7th National Assembly and NDIC Amendment Bill
There is growing anxiety among financial services sector stakeholders, including operators and depositors, that the outgoing 7th National Assembly may fail to pass the Nigerian Deposit Insurance Corporation (NDIC) Amendment Bill before winding up later this month.
We believe that concerns about delay in passing the amendment legislation are well-founded for two main reasons. First is the avoidable face-off between the Central Bank of Nigeria (CBN) and the NDIC over some of the proposed amendments. Secondly, there has been a lot of misinformation and misrepresentation about the need for the intended changes to the corporation’s enabling law.
Information at our disposal demonstrates that the proposed amendments are the product of a quarter-century experience of operating the NDIC Decree 22 of 1988 (now NDIC Act No. 16 of 2006). In this regard, it is significant that NDIC submitted to peer review by the International Association of Deposit Insurers (IADIs) in 2011 to ascertain the extent of its compliance with best standards set under the IADI’s 18 core principles of an effective deposit insurance system. The assessment revealed that Africa’s largest deposit insurer with assets in excess of N22 trillion ($110 billion) complied fully with only seven core principles; largely complied with eight; materially did not comply with two of the principles, while the last one was not applicable to the corporation. This humbling experience with the IADI peer review emboldened NDIC’s board and management to take steps to meet the objectives of approximating to international best practices. Those efforts culminated in intense engagement with the National Assembly to propose the Amendment Bill.
As is well known, NDIC’s mandate covers deposit guarantee, bank supervision, failure resolution and bank liquidation. However, the corporation’s board and management insist that the agency has been handicapped in the effective discharge of its mandate due to lack of enforcement powers and other challenges arising from its operational experiences, particularly in the area of bank liquidation and pay-out. The proposed amendments to its enabling law are, therefore, designed to strengthen its capacity to effectively discharge its mandate. They are also in line with the IADI’s core principles for an effective deposit insurance system. We salute the courage of the leadership of the NDIC in proposing the amendments and urge the 7th National Assembly to pass the bill in its lifetime.
The first key change to the existing legislation seeks power to be involved in the process of issuing a licence to deposit institutions. NDIC recognises that the power to license banks in Nigeria is strictly within the purview of the CBN. However, the corporation has observed that some banks, particularly microfinance banks (MFBs) and primary mortgage banks (PMBs), closed shop shortly after being licensed and that some of them whose licences were revoked by the CBN could not even be located at their last known addresses after taking away depositors’ money. Reports say “even the promoters could not be traced by both the NDIC and CBN”. The corporation is, therefore, desirous of being involved in the process of licensing the banks, particularly in the area of carrying out “fit and proper persons test”.
The second main amendment centres on the power to supervise banks. The existing provisions in the NDIC Act, 2006 give the corporation powers in sections 27-31 to examine banks and issue reports and such reports are shared with the CBN. BusinessDay gathered that “such had been the practice until the assumption of office by the immediate past CBN governor, Sanusi Lamido Sanusi in 2009, who requested that the NDIC and CBN jointly examine banks and issue joint reports”. However, eager to retain its operational independence, NDIC wants reversion to the status quo.
Power to be sustentative liquidator is the kernel of the third main amendment. The existing NDIC Act 2006 provides for the appointment of NDIC as provisional liquidator. This was tested with the revocation of the operating licences of some MFBs but its effectiveness was doubtful given the experience with the cases of the defunct Fortune and Triumph banks. We recall that the NDIC was appointed provisional liquidator for both banks in 2006 but nine years later, the corporation has not been able to carry out liquidation activities, such as the realisation of the closed banks’ assets and subsequent payment of liquidation dividend to the uninsured depositors of the banks. It is in this regard that the proposed amendment provides for the appointment of the NDIC as liquidator simplicita in order to ensure effective winding-up of the affairs of failed insured institutions.
The corporation’s quest to have power to enforce findings of its bank examinations is the theme of the fourth main proposed amendment. NDIC wants power to enforce the recommendations contained in its Examination Reports thereby strengthening its supervisory capacity. This is to prevent a situation where a bank is examined and the same lapses observed in previous examination reports are repeated due to failure of bank management to implement the earlier recommendations, as well as to ensure prompt corrective action is taken on problem banks.
Another proposed amendment seeks recognition of NDIC as conservator in light of section 34(a) of the Banks and Other Financial Institutions (BOFIA) Act 1990 (as amended). There is also an amendment seeking powers to pay insured deposits even when action challenging revocation of bank licence by CBN is pending in court, as well as reduction of pay-out period (depositors’ reimbursement) from 90 to 30 days to guarantee prompt settlement of depositors’ insured sum.