHIP STRUCTURE (%) GOVT* PRIVATE FOREIGN (NIGERIAN) 1 Access Bank Nig. Plc 9.7 77.87 12.43 2 Afribank Nigeria Plc - 100.00 - 3 Bank PHB Plc 3.05 90.67 6.28
4 Citibank Nigeria Ltd - 18.10 81.90 5 Diamond Bank Plc 0.64 85.60 13.77 6 Ecobank Nigeria Plc - 28.7 71.30 7 Equitorial Trust Bank Ltd - 100 - 8 Fidelity Bank Plc - 100 9 First Bank Nigeria Plc 0.82 99.04 0.14 10 FinBank Plc 12.73 87.27 11 First City Monument Bank Plc 0.47 81.34 18.19 12 Guaranty Trust Bank Plc 0.23 86.73 13.04 13 Intercontinental Bank Plc 0.02 94.22 5.76 14 Oceanic Bank Plc 5.75 90.4 3.85
15 Skye Bank Plc 0.32 97.14 2.51 16 Spring Bank Plc 12.33 83.39 4.28 17 StanbicIBTC Bank Plc 0.24 47.88 52.06 18 Standard Chartered bank Ltd - - 100 19 Sterling Bank Plc 3.02 79.51 17.47 20 United Bank for Africa Plc 4.0 86 10 21 Union Bank Plc* - 100.00 - 22 Unity Bank Plc 70.06 29.9 0.04 23 Wema Bank Plc - 100.00 - 24 Zenith Bank Plc 2.84 97.16 - * Federal, State & Local Governments Source: Bank returns
168 12.3 Insured Banks’ Deposit Liabilities by Type, Market Share and Tenor Bank deposits usually constitute the largest component of the liabilities of a banks’ balance sheet. A thorough analysis of the types and sizes of deposits mobilised by banking institutions plays an important role in ensuring effective asset/liability management. As had been the trend over the years, the total deposit liabilities of insured banks increased from =N=8.70 trillion as at December 2008 to =N=9.99 trillion as at December 31, 2009, representing an increase of 14.83 per cent. Several reasons could account for the increase in deposit liabilities of insured banks. These included innovative and aggressive deposit mobilization by insured banks, increase in the number of Automatic Teller Machines (ATMs) in strategic locations, introduction of new products as well as renewed depositors’ confidence in the banking system due to the CBN reform measures and improvement in service delivery by banks. Lastly, the persistent growth of the GDP, all things being equal, meant improvement in household income and hence increase in bank deposits. Table 12.6 and Chart 12B give an analysis of the total deposit liabilities of insured banks as at December 2009 with comparative figures for 2008.
12.3.1 Deposit Liabilities by Type As shown in Table 12.6, savings deposits in insured banks increased by =N=81,686.32 billion or 7.46 per cent from =N=1,095.25 billion as at December 2008 to =N=1,176.93 billion as at December 2009. A further analysis of the situation in 2009 vis-à-vis 2008 revealed that savings deposits increased only in absolute terms but declined as a proportion of total deposits. Whereas savings deposits constituted 12.59 per cent of total deposits in 2008, in 2009 that category of deposits declined to 11.78 per cent of total deposits.
As evidenced in Table 12.6, demand deposits of insured banks amounted to =N=5,506.21 billion, which represented 55.12 per cent of banks’ total deposit liabilities as at December 31, 2009. As against the trend of savings deposits, demand deposit liabilities declined both in absolute terms and as a proportion of total deposit liabilities mobilized by banks during the period under review. Demand deposits declined by =N=1,006.30 billion or 15.45 per cent
169 from =N=6,512.50 billion as at December 31, 2008 to =N=5,506.21 billion as at December 31, 2009. Furthermore, demand deposits declined as a proportion of total deposit liabilities from 60.61 per cent in 2008 to 55.12 per cent as at December 2009. Deviating from the trend of demand deposits, time/term deposits in insured banks increased significantly both in absolute terms and as a proportion of total deposits. Time/term deposits increased by =N=977.90 billion from =N=2,328.80 billion in December 2008 to =N=3,306.70 billion as at 31 st December 2009. As a proportion of total deposits, time/term deposits also increased from 26.80 per cent as at the end of 2008 to 33.10 per cent as at the end of in 2009.
TABLE 12.6 COMPOSTION OF TOTAL DEPOSIT LIABILITIES OF INSURED BANKS Type of Deposit 2008 2009 Liabilities Amount Percentage Amount Percentage of (=N=’M) of Total (%) (=N=’M) Total (%)
Savings Deposits 1,095,246.86 12.59 1,176,933.18 11.78
Demand Deposits* 6,512,502.48 60.61 5,506,210.67 55.12
Time/Term Deposits 2,328,802.22 26.80 3,306,698.91 33.10
TOTAL 8,702,996.20 100.00 9,989,843.00 100.00 Source: Bank Returns * Included in Demand deposits are Electronic Purse, Domiciliary Accounts, and Other Deposits & Cert. & Notes
170 CHART 11 B
ANALYSIS OF INSURED BANKS' DEPOSIT LIABILITIES BY TYPE AS AT 31 DECEMBER, 2009
Demand Deposits 55.12% Savings Deposits 11.78%
Time/Term Deposits 33.10%
12.3.2 Deposit Liabilities By Market Share Table 12.7 shows increases in the market share controlled by both the top five and the top ten banks in the system. As evidenced in the Table, out of the total deposit liabilities of =N=9,989.84 billion in 2009, the deposits of five biggest banks amounted to =N=4,775.38 billion, which represented 47.80 percent of the total deposits as against 48.25 per cent recorded in 2008. Furthermore, deposit liabilities generated by the top ten (10) banks stood at =N=7,107.01 billion or 71.14 percent of the total deposit liabilities of all insured banks as at December 2009 slightly below the share of 73.10 per cent as at December 2008. The fact that ten banks continued to hold over 70 per cent of the total deposits of the entire industry shows that competition for deposits in the nation’s banking industry remained significantly uneven. It also corroborated the conclusion reached in the market share of assets that the banking market in Nigerian remained oligopolistic.
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TABLE 12.7 DEPOSIT LIABILITIES HELD BY THE BIG INSURED BANKS 200 8 2009 Group of Banks Deposits Percentage Deposits Percentage (=N=’bn ) of Total (=N=’bn ) of Total (%) (%) Top Five 4,194.55 48.25 4,775.18 47.80 Banks Top Ten 6,355.67 73.10 7,107.01 71.14 Banks All Other 2,338.31 26.89 2,882.83 28.86 Banks Source: Bank Returns
12.3.3 Deposit Liabilities By Tenor Table 12.8 and Chart 12D, present an analysis of deposit liabilities of banks by tenor for 2009 and the comparative figures for 2008. From the Table, short-term deposits of below 30 days increased only in absolute from =N=6,444.86 billion in 2008 to =N=7,361.06 billion in 2009, representing an increase of 14.22 per cent. But as a proportion of total deposits, short-term deposits of below 30 days declined slightly from 74.13 per cent in December 2008 to 73.68 per cent in 2009. Deposits of between 31 and 90 days increased in absolute terms from =N=1,082.08 billion in 2008 to =N=1,450.57 billion in 2009. As a proportion of total deposits, it also recorded an increase from 12.45 percent in 2008 to 14.52 per cent in 2009.
On the other hand, deposits of between 91 and 180 days declined both in absolute and relative terms from =N= 513.45 billion or 5.90 per cent in 2008 to =N=510.67 billion or 5.11 per cent in 2009. Deposits of between 181 and 365 days increased marginally both in absolute terms and as a percentage of total deposit liabilities from =N=225.04 billion or 2.59 per cent in 2008 to =N=259.04 billion or 2.60 per cent in 2009. Long-term funds of more than 365 days’
172 duration (one year) declined both in absolute terms from =N=428.56 billion or 4.93 per cent as at December 31, 2008 to =N=408.49 billion or 4.09 per cent as at December 31, 2009.
The analysis of insured banks’ deposits by tenor as shown in Table 12.8 and Chart 12D clearly shows that depositors were more inclined to keeping their funds in short-term deposits with roll-over options, than going for the longer tenor in order to hedge against the volatility of interest rates experienced in recent times.
ABLE 12.8 INSURED BANKS’ DEPOSITS BY TENOR Types of Deposits 2008 2009 Amount Percentage Amount Percentage (=N=M) of Total (%) (=N=M) of Total (%) Below 30 Days 6,444,857.92 74.13 7,361,065.73 73.68 Between 31 and 90 Days 1,082,079.23 12.45 1,450,567.42 14.52 Between 91 and 180 Days 513,451.28 5.90 510,674.94 5.11 Between 181 and 365 Days 225,037.14 2.59 259,043.46 2.60 Above 365 Days 428,556.15 4.93 408,491.45 4.09 TOTAL 8,702,996.20 100.00 9,989,843.00 100.00 Source: Bank Returns
173 CHART 11 D
ANALYSIS OF INSURED BANKS' DEPOSIT LIABILITIES BY TENOR AS AT 31 DECEMBER, 2009
Above 365 Days Below 30 Days 4.09% 73.68%
Between 181 and 365 Days 2.6% Between 31 and 90 Days 14.52% Between 91 and 180 Days 5.11%
174 Section 13
Insured Banks’ Reported Frauds And Forgeries And Fidelity Bond Insurance Cover
13.0 Introduction Pursuant to the requirements of Sections 35 and 36 of the Nigeria Deposit Insurance Corporation (NDIC) Act No 16 of 2006, insured banks render monthly returns on frauds and forgeries and also notify the NDIC about dismissal or termination of staff on the grounds of fraud or financial malpractice. In addition, Section 33 of the NDIC Act of 2006 requires insured banks to provide fidelity bond insurance to cushion losses that may result from frauds and forgeries committed with staff connivance or collusion.
Presented in this section are the reported cases of frauds and forgeries in 2009 along with the comparative figures for 2008. Also, information is provided on the general nature of frauds and forgeries, the number and categories of staff involved. Responses on fidelity bond insurance cover by insured banks during the year are also highlighted.
13.1 Reported Cases of Frauds And Forgeries In Insured Banks The number of reported cases of attempted or successful frauds and forgeries in the nation’s banking industry declined during the year under review. However, in 2009 ten banks accounted for over 90 per cent of the fraud cases as against over 64 per cent in 2008.
175 Table 13.1 shows the number of reported cases, the amount involved and the expected loss.
TABLE 13.1 RETURNS OF INSURED BANKS ON FRAUDS AND FORGERIES
Quarter Year Total No. Total Total Proportion of of Fraud Amount Expected Loss Expected Loss To Cases Involved (N= (N='m) Amount Involved 'm) (%) 2009 372 2,674 1,276 47.72 1st 2008 440 30,548.67 12,951.73 42.40 2009 282 22,152 4,227 19.08 2nd 2008 528 3,030.78 997.27 33.0 2009 456 4,168 1,220 29.27 3rd 2008 503 13,900.49 1,738.89 12.51 2009 654 12,268 827 6.74 4th 2008 536 6,042.92 1,855.20 30.7 2009 1,764 41,265.50 7,549.23 18.29 Total 2008 2,007 53,522.86 17,543.09 32.78 Source: Bank Returns
As shown in the table, there was a total of 1,764 reported cases of attempted frauds and forgeries involving ₦41.2 billion in 2009 compared with 2,007 reported cases of frauds and forgeries involving ₦53.5 billion in year 2008. The expected loss components of the reported cases of frauds and forgeries, that is, those whose probability of recovery was low as well as those not fully covered by fidelity insurance bond amounted to N7.5 billion in 2009 compared to N17.5 billion in 2008. Chart 13A and 13B depict the extent of frauds and forgeries in insured banks in 2008 and 2009.
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Chart 13B Expected Loss Due To Frauds & Forgeries (N'M)
17,543 18,000 16,000 14,000 12,000 10,000 7,549 8,000 6,000 4,000 2,000 0
Chart 13A Amount Of Frauds & Forgeries (N'M)
60,000 53,523 50,000 41,266 40,000
30,000
20,000
10,000
0
177 13.2 Incidence And Type Of Frauds And Forgeries Reported The ten (10) banks with the highest number of reported fraud cases is presented in Table 13.2. The Table shows that in absolute terms, the total amount involved in those 10 banks, which stood at =N=37.18 billion in 2009, was slightly higher than the 2008 figure of N34.31billion.
TABLE 13.2 TEN BANKS WITH HIGHEST FRAUD CASES 2009 2007 2008 GROUP Amount % Share Amount % Share Amount % Share Involved Involved Involved (N =M) (N =M) (N =M)
Total For 10 25.93 Banks 2,595.01 34,311,721 64.11 37,179,898 90.10
Total For All 10,005.81 100.00 53,522,871 100.00 41,265,496 100 Banks
Source: Bank Returns
An analysis of the types of frauds and forgeries perpetrated during the year under review 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). ATM fraud; g. Loss of money to armed robbers; h. Lodgement of stolen warrants; and i. Outright theft.
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A further analysis of the types of frauds and forgeries perpetrated in 2009 showed that granting of unauthorised credits and perpetration of ATM frauds accounted for the largest proportion.
13.3 Banks’ Staff Involved in Frauds And Forgeries Table 13.3 shows the status and number of banks’ staff involved in frauds and forgeries in the past three years. A total of 656 members of staff of banks were reported to have been involved in frauds and forgeries in 2009, an increase of about 109.58 per cent as against the previous year’s figure of 313. Of the total, core operations staff such as supervisors, officers, accountants, managers, executive assistants, clerks and cashiers totalled 431, thus accounting for about 65.70 per cent. That represented a decrease of 5.55 percentage points relative to the 2008 position.
TABLE 13.3 BANKS’ STAFF INVOLVED IN FRAUDS AND FORGERIES
2007 Status 2008 2009
Number % Number % Number % 48 15.33 94 14.32 Supervisors & Managers 84 30.76 127 40.58 137 20.88 Officers, Accountants & 89 32.60
Executive Assistants 48 15.33 200 30.49 Clerks & Cashiers 34 12.45 20 6.39 64 9.76 Typists, Technicians & 21 7.69
Stenographers - - 11 1.68 Messengers, Drivers, Cleaners, - - Security Guards & Stewards 70 22.37 150 22.87 Temporary Staff 45 16.48 Total 273 100.00 313 100.00 656 100 Source: Bank Returns
179 13.4 Causes of Frauds And Forgeries In Insured Banks The causes of frauds and forgeries could be classified under two generic factors, namely: the institutional or internal factors; and environmental or societal factors. Institutional causes of frauds and forgeries in insured banks included poor accounting and weak internal control systems; ineffective supervision of subordinates; uncompetitive remuneration and perceived sense of inequity in reward; disregard of Know Your Customers (KYC) rules; et cetera. Environmental causes of frauds included undue societal demands; low moral values; slow and tortuous legal process; lack of effective deterrent or punishment; and at times reluctance on the part of individual banks to report fraud cases due to the negative publicity it could attract for their image.
Given the quantum of frauds and forgeries in 2009 as highlighted in this section, it is important to emphasize that insured banks should strengthen their internal control, security and risk management systems to reduce the incidence of frauds and forgeries. Insured banks should also thoroughly screen prospective employees by obtaining status reports from previous employers and relevant agencies and to desist from deploying casual staff to sensitive positions. Insured banks should also intensify the education of their customers on the use of the Automated Teller Machines (ATM) and other e-banking services on the need to safeguard their Personal Identification Numbers (PINs).
180 13.5 Report On Banks’ Fidelity Bond Insurance Cover Fidelity bond insurance cover is a regulatory measure prescribed for all insured banks for the purpose of cushioning losses that may result from frauds and forgeries committed by banks’ staff. The requirement is in accordance with the provision of Section 33 of the NDIC Act 2006. The fidelity insurance policy is intended to reduce the adverse impact of insider frauds and forgeries on the banks. Accordingly, all insured banks are expected to take up the fidelity insurance cover up to such level as might be prescribed from time to time by NDIC, which at least, should be equivalent to 15 per cent of its paid-up capital as at 31 st December of the preceding year.
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Table 13.4 reports the number of banks that complied with the fidelity insurance cover requirement in 2009 compared to that of 2008.
TABLE 13.4 BANKS' RESPONSE TO NDIC FIDELITY INSURANCE REQUIREMENT COVER
(a) (b) (c=b/a) Year No. Of Banks In No. Of Banks % of Total Operation That Responded
2009 23 95.83 24
2008 24 19 79.17 Source: Bank Returns
As evidenced from the Table, twenty-three (23) banks or 95.83% out of the twenty-four (24) banks that existed as at end-December, 2009 rendered returns in 2009 compared to nineteen (19) banks or 79.17% out of the twenty- four (24) banks that existed in 2008. It is important to note also that seventeen (17) of the banks that responded had inadequate fidelity bond insurance cover below the required 15 per cent of paid up capital.
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Section 14
Insured Banks’ Offices, Branches, Board Of Directors And Approved External Auditors
14.1 Distribution Of Insured Banks’ Offices And Branches As at the end of December 2009, there were a total of 5,565 branches/offices operated by the twenty-four (24) insured banks in the system. The figure was an increase of about 6 per cent over the total of 5,134 branches/offices reported in 2008. Table 14.1 shows the distribution of insured banks’ branches/offices in the 36 states of the Federation, the Federal Capital Territory (FCT), Abuja and Overseas in 2009.
As evidenced in the table, Lagos-State accounted for the highest number of banks’ branches/offices with 1,569 branches, about 28.8 per cent of the total in 2009. Abuja (FCT) came a distant second with 363 branches/offices (6.7 per cent), while Rivers State came third with 281 branches/offices (5.2 per cent). Anambra State occupied the fourth position with a total of 222 branches/offices (4.1 per cent). Other leading states were Oyo (212 or 3.9 per cent), Delta (192 or 3.5 per cent), Kano (171 or 3.1 per cent), Kaduna (166 or 3.0 per cent) and Ogun (161 or 3.0 per cent).
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TABLE 14.1 DISTRIBUTION OF INSURED BANKS’ OFFICES AND BRANCHES AS AT 31ST DECEMBER, 2009
S/N States (Including Number of Percentage Share Abuja And Overseas) Branches/Offices (%)
130 2.4 1. Abia
363 6.7 2. Abuja (FCT)
64 1.2 3. Adamawa
108 2.0 4. Akwa-Ibom
222 4.1 5. Anambra
57 1.0 6. Bauchi
37 0.7 7. Bayelsa
73 1.3 8. Benue
74 1.4 9. Borno
75 1.4 10. Cross River
192 3.5 11. Delta
68 1.2 12. Ebonyi
148 2.7 13. Edo
81 1.5 14. Ekiti
118 2.2 15. Enugu
43 0.8 16. Gombe
95 1.7 17. Imo
40 0.7 18. Jigawa
166 3.0 19. Kaduna
171 3.1 20. Kano
56 1.0 21. Katsina
42 0.8 22. Kebbi
87 1.6 23. Kogi
73 1.3 24. Kwara
1,569 28.8 25. Lagos
26 Nassarawa 48 0.9
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S/N States (Including Number of Percentage Share Abuja And Overseas) Branches/Offices (%)
75 1.4 27. Niger
161 3.0 28. Ogun
111 2.0 29. Ondo
97 1.8 30 Osun
212 3.9 31. Oyo
73 1.3 32. Plateau
281 5.2 33. Rivers
56 1.0 34. Sokoto
3.9 0.7 35. Taraba
37 0.7 36. Yobe
37 0.7 37. Zamfara
5,565 100 Total Source: Bank Returns
14.2 Head Offices’ Addresses and Branches of Insured Banks The distribution of branches per insured bank and Head Office is presented in Table 14.2. As in the past, three banks, namely: United Bank for Africa Plc, First Bank of Nigeria Plc and Oceanic Bank Plc maintained the lead in the number of branches in 2009. United Bank for Africa Plc was in the lead with a total of 619 branches, First Bank of Nigeria Plc was second with a total of 572 branches, while Oceanic Bank Plc came third with a total of 413 branches.
The three banks, as shown in Table 14.2, accounted for 1,604 branches or 29.4 per cent of the total number of banks branches/offices in the system.
185
Other leading banks with many branches/offices were Union Bank of Nigeria Plc with 389, Intercontinental Bank Plc with 386, Zenith Bank Plc with 329, Skye Bank Plc with 244, Afribank Plc with 242, Unity Bank Plc with 235, and Ecobank Nigeria Plc with 216. Finbank Bank Plc had 182 branches while Spring Bank Plc had 168.
14.3 Insured Banks and Their Board of Directors The board is a major vehicle for instituting corporate governance hence its quality is of great significance to corporate survival. The board constitutes the highest policy making organ of a bank and what happens at the level of the board of directors impacts significantly on the management of the institution. Insured banks’ directors are expected to review policies and operations of their banks as well as undertake other responsibilities that permit the banks to operate in a safe and sound manner. Experience had also shown that no matter how effective regulation is, it does not substitute for the role of active and efficient board of directors in banks.
Over the years, the nation’s Regulatory/Supervisory Authorities have continually raised issues bordering on poor corporate governance in some of the banks which could impair their viability. Regrettably, rather than improve, some of the banks, as revealed by observations in their on-site examination reports, continued with unhealthy management practices which among other things included:
• Over bearing influence of either Chairman or CEO, particularly in
186
family controlled banks; • Failure of directors to make meaningful contributions to the growth and development of their banks; • Lack of board independence; • Technical incompetence; • Ineffective board committees; • Non-adherence to the Code of Corporate Governance; • Weak ethical standards; et cetera.
Banking institutions require the highest level of confidence of the members of the public to survive. An important way of ensuring the survival of banks especially in the post consolidation banking era had been for their boards to show the highest sense of discipline, integrity, steadfastness and tenacity of purpose.
A major development in the board of directors of insured banks in 2009, was the removal of the Managing Directors/Chief Executive Officers (MD/CEOs) of eight (8) banks and their Executive Directors by the CBN, for what the apex Bank described as recklessness and laxity, among other issues in the management of the affected institutions.
The CBN Governor, while making the announcement also named new Management teams for the 8 affected banks. The new Chief Executive Officers (CEOs) of the affected banks were: Mr. John Aboh for Oceanic Bank Plc, Mr. Mahmud Alabi for Intercontinental Bank Plc, Mr. Nebolisa
187
Arah for Afribank (Nigeria) Plc, Mrs Funke Osibodu for Union Bank Plc, Mrs Suzanne Olufunke Iroche for Finbank Plc, Mr. Cyril Chukwumah for Bank PHB Plc, Mr. G. O. Folayan for Equatorial Trust Bank Ltd, and Mrs Sola Ayodele for Spring Bank Plc.
It would be recalled however that in 2007, the CBN issued Guidelines to all insured banks for the appointment of Independent Directors. The Guidelines were issued so as to enable banks comply with Section 5.3.6 of the Code of Corporate Governance for Banks operating in Nigeria effective April 3, 2006. As stated in that Section “at least two (2) non-executive board members described as Independent Directors (who do not represent any particular shareholders’ interest and hold no special business interest in the bank) should be appointed by the bank on merit”. In terms of compliance with that requirement, a review of the nation’s banking industry as at the end of year 2009, showed that many banks were yet to comply with that directive.
The list of insured banks’ directors as at 31 st December, 2009 is presented in Table 14.2. As shown in the table, there were 301 directors serving on the boards of the 24 banks during the year.
14.4 Insured Banks’ 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 their
188
independence through the regulation of their appointment and disengagement. The statutory reporting requirements of insured banks' external auditors to the NDIC are stipulated under Section 54 of the NDIC
Act No. 16 of 2006. The CBN directives and guidelines also imposed basic responsibilities/obligations on banks' external auditors. The external auditors' reports are expected to lend credence to the banks’ financial statements thereby assisting in promoting confidence and transparency in the banking system.
Basically, approved banks’ external auditors are expected to complement the activities of the Regulatory/Supervisory Authorities in making the banking industry safe and sound. The job of an external auditor included examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also included an assessment of the significant estimates and judgements made by the management and directors in the preparation of the financial statements; and of whether the accounting policies are appropriate to the bank’s circumstances, consistently applied and adequately disclosed.
Available records as at December 31, 2009 showed that there were eight firms of Chartered Accountants approved to conduct independent audit of insured banks. As evidenced in Table 14.2, Akintola Williams Deloitte, topped the list with 11 banks on their audit list, followed by
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PriceWaterhouseCoopers and KPMG Professional Services with 8 and 5 banks respectively, which were audited either wholly or jointly with another firm.
TABLE 14.2 INSURED BANKS’ ADDRESSES, BRANCHES, DIRECTORS AND APPROVED AUDITORS AS AT DECEMBER 31, 2009 S/N Names & Addresses No. of Director’s Name Status Approved Auditors Branches 1. Access Bank (Nig.) Plc 142 Gbenga Oyebode Chairman KPMG Plot 1665, Oyin Jolayemi Aigboje Aig-Imoukhuede MD/CEO Professional Street, Victoria Island , Herbert Wigwe DMD Services P.M.B. 12935, Lagos. Okey Nwuke ED Ebenezer Olufowose ED Akintola www.accessbankplc.com Obeahon A. Ohiwerei ED Williams Deloite Taukeme Koroye ED Cosmas M. Maduka Director Mosunmola Belo-Olusoga Director Mahmoud Isa Dutse Director Babatunde Folawiyo Director Emmanuel Chiejina Director Adewunmi Desalu Director Oritsedere Otubu Director Louis Enahoro C/Secretary 2. Afribank Nig. Plc 242 Osa Osunde Chairman Akintola 51/55, Broad Street, Nebolisa O.Arah GMD/CEO Williams P.M.B. 12021, Lagos Isaac K.Alofoje ED Deloitte Joke Giwa ED www.afribank.com Nnamdi C.Anamah ED Stephen Adaji ED Chukuemeka O. Okwuosa ED Bala Zakariya’u Director Ashim A. Oyekan Director Suluiman Ibrahim Director 3. Bank PHB Plc 221 Abdul-Lateef Kola Abiola Chairman Price Plot 707, Adeola Hopewell Patrick Okedinachi Utomi V/Chairman Waterhouse Street, P.M.B. 80054 Cyril Chukwumah MD/CEO Coopers Victoria Island, Lagos. Micheal Onoche Ajukwu Director Lawal Ja’afar Isa Director www.bankphb.com Murtala Shehu Yar’Adua Director Zakir Rafinddin Mahmood Director Vincent Maduagwu Okwechime Director Ifeyinwa Yvonne Osime Director 4. Citibank Nigeria Ltd 13 Charles. S. Sankey Chairman KPMG 27, Kofo Abayomi Street, Emeka Albert Emuwa MD/CEO Professional P.O. Box 6391, Arthur Christopher Mbanefo Ind Director Services Victoria Island, Lagos. Yemi Oluleke Osinbajo Ind Director www.citigroup.net James Edet Amana Director Muhammadu. H. Koguna Director
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Ifedayo Olawole Oladapo Director Khalid Qurashi Director Ade Ayeyemi Director Naveed Riaz Director Kaleem Rizvi Director Funmi Ade-Ajayi Director Munir S. Nanji Director Fatai Karim Director 5. Diamond Bank Plc 205 HRM Nnameka A.U. Achebe Chairman Price Plot 1261, Adeola Hopewell Emeka Onwuka GMD/CEO Waterhouse Street, U. K. Eke ED Coopers P.O.Box 70381, Victoria Ohis Ohiwerei ED Island, Lagos. Uzoma C. Dozie ED www.diamondbank.com Oladele Akinyemi ED Clement Owunna Director Olubola Adekunle. Hassan Director Jeremiah T. Useni Director Chris I. Ogbechie Director Simon Harford Director John D. Edozien Director
6. Ecobank Nig. Plc 216 John A. Odeyemi Chairman Price 21, Ahmadu Bello Way, Offong Okon Ambah MD/CEO Waterhouse P.O. Box 72688, Jibril John Aku ED Coopers Victoria Island, Lagos Foluke Aboderin ED www.ecobank.com Gbenga Kuye ED Ronke Wilson ED E. Nadu Denloye Ind Director Wilfred Belonwu Ind Director Sony F. Kuku Director Mua’zu Mohammed Anache Director Michael Ade-Ojo (OON) Director Giwa Bisi-Rodipe Director Arnold Onyekwere Ekpe Director Edouard Virgille Dossou-Yovo Director Oladisun Holloway Director
7. Equatorial Trust Bank Ltd 92 Yetunde Adegbola Chairman Akintola William Plot 1092, Adeola Odeku, G.O Folayan MD/CEO Deloitte P.O.Box 74440, Victoria Sola Fakeye ED Island, Lagos. Femi Obaleke ED Tilewa Adebajo Ag ED www.equitorialtrustbank.co Mike Jituboh Director m Niyi Adewunmi Director Adewale Sangowawa Director 8. Fidelity Bank Plc 133 Christopher I. Ezeh, MFR Chairman Akintola 2 Fidelity Bank Close Reginald Ihejiahi MD/CEO Williams Willie M. Obiano ED Deloitte Off Kofo Abayomi Street, Abdul-Rahaman Esene ED P.O.BOX. 72439, Victoria I. K. Mbagwu ED Pannell Kerr Island, Lagos. Onome Olaolu ED Forster
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www.fidelitybankplc.com Bessie N. Ejeckam Director Augustine W.U Okam Director Nnaeto Orazulike Director Dim Elias E. Nwosu Director Nnamdi Oji Director Kayode Olowoniyi Director Umar Yahaya Director
9. First Bank of Nigeria Plc 572 Oba Otudeko Chairman Akintola Samuel Asabia House, Bisi Onasanya GMD/CEO Williams 35, Marina, Kehinde Lawanson ED Deloitte P.O.Box 5216, Lagos Bola Adesola ED firstcontacy@firstbanknigeri Alex C. Otti ED PKF Pannell a.com Abdu Abubakar ED Kerr Forster Yerima Ngama ED Remi Odunlami ED Mahey Rasheed Ind Director Mahmoud Abdullahi Director Garba Duba Director Ajibola A. Afonja Director Oye Hassan-Odukale, MFR Director Ibiai A. Ajumogobia Director 10. First City Monument Bank 149 JonathanA.D. Long Chairman Price Plc. Ladi Balogun MD/CEO Waterhouse Primrose Tower, Anurag Saxena ED Coopers 17A, Tinubu Street Peter Obaseki ED P.O. Box 9117, Lagos. Henry J. Semenitari ED www.firstcitygroup.com Nabeel Malik ED John Udofa Director Ladi Jadesimi Director Bismarck Rewane Director Godwin T. S. Adokpaye Director Ibrahim Damcida Director Peter Nigel Kenny Director Tope Lawani Director
11. FinBank Plc 182 Chike Theo Osanakpo, SAN Chairman Akintola 4/6, Adetokunbo Ademola Suzanne Iroche MD/CEO Williams Street, Victoria Island, Adam Nuru ED Deloitte Lagos Abdulrahman Yinusa ED Omoruyi C. Iyamu ED
Cardine Anyanwu ED Ishmael I. Anyadiegwu Director Agnes Ebubedike Director E.O.Efobi Director Aliyu Gafar Director Kenneth Odogwu Director Ernest Orji Director Opeyemi Oye Director Usman K. Umaru Director Lamba Zannah Director
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12. GT Bank Plc 164 Gilbert P. O. Chikelu Chairman KPMG Plural House, Olutayo A Aderinokun MD/CEO Professional Plot 1669, Oyin Jolayemi, Olusegun Agbaje DMD Services P.O.Box 75455, Victoria Babajide Ogundare ED Island, Lagos. Cathy Echeozo ED www.gtbank.com Titilayo Osuntoki ED Akinola George-Taylor ED
Akindele Akintoye Ind Director Andrew Alli Ind Director Victor Gbolade Osibodu Director Mohammed Jada Director Adetokunbo B. Adesanya Director Egbert U. Imomoh Director Oluwole S. Oduyemi Director 13. Intercontinental Bank Plc. 386 Raymond Obieri Chairman Price Intercontinental Plaza, Mohmodu Lai Alabi MD/CEO Waterhouse Danmole Street, P.M.B. Adetokunbo Osilowo ED Coopers 80150, Victoria Island , Yusuf Suleiman ED Lagos. Sule Danlami Abubakar ED www.intercontinentalbankpl Christopher C. Alabi Director c.com Isyaku Umar Director Ikechi O. Kalu Director Samuel I. Adegbite Director Seinye P. Lulu-Briggs Director J.S.P.C. Nwokolo Director Toyin Philips Director Sanni Adams Director Bayo Dada Director Thomas R. Gibian Director 14. Stanbic-IBTC Bank Plc. 66 Atedo Nari A. Peterside, OON Chairman Price Stanbic IBTC Place, Walter Chris Newson MD/CEO Waterhouse Carrington Crescent, Sola David - Borha DMD Coopers P.O.Box, 71707, Victoria Marna Roets Island, Lagos. Yinka Sanni ED www.stanbicibtcbank.com Jacques Troost ED Moses O. Adedoyin Director Alewyn Burger Director Sam Cookey Ind Director Ahmed Dasuki Director Ifeoma Esiri Director Chris Kolade Ind Director Ben Kruger Director Bhagwan Mahtani Director Rantan Mahtani Director Jacko Maree Director Samuel Unuigbe Director M.I.Wushishi, GCON Director
15. Oceanic Bank Plc. 413 Hayford Ikponmwonsa Alile Chairman Price Plot 270, Ozumba Mbadiwe John Oche Aboh MD/CEO Waterhouse Avenue, Victoria Island, Oyinkan Adewale ED Coopers Lagos. Henry Oristeweyinmi Ajagbawa ED www.oceanicbanknigeria.co Mohammed Lawal Balarabe ED
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m Mofoluke Benedicta Dosumu ED Hamzat Ahmadu Ind Director Ovie Edward Ukiri Ind Director Abimbola Olaitan Naiwo Ind Director Werner Stauffacher Ind Director Simpson Ese Okoro Director Bunu Sheriff Musa Director Anthony Omoruyi Director Valentine Oboden Ibru Director Ngalaah Chuphi Director 16. Sterling Bank Plc 98 S. Adebola Adegunwa, OFR Chairman KPMG 20, Marina Yemi Adeola MD/CEO Professional Lanre Adesanya ED Services P.M.B. 12735 Garba Imam ED Lagos T. N. P. Rao ED www.sterlingbankng.com Abhay Kumar Singh Director Harrison Kuti Director Bashir M. Borodo Director Yemi Idowu Director Yinka Adeola Director Lawal K .Ibrahim Director
17. Standard Chartered Bank 26 Joseph Sanusi Ind Chairman KPMG Ltd Christopher Knight MD/CEO Professional 142, Ahmadu Bello Way Oyeyemi Owolabi ED Services Victoria Island, Lagos. Sriram Padmanabhan Director Anil Dua Director www.standardchartered.co Mike Hart Director m Oluremi Omotoso Ind Director Shehu Malami Ind Director Olusegun B. Ajayi Ind Director 18. Spring Bank Plc 168 B. Olusola Ayodele (Mrs) MD/CEO Akintola 143, Ahmadu Bello Street Dr. Kabir Ahmed ED Williams Olugbenga E. Fakile ED Deloitte Victoria Island
Lagos www.springbankng.com 19. SKYE Bank Plc 224 Musiliu Smith Chairman Akintola 3, Akin Adesola street Morenikeji Onasanya V/Chairman Williams Akinsola Akinfemiwa GMD/CEO Deloitte Victoria Island Kehinde Durosinmi-Etti DMD Lagos Gbenga Ademulegun ED Ernst & Young www.skyebankng.com Dotun Adeniyi ED Ibiye Ekong ED Amaka Onwughalu ED Timothy Oguntayo ED Anthony Ukpo Ind Director Adenike Adeniran Director Victor Adenigbagbe Director Kolawole Awodein Director Jason Fadeyi Director Micheal Tarfa Director
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Vinay Tuteja Director Olatunde Ayeni Director 20. Unity Bank Plc 235 L.Akin Mabogunje Chairman Akintola Plot 785, Herbert Macaulay Falalu Bello MD/CEO Williams Way, Central business Evans Woherem ED Deloitte District, Abuja Lamis Shehu Dikko ED Ado Yakubu Wanka ED Pernell Kerr www.unitybankng.com Adekunle Oyinloye ED Forster Rislanudeen Muhammed Director Mohammed Babangida Director Muinat Bola Shagaya Director Umaru.S. Ndanusa Director Adedeji Adeleke Director Samaila Mamman Director Felix Ohiwerei Director Abubakar Sadauki Director Ahmed Ibrahim Director 21. Union Bank of Nigeria Plc 389 Musa Gella Yakubu, SAN, OFR Chairman Akintola 36, Marina, P.M.B. 2027, Olufunke Iyabo Osibodu GMD/CEO Williams Lagos. AdeKunle Mickey Adeosun ED Deloitte www.unionbankng.com Philip Ikeazor ED Ibrahim Abubakar Kwargana ED Bakertilly & Co Folashodun Adebisi Shonubi ED Ahmadu Abubakar Director Mansur Ahmed Director Onikepo Akande Director Ibrahim A. Gobir Director Festus B.O.Odimegwu Director Onajite Okoloko Director Olusegun Olusanya Director Cosmas Paul Udoufot Director
22. United Bank for Africa Plc 619 Ferdinand N. Alabraba Chairman Akintola UBA House, 57, Marina, Tony O. Elumelu, MFR GMD/CEO Williams P.O.Box 2406, Lagos Philips Oduoza DMD -South Deloitte Faith Tuedor-Matthews (Mrs) DMD - North Godwin Ize-Iyamu ED Victor Osadolor ED Abduqadir Bello ED Angela Nwabuoku ED Emmanuel Nnorom ED Rasheed Olaoluwa ED Adekunle A. Olumide, OON Ind Director Ja’afaru A Paki Ind Director Isreal C. Ogbue Director Rose A. Okwechime Director Willy Kroeger Director
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Paolo D. Martino Director Kolawole B. Jamodu, OFR Director Garba Ruma Director Runa N. Alam Director Foluke K. Abdul-Razaq Director
23. Wema Bank Plc 152 Samuel Bolarinde Chairman KPMG Wema Towers, 4th Floor, Segun Oloketuyi MD/CEO Professional 54, Marina, P.M.B. 12862, Ademola Adebise ED Service Lagos. Nurudeen Fagbenro ED Adebode Adefinoye Director www.wemebank.com Opeyemi Bademosi Director 24. Zenith Bank Plc 329 Macaulay Pepple Chairman Price Plot 87, Ajose Adeogun Jim Ovia GMD/CEO Waterhouse Street, P.O.Box 75315, Godwin Emefiele DMD Coopers Victoria Island, Lagos. Peter Amangbo ED www.zenithbank.com Elias Igbin-Akenzua ED Apollos Ikpobe ED Andy Ojei ED Udom Emmanuel ED Baba Tela Ind Director Lawal Sanni Ind Director E. M. Egwuenu Director S. P. O. Fortune-Ebie Director L. F. O. Obika Director Steve Omojafor Director Babatunde Adejuwon Director
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Section 15
MAJOR DEVELOPMENTS IN OTHER INSURED DEPOSIT- TAKING FINANCIAL INSTITUIONS
15.0 Introduction The extension of deposit insurance cover to licensed microfinance banks (MFBs) and primary mortgage institutions (PMIs) which started in 2008 continued in 2009. Microfinance banking was an initiative designed to help the poor but economically vibrant Nigerians to have access to credit and reduce the level of poverty in the country. The primary mortgage institutions, on the other hand, were established under the Federal Government’s National Housing Policy designed to solve the housing problems facing the country. The PMIs were expected to provide mortgage finance and also help in the disbursement of the National Housing Fund (NHF) established by government.
The extension of deposit insurance cover to the MFBs and PMIs was expected to engender the confidence of the banking public in that sub- sector thereby re-positioning them to play their intermediation roles in the economy like the conventional banks. This section of the report presents a review of developments and performance of these other insured deposit- taking financial institutions as well as the challenges they faced during the year.
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15.1 Operations And Performance Of Microfinance Banks (MFBs) In 2009 The Microfinance Policy was launched on 15 th December, 2005 by the CBN to complement the banking sector reforms. According to the policy framework, MFBs were promoted to provide financial services to the economically active but poor members of the society. The policy was targeted at creating an environment of financial inclusion to boost capacity of micro, small and medium enterprises (MSEMEs) to contribute to economic growth and development through job creation that would lead to improved standard of living and poverty reduction.
The specific objectives of microfinance policy were as follows: Make financial services accessible to a large segment of the potentially productive Nigerian population which otherwise would have little or no access to financial services; Promote synergy and mainstreaming of the informal sub-sector into the national financial system; Enhance service delivery by microfinance institutions to micro, small and medium entrepreneurs; Contribute to the rural transformation; and Promote linkage programmes between universal/development banks, specialized institutions and microfinance banks.
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The initial Microfinance Policy permited the establishment of two categories of MFBs, namely: MFB operating as a unit bank with a minimum capital requirement of N20 million; and MFB operating in a State with a minimum capital requirement of N1 billion.
As at the end of 2009, 606 out of the 607 Community Banks (CBs) that converted to MFBs were still in operation. Furthermore, a total of 222 new micro-finance banking licenses were granted, while 82 approvals in principle (AIPs) had been granted as at December 31, 2009. With that development, the total number of approved MFBs as at the end of year 2009 were 910. Presented in Table 15.1 is the distribution of the 910 MFBs on a state-by-state basis, including the Federal Capital Territory, Abuja. TABLE 15.1 State Distributions of MFBs As At December 31, 2009 STATE CBs CONVERTED TO MFBs NEW INVESTORS FINAL PROVISIONAL SUB-TOTAL FINAL AIP SUB-TOTAL TOTAL LICENCE APPROVAL LICENCE ABUJA FCT 41 8 0 8 18 15 33 ABIA 28 11 6 17 2 9 11 ADAMAWA 8 7 0 7 1 0 1 AKWA IBOM 15 5 2 7 5 3 8 ANAMBRA 80 67 8 75 4 1 5 BAUCHI 12 3 6 9 3 0 3 BAYELSA 5 1 0 1 3 1 4 BENUE 10 6 1 7 2 1 3 BORNO 4 - 3 3 1 0 1 CROSS RIVER 16 13 2 15 1 0 1 DELTA 36 19 6 25 8 3 11
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EBONYI 7 3 2 5 1 1 2 EDO 25 17 6 23 2 0 2 EKITI 13 6 7 13 0 0 0 ENUGU 22 17 3 20 2 0 2 GOMBE 4 2 1 3 1 0 1 IMO 44 22 17 39 3 2 5 JIGAWA 8 3 1 4 3 1 4 KADUNA 23 8 10 18 4 1 5 KANO 7 2 3 5 2 0 2 KATSINA 5 2 2 4 1 0 1 KEBBI 6 1 5 6 0 0 0 KOGI 21 15 6 21 0 0 0 KWARA 22 15 3 18 4 0 4 LAGOS 220 42 17 59 126 35 161 NASARAWA 3 2 1 3 0 0 0 NIGER 12 9 0 9 1 2 3 OGUN 54 43 7 50 4 0 4 ONDO 18 10 6 16 1 1 2 OSUN 33 22 6 28 4 1 5 OYO 48 31 12 43 5 0 5 PLATEAU 13 7 4 11 1 1 2 RIVERS 31 13 5 18 9 4 13 SOKOTO 5 3 2 5 0 0 0 TARABA 4 1 3 4 0 0 0 YOBE 1 - 1 1 0 0 0 ZAMFARA 6 2 4 6 0 0 0 T O T A L 910 438 168 606 222 82 304 Source - Committee on the Implementation of the National Microfinance Policy .
The table shows that the MFBs were concentrated in Lagos (220), Anambra (80), Ogun (54), Oyo (48) and Imo (44) States. The five states accounted for 446 or 49 per cent of the total number of approved MFBs. The remaining 31 States and Abuja, FCT accounted for 464 or 51 per cent of
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the total number of approved MFBs as at the end of 2009. In terms of the spread across geo-political zones, the Northern States had few MFBs with Yobe State having only one MFB in 2009. Similarly, about 42.4 per cent or 386 MFBs were located in the South West geo-political zone followed by South East with 19.9 per cent or 181 MFBs. North East Zone had the least with 4.1 per cent or 37 MFBs in 2009. Nine (9) out of the 910 MFBs as at the end of 2009 were licensed as State-wide MFBs. The list of the State- wide MFBs is presented in Table 15.2 below:
Table 15.2 List of State-Wide Microfinance Banks S/No Name Status Dominant Bra nch/Expansion State of to other States Operation 1 NPF Microfinance Bank Ltd Converted CB Lagos Abuja, Rivers 2 Integrated MFB Ltd New MFB Lagos Ogun, Oyo, Kano, Kaduna 3 UBA MFB Ltd Subsidiary of a DMB* Lagos None yet 4 FBN MFB Ltd Subsidiary of a DMB* Lagos None yet 5 Blue Intercontinental MFB Ltd Subsidiary of a DMB* Lagos Oyo 6 AB MFB Ltd New MFB Foreign Lagos None yet Ownership 7 Afribank MFB Ltd Subsidiary of a DMB*, Lagos None yet AIP granted 8 LAPO MFB Ltd Transforming NGO-MFI, Edo 18 Others AIP granted 9 COWAN MFB Ltd Transforming NGO-MFI Ondo 16 Others
Source: Committee on the Implementation of the National Microfinance Policy *DMB - Deposit Money Bank
Table 15.3 shows ten (10) universal banks with interest in MFBs. As shown in the table, three (3) of the universal banks had established microfinance
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units at their head offices, while the remaining seven (7) had ownership interest in various proportions in MFBs.
Table 15.3 Universal Banks with MFBs as Subsidiaries/Windows S/No Universal Banks Subsidiary/Window Ownership Status 1 UBA Plc UBA MFB Ltd UBA 100% Final License (Wholly Owned) Approved 2 First Bank of Nig Plc FBN MFB Ltd FBN 100% Final License (Wholly Owned) Approved 3 Intercontinental Bank Blue Inter MFB Ltd Intercontinental Final License Plc Bank 35% Approved 4 Ecobank Plc ACCION Ltd Ecobank Final License 18.47% Approved 5 Zenith Bank Plc ACCION Ltd Zenith Bank Final License 10% Approved 6 Citibank Nig. Ltd ACCION Ltd Citbank 19.90% Final License Approved 7 Afribank Nig. Plc Afribank MFB Afribank 100% Final License (Wholly Owed) Approved 8 Oceanic Bank Inter. Plc Microfinance N/A N/A Unit/Dept 9 Diamond Bank Plc Microfinance N/A N/A Unit/Dept 10 Union Bank of Nig Plc Microfinance N/A N/A Unit/Dept Source: Committee on the Implementation of the National Microfinance Policy.
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One of the major challenges facing the NDIC in the supervision of the MFBs had been poor rendition of returns. In view of actions taken in the past, the rate of rendition had however, improved to a large extent. Consequently, returns were received from 635 MFBs or 70 % out of 910 MFBs that were in operation. An analysis of the financials of the MFBs revealed that the total assets stood at N120.34 billion, total deposit liabilities amounted to N61.20 billion and total loans and advances was N44.74 billion for the 635 reporting MFBs as at 31 st December, 2009. Total paid-up capital was N26.8 billion.
Majority of MFBs examined during the year were operating like universal banks, with large workforce and they offered their staff unsustainable remunerations and benefits. It was observed that many of the MFBs preferred to grant commercial loans to businessmen rather than the economically active poor that should be their primary/target customers. The examination reports of 124 MFBs examined by NDIC in 2009 revealed that only about 25 per cent (on the average) of the total credit portfolio of MFBs qualified as micro credits.
The MFBs tended to be risk averse as many of them kept large sums of money with the universal banks as well as maintaining a huge investment in Treasury Bills (TBs) rather than giving out such funds as loans. Some of the MFBs invested part of their funds in the shares of listed companies in
the capital market. The overall picture in 2009 was that the MFBs had more funds tied down as cash and near cash assets than credits granted.
15.1.1 Micro Credit Fund (MCF) Access to funding had been identified as a major constraint to increasing the outreach of MFBs. In order to address the problem, a N50 billion Micro- Credit Fund (MCF), initiated by the Bankers’ Committee to enhance the flow of funds to micro, small and medium enterprises (MSMEs) was launched in 2008. The Bankers’ Committee contributed N20 billion from the Small and Medium Industries Equity Investment Scheme (SMEIS) fund to the MCF. That contribution was expected to increase to N100 billion by 2020.
The Development Finance Department of CBN had continued to monitor implementation of the MCF in the States that set aside funds for that purpose. It had been discovered that some States were not forthcoming with their contributions. However, two new funds, namely Microfinance Fund and Small and Medium Enterprises Investment Scheme (SMEIS) Guaranty Fund, had been established to complement MCF. The objectives and guidelines for the MCF had been reviewed by the CBN to further strengthen its implementation.
15.1.2 Capacity Building In order to improve on the pool of knowledge and skills for microfinance operations, the NDIC during the year invited facilitators from Social 204
Enterprises Development Partnerships Incorporated (SEDPI) Anteneo De- Manila University of Philippines for implant courses organized to train forty (40) Examiners on the operations of microfinance. Forty (40) Examiners similarly benefitted from the same course in 2008.
15.1.3 Challenges In The MFBs Sub-Sector The microfinance sub-sector faced a number of challenges which included: i. High Operating Cost The cost of office accommodation, mostly in urban centres, heavy wage bills and fringe benefits had resulted in very high operating costs which reduced the loanable funds available to most of them. The requirement that MFBs should be computerized given the epileptic power supply in the country which made them to rely more on generator powered by diesel further exacerbated their cost of doing business. ii. Lack of Microfinance Experience Microfinance was a novel idea in the country and therefore majority of their staff did not have required knowledge and skills in microfinance operations. Most of the staff had universal banking experience which then explained why some of them focused mainly on conventional banking products. iii. Inhibited Access To Deposits As a result of the failure of community banks, finance houses and existence of illegal wonder banks, the public were weary of patronizing MFBs. That 205 had to a great extent created problems in deposit mobilization by the MFBs. However, the insured status stickers distributed to the MFBs were expected to reduce the perceived risk associated with patronizing the subsector. iv. Challenge of Management Information System Many of the MFBs were yet to be fully computerized. That was to be expected as the cost of full computerization of their operations could be too much for MFBs to bear at inception. This however had implications for early implementation of e-FASS for electronic rendition of statutory returns. Manual operation by the MFBs made accurate record keeping cumbersome. v. Poor Corporate Governance The Boards of MFBs were expected to be responsible for establishing strategic objectives, policies and procedures that would guide and direct the activities of the banks. These were lacking in most MFBs examined as they operated without strategic plans, policies and procedures. Also, there were issues of self-serving practices and insider abuse by the owners, board and management of some of the MFBs. vi. Loan Recovery Challenges During the period under review, there was already a build-up of non- performing loans in the sub-sector. The legal and judicial system made it difficult for the MFBs to recover loans and realize collaterals obtained to secure loans. 206 vii. Collateral Security Challenge In other jurisdictions where microfinance operations had been successful, emphasis was not laid on collaterals for micro credit but mainly on the character of borrowers. Many MFBs in Nigeria were yet to embrace that lending practice because of the poor borrowing culture in Nigeria. That challenge had been exacerbated by the slow judicial processes in adjudicating loan recovery cases.
15.2 Operations And Performance of The Primary Mortgage Institutions (PMIs) During the year, many PMIs on their own had individually enhanced their capital base to support their operations. Out of the 101 PMIs that were licensed by CBN, only 85 were in operation as at the end of the year under review. One of the challenges faced by NDIC was the failure of the PMIs to render returns as and when due. In 2009, only 63 or 62 per cent of the licensed 101 PMIs rendered returns while about 38 per cent or 38 of the PMIs failed to do so.
The shareholders’ fund of the 63 reporting institutions stood at N49.88 billion. Analysis of the information rendered by the 63 PMIs in 2009 revealed that their total assets stood at N277.19 billion while their total deposits stood at N121.52 billion. The sum of N7.3 billion was obtained from the National Housing Fund (NHF) for on-lending, while the sum of N31.76 billion was obtained as long term loans from universal banks and other sources for estate development during the year. 207
Available statistics also revealed that the PMIs had not been meeting the expectations of Nigerians in terms of granting mortgage loans. That was evidenced by the ratio of mortgage loans to total assets which in 2009 stood at 18.97 per cent as against the prescribed minimum of 30 per cent. Also, the ratio of mortgage loans to loanable funds, which stood at 43.2 per cent in 2009, was below the prescribed minimum of 60 per cent.
The loanable funds available to PMIs in 2009 was N121.52 billion out of which 43.2 per cent or N52.57 billion was granted as mortgage loans and N42.73 billion or 35.2 per cent was granted as commercial loans. Furthermore the reporting PMIs had cash and short term funds, treasury bills, placements and investments of N20.5 billion, N14.5 billion, N37.6 billion and N47.2 billion in 2009, respectively.
15.2.1 Challenges of The Primary Mortgage Institutions (PMIs) As in previous years, the PMIs in 2009 were faced with many challenges that militated against their performance in terms of achieving the policy objectives of acting as catalyst for the development and provision of affordable houses to average Nigerians. Some of the challenges are highlighted here:
(i) Difficulties In Accessing The NHF The PMIs complained about the difficulty they encountered in accessing the NHF. They experienced a lot of delays before NHF was disbursed. 208
NHF had not been disbursed by the Federal Mortgage Bank of Nigeria (FMBN) since 2007 even though some of the PMIs had met all the conditions stipulated for the release of the Fund.
(ii) Inability Of PMIs To Provide Required Guarantee Some PMIs found it difficult to provide the required bank guarantee for the NHF loans. The FMBN could review those conditions so as to facilitate the quick processing of applications. (iii) Difficulties In Mobilizing Deposits The PMIs had lots of challenges in the area of deposit mobilization. The banking public preferred to open accounts with the universal banks than with the PMIs whose operations were too complicated for them to understand. The PMIs found it difficult to mobilize long term deposits to finance their housing projects which were usually long term in nature.
(iv) Difficulties In Perfecting Title Documents The existing land tenure system was of great concern to the PMIs because the process of perfecting title to a landed property was cumbersome, slow as well as costly.
(v) Poor Borrowing Culture This challenge affected all lending institutions in Nigeria. That had resulted in huge non-performing loans in the PMIs loan portfolio.
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Section 16
Facts About The Deposit Insurance System (DIS) In Nigeria
Introduction
The NDIC -Nigeria Deposit Insurance Corporation , is an independent agency of the Federal Government of Nigeria. The purpose of the deposit insurance system is to protect depositors and guarantee the settlement of insured funds when a deposit-taking financial institution can no longer repay its deposits, thereby helping to maintain financial system stability. The NDIC Act No 16, 2006 (which replaced NDIC Act No 22 of 1988), established the Corporation as a body corporate with perpetual succession and a common seal.
As part of the NDIC’s continuous effort to enlighten the public, this section covers some of the Frequently Asked Questions (FAQs) and the answers about Deposit Insurance System (DIS) in Nigeria. This is meant to facilitate understanding by the public of the DIS as implemented in Nigeria.
Question 1: What Is Deposit Insurance? Answer: Deposit Insurance is a system established by the Government to protect depositors against the loss of their 210
insured deposits placed with member institutions in the event that a member institution is unable to meet its obligations to depositors. Deposit insurance ensures that the depositor does not lose all his money in the event of a bank failure. It also engenders public 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.
Question 2: Why is Deposit Insurance necessary? Answer: Financial institutions differ from most industrial and commercial enterprises in that they depend mainly on deposits mobilized from the public for their working capital and are highly leveraged. If a financial institution is unable to meet its obligation to depositors due to operational problems or business failure, anxious depositors may cause a run on the bank as well as other healthy institutions. The stability of the financial system and social order in general would also be at risk. Moreover, most depositors have small deposit amounts and therefore cannot cost-effectively collect and analyze information on the financial institutions they do business with. The government has therefore established a deposit insurance mechanism, under which the NDIC is empowered to provide protection for small depositors and contribute to financial and social order.
Question 3: How does deposit insurance maintain financial system stability? Answer: Financial institutions play an important role in regulating the supply and demand of capital and promoting economic development. They accept deposits, which are a highly liquid form of debt, yet most of their assets are tied up in long-term illiquid vehicles. Financial institutions therefore have a hard time realizing their assets for cash, 211
when their business runs into problems, so depositors may lose confidence, triggering a bank run. The limited liquidity of financial institutions also encourages a perception among depositors that making an early withdrawal is the only way to get their money back. This fear can exacerbate a bank run and also have a chain reaction that leads to runs on other banks as well. Deposit insurance system is usually established to prevent this by providing assurance of deposit repayment to the great majority of depositors. In doing so, the system also prevents systemic risk and ensures the stability of the financial system.
Question 4: Who administers deposit insurance system in Nigeria? Answer: The NDIC, a government – owned institution, established by Act 22 of 1988 and now replaced with Nigeria Deposit Insurance Act No. 16 of 2006, is the agency empowered to administer the deposit insurance system in Nigeria, thereby protecting depositors. The Corporation provides incentives for sound risk management in the Nigerian banking system, and promotes as well as contributes to the stability of the financial system. The NDIC manages two deposit insurance funds, the Deposit Insurance Fund (DIF) for universal banks and the Special Insured Institutions Insurance Fund (SIIF) for licensed Microfinance Banks (MFBs) and Primary Mortgage Institutions (PMIs).
Question 5: Is Deposit Insurance The Same As A Conventional Insurance? Answer: No. Deposit insurance is different from conventional insurance in several respects. Some of the differences include the following:
a. Different Purposes
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The purpose of deposit insurance is to protect the rights and interest of depositors, maintain credit order, and promote the sound development of the financial industry. It is designed to serve the public welfare with no profit-earning motive. Conventional insurance companies providing property and life insurance, on the other hand, are commercial types of insurance.
2) Different Beneficiaries Under the deposit insurance system, insured institutions pay insurance premiums to the NDIC, which uses these funds to protect the depositors of the insured institutions. If an insured institution goes out of business or is unable to pay its deposit liabilities, the NDIC by law will reimburse the guaranteed amount to depositors of the failed institutions. The insured institution therefore is different from the beneficiaries (the depositors). With property and life assurance policies, the insured party can designate itself or another party as the beneficiary. When an insurance incident or claim occurs, the insured party or beneficiary of a property or life assurance will claim compensation from the insurance company. The insured party can also be the beneficiary.
3) Different Functions With property and life insurance, claims are paid by the insurer after an insurance incident. Deposit insurance claims are also paid after an insurance incident. However, the deposit insurance system in Nigeria takes active measures to keep such insurance incidents from occurring. When a financial institution experiences trouble, the NDIC uses the Early-Warning System, Off-site Monitoring of insured institutions, assistance and other 213
measures, to help the insured institution return to sound operations. It is when the troubled insured institution does not respond favourably to the measures that the insurance incident is deemed to have taken place and claims are thereafter paid.
d. Different Policy Role Deposit insurance also plays a policy role as part of the financial safety net. In addition to fulfilling deposit insurance responsibilities toward the insured institutions which are unable to perform their deposit payment obligations or are non-viable, the deposit insurance system helps the government to establish mechanisms for withdrawing problem financial institutions from the market in order to effectively prevent the occurrence of systemic risk.
e. Different Conditions for Participation In deposit insurance, best practice dictates that participation should be compulsory. Participation in conventional insurance contract is generally voluntary.
f. Different Coverage Levels Under deposit insurance, best practice prescribes that the amount of coverage should be limited, whereas in the case of conventional insurance, coverage may be full.
Question 6: Who are the Insured Institutions Under The Deposit Insurance Scheme in Nigeria? Answer: Insured institutions are all deposit-taking financial institutions licensed by the Central Bank of Nigeria (CBN) such as:- Universal Banks (deposit money banks); Micro-finance Banks – (MFBs); and Primary Mortgage Institutions (PMIs). 214
Membership is compulsory as provided under the NDIC Act No 16 of 2006.
Question 7: How can the public find out if a financial institution is insured by the NDIC? Answer: To identify insured financial institutions, look out for an NDIC decal (sticker) displayed in the head offices and branches of all insured institutions or call our Help Line 09 460 1280; and 234-9-4601030 or visit our website: www.ndic.org.ng
Question 8: Which financial institutions are not covered by the NDIC? Answer: Financial institutions not covered by the NDIC include: • Development Finance Institutions such as Bank of Industry, Federal Mortgage Bank, Nigeria Agricultural, Cooperative and Rural Development Bank and Urban Development Bank • Discount Houses • Finance Companies • Investment Firms • Unit Trusts/Mutual Funds • Insurance Companies • Pension Fund Administrators (PFAs)
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Question 9: What types of deposits are insured by the NDIC? Answer: Not all deposits at insured institutions are covered by the NDIC. The following table lists deposits that are insured and those that are not insured: Insured Deposits Uninsured Deposits/Instruments Current Account Deposits Inter-bank placements Savings Account Deposits Insider deposits (i.e. deposits made by staff, directors and other connected parties)
Deposits held as collateral for loans Time or Term Deposits Investment in: Stocks, Bonds, Mutual Funds, Annuities, Commercial Papers and Debentures
Foreign Currency Deposits Federal Government Treasury Bills, Bonds and Notes NDIC deposit insurance covers the balance of each eligible account, Naira-for-Naira, up to the insurance limit, including principal and any accrued interest up to the date of the insured institution’s closure.
Question 10: Whose Deposits Does The NDIC Insure? Answer: The NDIC insures bank deposits of natural persons as well as legal entities, no matter whether they are from Nigeria or from any other country.
Question 11: How Does The NDIC Assess Premium and Who Pays For The Insurance Premium? Answer: Participating institutions are required to pay annual premiums to the deposit insurance system administered by the NDIC. The premium is assessed based on participating institutions’ total assessable deposit liabilities as at 31 st December of the preceding year. The assessable deposit liabilities are total deposits with the exception of some deposits listed in Section 16 of the NDIC Act 2006. The NDIC Act 2006 (Section 16(2)), has given the Corporation the power to adopt any premium
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assessment system to reflect developments in the industry in particular and the economy in general. The NDIC has adopted Differential Premium Assessment System (DPAS).
Question 12: How Does The NDIC Protect The Deposit Insurance Fund (DIF)? Answer: The NDIC protects the Deposit Insurance Fund (DIF) by investing the Fund in safe but liquid financial instruments such as Treasury Bills, Federal Government Bonds and instruments of similar nature.
Question 13: Does The NDIC Finance Its Operations From The DIF? Answer: No, the Corporation finances all its overhead and administrative expenses from its investment income. The main sources of income of the NDIC are the proceeds from investment of the DIF in securities issued by the Federal Government. The DIF is used only for paying insured deposits when an insured institution fails as well as for granting financial assistance to deserving participating institutions.
Question 14: Does the Supervisory Functions of the NDIC duplicate that of the Central Bank of Nigeria (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 for examination purposes on an annual basis and when such examinations are concluded, the examination reports are 217
exchanged. The supervisory efforts of the two institutions are sometimes conducted jointly when the need arises. Indeed, the involvement of the NDIC in bank supervision has reduced the examination cycle from about once in two years to once a year.
The Corporation supervises banks basically, to protect depositors. Banking supervision is a core function of the Corporation as it seeks to reduce the potential risk of failure and ensures that unsafe and unsound banking practices do not go 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 on-site examination and off-site surveillance of insured institutions.
Question 15: How Does The NDIC Protect Bank Depositors Against Loss? Answer: The NDIC protects bank depositors against loss through: a. Deposit Guarantee This is perhaps the most significant and distinct role of the Corporation. As a deposit insurer, the NDIC Act 2006 guarantees payment of deposits up to the maximum insured sum (N200,000.00 to a depositor in universal banks and N100,000 to a depositor in MFBs and PMIs) 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.
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Bank Supervision The Corporation supervises banks to protect depositors, ensure monetary stability and effective/efficient payment system as well as to 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 unchecked. It also provides the oversight functions required to preserve the integrity of and promote public confidence in the banking system.
c) Failure Resolution The Corporation is empowered to provide financial and technical assistance to failing or distressed banks in the interest of 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 16: How Does The NDIC Establish The Ownership Of A Deposit? Answer: The NDIC relies on deposit account records kept by a failed bank as well as on the proofs presented by the depositor.
Question 17: As a Depositor Must I Apply For The Deposit Insurance Coverage? Answer: No, a depositor does not need to. Under the Nigeria deposit insurance system, eligible deposit accounts in insured institutions are automatically insured at no charge to any depositor.
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Question 18: When is Insured Deposit Payable? Answer: Deposit insurance is payable only when an insured institution has been closed as a result of action taken by the Central Bank of Nigeria or when there is suspension of payment by a bank.
Question 19: What Methods of Payment Does the NDIC Use In Meeting Its Obligations To Depositors of a Failed Institution?
Answer: The NDIC could pay depositors of a failed insured institution either by transfer to a financial institution with instructions to effect payments to depositors on its behalf, or directly by means of issuing cheques up to the insured limit which will be collected at the NDIC’s designated centres, usually the closed bank’s offices.
Payments could also be made through Purchase and Assumption, whereby a healthy bank assumes part or all of the deposit liabilities of a failed insured bank.
Question 20: What Does a Deposit Transfer involve? Answer: The NDIC transfers an amount equivalent to the total insured deposits of a failed insured institution to another financial institution under an agreement which will enable depositors of the failed insured institution to collect their entitlements from the financial institution.
Question 21: How are the Insured Sums Collected? Answer: Insured sums are collected by depositors on filing their claims through the completion of relevant forms provided by the Corporation. In addition, they have to furnish the Corporation with account documents such as unused cheque books, old cheque stubs, passbooks, fixed deposit certificates, etc. Each depositor would also be required to identify him/herself with a valid identification document 220
such as National ID Card, 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 by cheque or deposit transfer through an Agent Bank or Acquiring Bank.
Question 22: What Should A Depositor Of A Failed Bank Do If He or 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 himself/herself with a valid identification document like National ID Card, Driver’s Licence or International Passport.
Question 23: Can a Depositor Leave His/Her Deposit With The Transferee Institution? Answer: Yes, a depositor, if he/she wishes, can open an account with the transferee institution for the full amount or part of his/her deposit.
Question 24: Does The NDIC Protect The Interests Of Creditors Or Shareholders Of A Bank? Answer: The primary mandate of the NDIC is to protect depositors. However, through supervision to ensure safety and soundness of banking institutions, the interest 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 25: What is Liquidation Dividend? Answer: This is payment made to a depositor of a failed insured institution in excess of the insured sum. While the insured sums are paid from the Corporation’s Deposit 221
Insurance Fund (DIF) or Special Insured Institutions Fund (SIIF), liquidation dividends are paid from funds realized from the sale of the assets and recoveries of debts owed to the failed insured institution.
Question 26: What is the Current Insured Limit And Why Is It Limited To A Fixed Sum? Answer: The insured limit is currently a maximum of N200,000 for each depositor in respect of deposits held in each insured universal bank and N100,000 for each depositor in Microfinance Bank and Primary Mortgage Institutions in same right and capacity. The amount to be reimbursed has to be definite. Limited coverage is to minimize moral hazard through excessive risk taking by bank management and depositors. Unlimited coverage could constitute a perverse incentive for excessive risk-taking.
Question 27: If a Depositor Has an Account in the Main Office of a Participating Institution And Also At a Branch Office, Are These Accounts Separately Insured? Answer: No. The main office and all branches are considered to be one institution. Therefore, the accounts would be added together and covered up to the maximum insured sum.
Question 28: If A Depositor Has Deposit Accounts In Different Insured Banks, Will The Deposits Be Added Together For The Purpose Of Determining Insurance Coverage? 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
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more than one bank, they are insured independently up to the maximum insured sum per bank.
Question 29: Is The Insurance Protection Increased By Placing Funds In Two or More Types of deposit Accounts in the Same Participating Institution? Answer: No, Deposit insurance is not increased merely by dividing funds held in the same right and capacity among the different types of deposits available. For example, demand, time and savings accounts held by the same depositor in the same right and capacity are added together and insured up to the maximum insured sum.
Question 30: If A Husband And Wife Or Any Two Or More Other Persons, Have, In Addition To The Individually- Owned Accounts Of Each, A Valid Joint Account In The Same Insured Bank, Is Each Account Separately Insured? 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 31: 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 individuals then the accounts will be added and the total insured up to the maximum insured sum.
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Question 32: Are Accounts Held By A Person As Executor, Administrator, Guardian, Custodian, Or In Some Other Similar Fiduciary Capacity Insured Separately From His Or Her Individual Account? 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. 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.
Question 33: When An Account Is Held By A Person Designated As Agent For The True Owner Of The Funds, How Is The Account Insured? 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.
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Question 34: Is An Account Held By Either A Company Or Partnership, Insured Separately From The Individual Accounts Of Shareholders Or Partners? 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 Independent activity means any activity other than one directed solely at increasing insurance coverage.
Question 35: If A Depositor 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 NDIC? 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 NDIC.
Question 36: Will The NDIC Offset a Deposit Balance held By a Customer Against The Balance Due On the Loan? Answer: The NDIC will offset the balance on a deposit account, including any uninsured portion, against a loan if the loan and deposit are held by the same person or persons.
Question 37: Does the Borrower’s Obligations to the Institution Continue After the Institution is Closed?
Answer: Yes. When acting as Liquidator of a closed institution, the Corporation is acting on behalf of all creditors of that institution and its obligation is to collect all loans promptly and efficiently along with other assets of the institution.
Question 38: What Does Purchase And Assumption (P & A) Mean? Answer: Purchase and assumption (P & A) is a merger-type transaction which involves purchasing the assets of a failed bank and assuming its liabilities by another insured bank(s).
Question 39: What Does Open Bank Assistance (OBA) Mean? Answer: Open Bank Assistance (OBA) is a situation where a failed insured institution is allowed to continue to operate in the same name as a going concern. It may involve change in ownership and management of the bank; injection of fresh funds in the form of equity and/or loan capital; and re-organisation and overhauling of the bank including rationalization of staff and branches.
Question 40: What Is A Bridge Bank? Answer: This is a situation whereby a failed bank is turned over to a new bank specifically set up to assume the assets and liabilities of the failed bank. The bridge bank would permit continuity of banking services to all customers and fully protect all the depositors and creditors of the failed bank pending final resolution. A bridge bank is usually set up for a specified period of time.
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Question 41: How can the public contact NDIC about questions and suggestions regarding deposit insurance? Answer: NDIC has set up the following contact channels to provide customer service to the public: a. For obtaining quick answers to your questions, call our help-line service: 09 – 460 - 1280; and 09 – 460 - 1030. b. The banking public can send comments to NDIC by mail to: The Managing Director/Chief Executive Officer, Nigeria Deposit Insurance Corporation, Plot 447/448 Constitution Avenue, Central Business District, P.M.B. 284, Abuja.
c. Information on NDIC and the deposit insurance system can be accessed from our website at: www.ndic.org.ng . You can also submit comments or questions through the web site.
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Section 17
DIS GLOSSARY Term Definition A healthy bank or financial institution that purchases some or all of the assets Acquiring and assumes some or all of the liabilities of a failed institution in a purchase Institutions and assumption transaction.
The tendency for higher-risk banks to opt for deposit insurance and lower-risk banks to opt-out of deposit insurance when membership in a deposit Adverse Selection insurance system is voluntary.
The base on which the deposit insurer adopts to charge premium or to Assessment Base calculate the levy needed to compensate the insured depositors.
A buyout strategy in which certain specific assets of a target institution are Asset Purchases purchased. A rapid loss of deposits precipitated by fear on the part of the public that a Bank Run bank may fail and depositors may suffer losses.
Benchmark A standard or guideline to which other items or processes can be compared. A declaration by the government that all deposits and perhaps other financial Blanket Guarantee instruments will be protected. A temporary bank established and operated to acquire the assets and assume Bridge Bank the liabilities of a failed institution until final resolution can be accomplished.
An assertion of the indebtedness of a failed institution to a depositor, general Claim creditor, subordinated debt holder, or shareholder. An arrangement whereby depositors are insured for a pre-specified portion, Coinsurance less than 100 percent of their deposits and are made to bear some loss.
The taking of a mortgage, pledge, charge or other form of security by a Collateralisation creditor over one or more assets of a debtor.
Mandatory A deposit insurance system that all targeted institutions must participate or be Coverage member institutions according to law or agreement. The legal procedure provided by statute for the interim management of Conservatorship financial institutions. The spread of an individual bank run or adverse condition to several other Contagion financial institutions.
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The system by which an organisation is directed, administered or controlled, Corporate and includes the relationships among stakeholders and the goals for which the Governance organisation is governed.
Coverage Ratio (by A measure of all depositors that would be fully protected in case of an insured account) institution failure. Ratio of insured deposits divided by total insurable deposits. Coverage Ratio (by value) Accounts and financial products which are at insured institutions and covered Covered Item by the deposit insurer.
Deposit insurance is a system established to protect depositors against the loss of their deposits in the event of an insured institution’s inability to meet its Deposit Insurance obligations to depositors.
A resolution method for failed institutions that involves the reimbursement of Deposit Payout insured deposits.
The granting of preferential treatment to depositors such that their claims Depositor Priority must be paid in full before remaining creditors can collect their claims (same as depositor preference.)
A levy on a bank assessed on the basis of that bank's risk profile (also called Differential Risk-Adjusted Differential Premium). Premium
Disclosure A fact, condition, or description that is revealed clearly and publicly. A potential purchaser's evaluation of books and records of a failing institution Due Diligence preparatory to a bid or acquisition. The framework applied on an organization-wide basis to ensure and Enterprise Risk demonstrate that an entity’s significant risks are being consistently and Management continuously identified, assessed, managed, monitored, controlled and reported on. The accumulation of a fund to cover deposit insurance claims in anticipation Ex-ante Funding of the failure of an insured bank.
An assessment levied after the failure of a insured bank to provide funds to Ex-post Funding cover deposit insurance claims/obligations. A financial stability mechanism that usually comprises the deposit insurance Financial Safety Net function, prudential regulation and supervision, and the lender-of-last-resort function.
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Flat - Rate Premium A premium assessed at a uniform rate across all insured institutions. A foreign-bank subsidiary is incorporated as a separate legal entity in the host Foreign country. A foreign-bank branch, on the other hand, is an expansion of a Bank/Subsidiary foreign bank into a host country. Foreign-bank branches and subsidiaries may Branch be subject to different rules and supervised differently by a host country.
A funding method used by the deposit insurers by combining both the ex-ante Hybrid Funding and ex-post funding mechanisms.
In general, a collateral contract or assurance under which one person agrees to Indemnification secure another person against either anticipated financial losses or potential adverse legal consequences.
Indexed Coverage The limited coverage level determined by the inflation rate of a country. Insured Deposits Types of deposits that are covered by deposit insurance scheme. Relationships among deposit insurers and other financial safety players and their collaboration through allocation of powers and responsibilities, Interrelationship information sharing, and the co-ordination of actions to promote financial stability.
A procedure that requires the deposit insurer or other designated entity to implement the resolution alternative that is determined to be less costly to the Least-Cost system than all other resolution alternatives, including the liquidation of the Resolution failed bank.
Lender-of-Last- The provision of liquidity to the financial system by a central bank. Resort Function A guarantee that the principal and/or the interest accrued on protected deposit Limited-Coverage accounts will be paid up to a specified limit. Deposit Insurance
The winding up of the business affairs and operations of a failed insured depository institution through the orderly disposition of its assets. Liquidation
A method in a purchase and assumption transaction in which the receiver agrees to share with the acquirer losses on certain types of loans. Loss sharing may be offered by the receiver in connection with the sale of Loss Sharing classified or non performing loans that otherwise might not be sold to an acquirer at the time of resolution.
A mandate is a set of official instructions or statement of purpose of a firm or Mandate an organization.
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A situation where depositors or creditors assess the risk characteristics of a bank and act upon such assessments to deposit or withdraw funds from a Market Discipline bank.
The amount a depositor can claim from the deposit insurer in the event of Maximum Coverage bank failures. See also "Limited-Coverage Deposit Insurance".
The incentive for additional risk taking that is often present in insurance Moral Hazard contracts and arises from the fact that parties to the contract are protected against loss. An essential part of the banking supervisory process undertaken by On-Site Appraisal authorities. The appraisals include examinations of books, records and internal controls of financial institutions. A resolution method in which an insured bank in danger of failing receives Open-Bank assistance in the form of a direct loan, an assisted merger, a purchase of Assistance assets, or through other means.
Paybox A deposit insurer with powers limited to paying out the claims of depositors. Prompt Corrective A supervisory action to provide a timely and non-discretionary trigger Action mechanism for early intervention in problem financial institutions.
Purchase and A resolution method in which a healthy bank or group of investors assume Assumption (P & A) some or all of the obligations, and purchase some or all of the assets of the Transaction (Sales) failed bank. The legal entity that undertakes the winding down of the affairs of an Receiver insolvent bank.
Receivership The legal procedure for winding down the affairs of an insolvent institution. These comprise the sum of the expenditures and obligations incurred, including any immediate or long- term obligations and any direct or Resolution Costs contingent liabilities for future payment, net of recoveries on assets of the failed bank.
A deposit insurer with the powers to reduce the risks it faces. These powers Risk may include the ability to control entry and exit from the deposit insurance Minimizer/Risk system, assess and manage its own risks and may conduct examinations of Manager insured institutions, or request such examinations.
Refers to situations where the claim of a creditor in an insolvent bank (for example, a deposit) is deducted from a claim of the bank against the creditor Set-Off (for example, a loan).
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An examination that policymakers undertake to assess factors such as: the state of the economy; current monetary and fiscal policies; the state and structure of the banking system; public attitudes and expectations; the state of Situational Analysis the legal, prudential regulatory and supervisory; accounting and disclosure regimes.
The fund received by a newly established deposit insurance system by initial Start-Up Funding contributions from banks, government, and/or the central bank.
The process of developing and setting the strategic direction and actions to Strategic Planning accomplish the vision and goals of an organisation.
The process where a deposit insurer is substituted as the claimant for the Subrogation insured deposits paid by a deposit insurer.
A risk that has implications for the general health of the financial system and can have serious adverse implications for financial stability and overall Systemic Risk economic conditions.
The right of a deposit insurer to terminate the status as an insured institution if Termination of it doesn't meet some specific qualifications set by the insurer. Deposit Insurance The practice of protecting uninsured depositors, creditors, and others from loss when large banks fail in order to prevent the occurrence of a systemic Too Big to Fail risk.
Uninsured Deposit Types of deposits that are not covered by deposit insurance scheme. A deposit insurance system that a targeted institution has the right to decide to Voluntary System participate as a member or not to.
Deposits that are temporarily suspended to be paid by the deposit insurer due Withheld Deposits to lack of enough information. See also "Suspense Account".
Sources: Websites Of International Association of Deposit Insurers (IADI) And Federal Deposit Insurance Corporation (FDIC)
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