NDIC: Protecting depositors in Nigerian banking system

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Alhaji Umaru Ibrahim, Managing Director/CEO, NDIC

ONCE upon a time, it was possible for Nigerians just to wake up and hear that their otherwise reliable bank has collapsed. Most depositors were left high and dry. Then, the Nigerian government set up the Nigeria Deposit Insurance Corporation (NDIC) in 1989 to insure bank deposits throughout the country. For over 25 years, the NDIC has given succour to millions of Nigerian depositors.

And for the last turbulent six years during which Alhaji Umaru Ibrahim has been the Managing Director/Chief Executive of NDIC, he has not only sustained the good reputation his predecessors set for the corporation but enhanced its goodwill as one of the leading deposit insurers on the continent.  Under his leadership, NDIC has been living up to its core responsibility of promoting safety and building confidence in the banking system.

Global outlook

In line with the trend in global financial services, the NDIC recently embarked on new services to further protect depositors and foster public confidence while promoting stability in the banking system. These include the introduction of Mobile Payment Services (MPS) through which the Corporation extended deposit insurance cover to the subscribers of the mobile money operators by creating the Pass-Through Deposit Insurance Scheme (PTDIS) up to the maximum limit of N500, 000.00 per depositor. The Mobile Payment System (MPS) refers to payment services operated under financial regulation and performed from or via a mobile device. The devices used on e-payments are mobile phones as a virtual bank card, point of sale terminal (POS), Automated Teller Machine (ATM), Laptops and other portable computers for internet banking services.

With the introduction of non-interest banking practice in Nigeria, the Corporation released a framework which extended deposit insurance scheme to the customers of non-interest banking institutions. The guidelines for the extension of the deposit insurance scheme (DIS) coverage to non-interest banking Institution (NIBIs) have a ceiling of up to N500, 000.00 per depositor.

One the other hand, the Corporation has continued to partner with relevant stakeholders to propagate the objectives of the National Financial Inclusion Strategy (NFIS) to reduce the percentage of adult Nigerians that do not have access to financial services from 46.3 percent in 2010 to 20.0 percent by 2020.

To this end, the Corporation is contributing to financial education by publishing various pamphlets such as “Basic Knowledge on Banking and Deposit Insurance”, and “This Little Piggy” among others in order to inculcate banking habits and financial management among the youths.

Awareness campaigns

Over the years, the Corporation has intensified its depositor protection awareness campaign not only to address the challenges associated with unclaimed depositors’ funds in closed banks but also enlighten the public through television documentary series “NDIC Calling” on NTA as well as interactive talk shows on Radio. The Corporation also partners with civil society organisations to further its public enlightenment campaigns.

Ibrahim had always advised depositors who have funds in liquidated banks to always endeavour to file their claims with the Corporation for immediate payment. One of the core messages in NDIC’s awareness campaign is that depositors should be wary of the activities of illegal fund managers otherwise known as “Wonder Banks.” Ibrahim appealed to members of the public to stop patronizing these ‘wonder banks’ which offer mouth-watering interest rates to dupe unsuspecting members of the public of their hard earned incomes in the name of investment. These ‘wonder banks,’ he said, are neither licensed by the Central Bank of Nigeria (CBN) or Securities and Exchange Commission (SEC) nor are they under the NDIC deposit insurance scheme.”

NDIC is also concerned that some cooperative societies are being used by unscrupulous elements to engage in illegal collection of deposits thereby defrauding unsuspecting members of the public of their hard earned income. This necessitated the call by the NDIC boss for Federal and State Governments to impose stringent punishment against such unscrupulous cooperative societies.

The great works of Ibrahim earned him a second consecutive five-year term as the managing director of NDIC. His first term of five years expired in December 2015. Indeed, the effective bank examination undertaken by the NDIC under his watch contributed immensely to the healthy state of the deposit money banks (DMBs) in the country. These measures engendered confidence in the industry,  resulting in improvement on return on assets (ROA), return on equity (ROE) as well as yield on earnings and profitability. The result is depositors’ trust and promotion of financial inclusion. That wasn’t all.  NDIC also contributed greatly to the resolution of the crises that affected the Nigerian Banking industry in 2008/2009. Ibrahim, as helmsman, steered NDIC to safety in the aftermath of the global banking turbulence and, in the process, displayed rare acumen that gave him out as a thoroughbred professional. The harmonious working relationship between NDIC and other regulatory bodies like the CBN, Federal Ministry of Finance, the Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) in the last couple of years is partly due to his leadership qualities.

To some observers, Ibrahim’s sterling performance so far may not be unconnected to his long association  with the institution, having worked with the agency since its inception in 1989 and rose through the ranks to its pinnacle. Besides, he has been able to achieve set goals based on the unflinching support he has received from the two executive directors of NDIC – Prince Aghasite Erediauwa, Executive Director, Operations and Hon. Omo’lola Abiola-Edewor, Executive Director, Corporate Services.

NDIC’s 2015 scorecard

The effectiveness of the methods employed by Ibrahim to sell the corporation and its activities to stakeholders in the Nigerian financial system is visible in the 2015 annual report of the corporation. The report, which reveals major achievements of the corporation in 2015, also informs that while NDIC retains the current coverage levels of N500, 000 per depositor of Deposit Money Banks (DMB) and N200, 000 per depositor of Micro Finance Bank (MFB), the coverage level for depositors of Primary Mortgage Banks (PMBs) has been reviewed from N200, 000 to N500, 000 in 2015.

It also reduced the premium paid by banks by N9.09 billion in 2015 following the reduction of the premium base rate from 40 basis point to 35 for each DMB/NIB under the Differential Premium Assessment System (DPAS).

During the year under review, the Corporation extended deposit insurance coverage to subscribers of mobile money operators (MMOs) via the concept of pass-through deposit insurance up to a maximum of N500,000.

In 2015, NDIC, in collaboration with the CBN, conducted a routine Risk Assessment of all the 24 DMBs while the NDIC itself carried out risk-based examinations of 205 MFBs and 6 PMBs. The examinations were with a view to providing reliable information on their financial health particularly as it affects the quality of risk assets, adequacy of loan loss provisions, capital adequacy, their level of compliance with banking rules and regulations, risk appetite and adequacy of risk management frameworks.

In all, NDIC made a cumulative payment of N6.796 billion to 426,324 insured depositors of the closed DMBs as at 31st December, 2015 as against N6.795 billion to 426,320 insured depositors in 2014.

It also made a cumulative payment of N2.86 billion to 81,328 depositors of the closed MFBs as at 31st December, 2015 as against N2.77 billion paid to 80,178 depositors in 2014. The list also shows  a cumulative payment of N45.05 million by NDIC to 595 depositors of closed PMBs as at 31st December, 2015 as against N2.02 million paid to 30 depositors in 2014.

The sum of N95.77 billion was paid as liquidation dividend to depositors of DMBs in 2015 compared to N94.74 billion as at December 31, 2014. That amount included the uninsured portion of private sector depositors of 11 out of 13 banks closed post-bank consolidation funded by the CBN.

Similarly, the NDIC paid liquidation dividends to creditors of DMBs-in-liquidation in 2015 while the sum of N1, 728.40 million was declared as dividends to 1,308 creditors of the ten DMBs. Of that amount, the NDIC paid the sum of N1,261.73 million to the 965 creditors who filed their claims as at 31st December, 2015 as against N1,247.77 million paid to the 889 creditors as at 31st December, 2014.

During the year under review, the agency also paid N2.41 billion as total liquidation dividends to 550 shareholders of 6 DMBs-in-liquidation as at 31st December, 2015 as against N2.03 billion paid to 453 shareholders of DMBs-in-liquidation as at 31st December, 2014.

The cumulative amount of loans recovered over the years stood at N27.41 billion as at 31st December, 2015 compared with N26.75 billion as at 31st December, 2014. Similarly, the cumulative risk assets recovered from closed MFBs amounted to N125.61 million as at 31st December, 2015 compared with N124.38 million as at 31st December, 2014 while the money from the debtors of PMBs in-liquidation amounted to N24.73 million as at 31st December, 2015.

As part of its corporate social activity, the NDIC initiated a number of projects. These were in the area of education and community health care. In 2015, the organisation spent the sum of N236.15 million on 18 such projects spread across the country.

In keeping with its mandate and compliance with the provisions of the Fiscal Responsibility Act, NDIC, in 2015, remitted the sum of N24,185,762,000 to the Consolidated Revenue Fund of the Federation in 2015 as against N15.38 billion in the previous year. The Corporation’s operating surplus for 2015 stood at N30.23 billion as against N15.52 billion in 2014.

Financial state of the DMBs

The banking industry’s total assets grew marginally by 1.36 percent. Total loans and advances rose by 5.56 percent; shareholders’ funds unimpaired by losses increased by 14.02 percent while capital adequacy ratio stood at 17.66 percent. However, total deposit liabilities declined by 2.83percent. The unaudited profits decreased by 2.02 percent while non-performing loans increased by 82.87 percent in 2015.

Capital Adequacy

The banking industry capital base remained strong. The banking industry’s capital adequacy ratio (CAR) was 17.66% in 2015 compared with 15.92% in 2014. It exceeded the minimum threshold of 10 percent and 15 percent for national and international banks respectively. Only two DMBs had CAR below the prescribed threshold of 10 percent in 2015.

Asset Quality

Total loans and advances to the Nigerian economy stood at N13.33 trillion in 2015, showing an increase of 5.56 percent over the N12.63 trillion reported in 2014. The non-performing loans to total loans ratio for the industry increased from 2.81 percent in 2014 to 4.87 percent in 2015, but was within the regulatory threshold of 5 percent.

Earnings and Profitability

The banking industry operated profitably, though earnings and profitability deteriorated. The unaudited profit-before-tax (PBT) of the banking industry stood at N588.86 billion as at 31st December, 2015 representing a decrease of 2.02% over N601.02 billion reported as at 31st December, 2014.

Liquidity Management: The banking industry’s liquidity position was strong as its average liquidity ratio rose slightly from 53.65% in 2014 to 58.18% in 2015. All the individual DMBs had liquidity ratios above the prudential minimum threshold of 30% as at 31st December, 2015.  Overall, the banking industry has remained stable and sound during the period under review.

Financial Condition of Micro Finance Banks (MFBs)

Capital Adequacy: The MFBs paid-up capital increased by 54.40 percent from N54.52 billion in 2014 to N84.18 billion in 2015. The MFBs had average CAR of 43.75 percent as at 31st December, 2015.

Asset Quality: Total loans and advances increased by 46.34 percent from N114.70 billion in 2014 to N167.85 billion in 2015. The quality of risk assets deteriorated further as the NPL increased from 18.54 percent in 2014 to 23.13 percent in 2015, which exceeded the prudential maximum threshold of 5 percent.

Earnings and Profitability: Unaudited Profit before tax decreased by 77.63 percent from N7.51 billion in 2014 to N1.68 billion in 2015. Also, return on assets (ROA) and return on equity (ROE) for the subsector declined from 3.39 percent and 14.70 percent in 2014 to 0.47 percent and 13.74 percent in 2015, respectively.

Liquidity Management: The liquidity position of the microfinance subsector was strong as average liquidity ratio rose from 80.37 percent in 2014 to 119 percent in 2015 and compared favourably with the minimum prudential threshold of 20 percent.

Overall, the performance of the MFB subsector improved compared to the previous year as they had strong capital base and liquidity.

Financial Condition of Primary Mortgage Banks (PMBs)

Out of 42 PMBs in operation, a total of 14 failed to render returns to the NDIC and unpaid premium from nine (9) PMBs amounted to N238.30 million in 2015.

Capital Adequacy: The PMBs shareholders’ funds increased by 93.91 percent to N138.92 billion in 2015 from N71.64 billion in 2014. The subsector CAR was 74.04 percent as at December 2015 which exceeded the prudential threshold of 10 percent.

Asset Quality: Total loans and advances extended by the subsector declined significantly by 31.87 percent to N168.96 billion in 2015. There was a significant improvement in the quality of assets as the NPL ratio decreased from 44.14 percent in 2014 to 15.40 percent in 2015. Despite that improvement, the NPL ratio of 15.40 percent exceeded the prudential maximum threshold of three percent.

Earnings and Profitability: Unaudited Profit before tax rose from N2.79 billion in 2014 to N3.31 billion in 2015 due to significant rise in interest income and non-interest income by 90.75 percent and 321.05 percent in 2015, respectively.

Liquidity: The PMBs liquidity position was strong during the period under review as the average liquidity ratio was 72.63 percent in 2015 as against 80.37 percent in the previous year and exceeded the prudential minimum threshold of 20 percent.

Overall, the performance of the PMB subsector improved in almost all indices in comparison with 2014. The improvement in the operations of the PMBs was due to the recapitalisation of the sector, enhanced compliance by PMB operators and improved supervisory oversight.

 Frauds and forgeries

A total of 12,279 fraud cases were reported in 2015, representing an increase of 15.71 percent over the 10,612 fraud cases reported in 2014. However, the amount involved decreased significantly by N7.59 billion or 29.63 percent from N25.608 billion in 2014 to N18.021 billion in 2015. Similarly, the actual loss suffered by the insured banks decreased by N3.02 billion or 48.79 percent from N6.19 billion in 2014 to N3.17 billion in 2015.

The actual loss sustained in respect of internet banking fraud was N857 million, representing 27 percent of total actual loss for the industry. There was an increase in the frequency of ATM/Card-Related Fraud cases from 7,181 in 2014 to 8,039 in 2015, a rise of 11.95 percent. However, the loss suffered by the industry due to such frauds declined significantly by 59.4 percent from previous year figure of N1.242 billion to N0.504 billion, representing 15.9 percent of total industry loss to frauds and forgeries.

Sustainable Banking

The NDIC remains committed to the implementation of Sustainability Principles. A Sustainable Banking Desk was set up in the Managing Director’s Office and an Implementation Committee was established to work with Sustainable Banking Champions to ensure continuous sensitization and awareness.

Furthermore, the Corporation has embarked on sustained and continuous capacity building programmes for staff on environmental and social risks issues.

All these efforts have been in keeping with NDIC’S role as carved out for it since its inception. The organisation has since emerged as one of Nigeria’s best run government agencies, carrying out its oversight functions in line with its mandate and the current achievement of the present team only bolsters that reputation.

 

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