Re: One little thing NDIC must amend

Our attention has been drawn to a recent publication on the above caption in the Premium Times (online) of Saturday 17th March, and Sunday Trust of 18th March, 2018 by a columnist, Tope Fasua. The publication analysed the advertisement published by the Nigeria Deposit Insurance Corporation (NDIC) in The Punch, Daily Trust and Thisday editions of March 12, 14 and 16, 2018 respectively, on the ongoing verification for payment to creditors of five banks in-liquidation namely: Financial Merchant Bank, Commercial Trust Bank, Icon Merchant Bank, Merchant Bank for Africa and Ivory Merchant Bank announced by the Nigeria Deposit Insurance Corporation (NDIC). 

The fundamental flaw in Mr. Fasua’s discourse is that he mistook ‘creditors’ of the five banks to which our advertisement was targeted for their ‘depositors’. The same misconception was behind his erroneous statement that depositors of the same banks had to wait for 22 years for the payment of their money trapped in the five closed banks. 

In his view, the fate of his presumed ‘depositors’ was unfair because they not only had to endure the depreciation of the value of their original deposits caused by inflation over the years, they were also required to provide proof of ownership of the affected accounts. On top of that, Mr. Fasua also expressed the belief that the current NDIC Maximum Deposit Insurance Coverage of N500,000.00 per depositor of each Deposit Money Bank (DMB) was grossly inadequate. Without referring to any source, he concluded that the majority of bank accounts in the country today contained over N500,000.00. 

Let me emphasize from the outset that the advertisement issued by the NDIC which formed the basis for Mr. Fasua’s discourse was meant for the CREDITORS of the affected banks in-liquidation as distinct from the DEPOSITORS (emphasis mine). The creditors of closed banks as defined by the NDIC Act, refer to individuals, or corporate organisations, who have rendered various forms of services to banks before their banking licences were revoked and were yet to be paid by the same banks. 

For instance, the creditors of closed banks would include landlords for unpaid rental fees; taxes, and rates such as Pay As You Earn (PAYE) and Company Income Tax (CIT); Health Management Organisations (HMOs); diesel suppliers; newspaper vendors; auditors; consultants etc.  

Because of the same fundamental misconception, Mr Fasua went further to claim that depositors of the five defunct banks were kept waiting for 22 years, and concluded that this period was too long “to resolve anything”. For the avoidance of doubts, insured depositors of closed banks are never kept waiting by the NDIC to be reimbursed. Their guaranteed sums, which are domiciled in the Deposit Insurance Fund (DIF) of the Corporation, are promptly paid within 90 days (three months) of the revocation of the banking licences of distressed banks in line with the provisions of the NDIC Act. 

Even so, the Corporation is striving hard to leverage on technology and other operational readiness strategies to be able to commence the payment of insured deposits immediately the operating licences of banks are revoked by the Central Bank of Nigeria (CBN).

It is pertinent to point out at this point that the NDIC was established primarily to protect small and unsophisticated savers (depositors). Not only do they account for over 90% of depositors, they are also considered to be the most vulnerable category of depositors in the banking system. For that reason, they enjoy priority in the settlement of claims when the payment of depositors of closed banks commences. They are followed by the creditors of the banks, while the shareholders are the last to be paid. 

As at the time of their closure, the five defunct banks under reference had a total of 16,076 depositors and deposit liabilities of N2.550 billion out of which N91.94 million represented the guaranteed (insured) sum while N2.458 billion was uninsured. Following successful verification and payment of the guaranteed sum to the insured depositors of the five banks, the Corporation commenced the realisation of the banks’ assets to enable it pay the uninsured sum (i. e. amount in excess of the maximum insured coverage) as liquidation dividends. 

The full payment of the uninsured depositors’ balance therefore depended on what the Corporation was able to realise from the liquidation of their assets. It is to the credit of the Corporation that not only was it able to effectively realise the assets of the banks; it also achieved the remarkable feat of effecting 100% declaration for the N2.458 billion uninsured deposits! The advertisement in question signified the Corporation’s preparedness to commence the verification exercise preparatory to the payment of creditors! It is also pertinent to add that contrary to the impression created by Mr. Fasua, payments to creditors cannot be tied to any definite time-frame like the settlement of insured guaranteed sums for a number of reasons principal of which include the daunting challenges of assets realisation – including poor asset quality – as well as protracted litigations by the debtors amongst others. 

Similarly, the notion that NDIC’s current maximum deposit insurance coverage of N500,000.00 per depositor of each Deposit Money Bank (DMB) “is grossly inadequate given that a lot of bank deposits are over N500,000 today” is flawed. For instance, credible surveys conducted by the Corporation prior to the adoption of the current coverage limit revealed that over 95% per cent of bank accounts in the system contained less than N500,000.00! Global best practice stipulates that majority of depositors must be covered by the maximum deposit insurance coverage. 

The NDIC periodically reviews its coverage levels to align with the core principles of effective Deposit Insurance after adequate surveys are conducted. The most recent survey revealed that of the 83,016,654 total bank accounts at December 2016, the current maximum guaranteed sum of N500,000.00 effectively covered 82,571,145 accounts representing 99.46 per cent, with 0.54 per cent only partially covered. There is, therefore, no basis for arbitrary upward review of the insurance coverage based on mere whims. This is without prejudice to the value of the Naira. The primary consideration is the protection of the majority of depositors in the system.

In conclusion, permit me to emphasize that Deposit Insurance as a concept is designed to provide insurance guarantee for depositors against risks associated with banking especially the possibility of losing money, arising from the failure of banks to meet payment obligations to their depositors. Globally, Deposit Insurance prioritizes the protection of the most vulnerable depositors who normally constitute the bulk of the banking population. They feel the most impact when banks collapse. And when that happens, it must be clear to all that the public policy objective of the DIS requires the Corporation to settle depositors of the closed banks in the first instance, before other stakeholders in the banking system such as creditors and shareholders can be considered. 

Kudu is the Head of Communication & Public Affairs, Nigeria Deposit Insurance Corporation