THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC A

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC A PAPER PRESENTED BY J. J. ETOPIDIOK DIRECTOR SPECIAL INSURED INSTITUTION DEPARTMENT (SIID) AT RISK BASED SUPERVISION AN OVERVIEW OF NIGERIAN BANKING SYSTEM DATE: 30 TH September, 2019 1

OUTLINE • INTRODUCTION • OVERVIEW OF THE NIGERIAN FINANCIAL ECOSYSTEM • THE NIGERIAN FINANCIAL SYSTEM: ROLE OF NDIC • CONCLUSION 2

INTRODUCTION The world population is estimated to reach 9. 8 billion by 2050 and 2/3 of this number will be found in Africa and South East Asia. Poor infrastructure, lack of Job and Poverty continued to define lives in Nigeria and other Emerging Economies. To resolve the above mentioned, conundrum, need for a robust Financial System to increase the frontier of Financial Inclusion. The narrative for the Nigerian Financial System is presented below; • The Nigerian Financial System predates the nation’s independence in 1960. The system had experienced a number of notable incidents that had brought far reaching changes to its landscape. The enactment of the banking ordinance in 1952 is one of them, the bank failures of the late forties and early fifties also impacted the system so also was the establishment of the CBN in 1959. The recent global meltdown also shook the Nigerian capital market to its foundations. Before the global financial meltdown, we can also talk of the indigenisation decree of 1972 and the Structural Adjustment Programme of 1986. However, no other incident has so much impacted the country’s financial system in contemporary times as the establishment of the Nigeria Deposit Insurance Corporation in 1989 which marked the beginning of the deposit insurance scheme in the country. 3

STRUCTURE OF THE NIGERIAN FINANCIAL SYSTEM • Typical of financial systems in other jurisdictions, the Nigerian Financial System comprises of two main markets: The Money Market and The Capital Market. • The Money Market is basically for the mobilisation of short term funds from the Surplus area (Saver) to service the Deficit members (Borrowers) • Key players in the Nigerian Money Market include: The Central Bank (Lead Regulator), NDIC, Deposit Money Banks, Non-Interest Banks, Merchant Banks, Development Banks, Primary Mortgage Institutions, Microfinance Banks, Discount Houses, Insurance Companies, Bureau De Change, Finance Houses, and Credit Bureaus, Financial Market Dealers Quotation (FMDQ), Fintech. 4

STRUCTURE OF THE NIGERIAN FINANCIAL SYSTEM-CONTD • Capital Market is basically for the mobilisation of long term funds. It is common to divide a capital market further into Primary and Secondary Markets. • The key participants in the Nigerian Capital Market are: Securities and Exchange Commission (the apex regulator), Nigerian Stock Exchange, Issuing Houses, Stockbrokers, Registrars, Underwriters and Investors. • One key participant in the Nigerian Financial System that straddles the two markets and can and does influence the two markets TREMENDOUSLY is the Federal Ministry of Finance. 5

STRUCTURE OF THE NIGERIAN FINANCIAL SYSTEM-CONTD • Notwithstanding that the players in the two markets are pre-occupied with the pursuits of different activities to realise their different motives, the players do collaborate and interact because of the interdependence of the two markets. The 2008/2009 Financial meltdown in the Nation’s Capital Market with stock prices sliding southwards had ripple effects in the Money Market with billions of margin loans given by banks to Operators in the Stock Market becoming delinquent. 6

STRUCTURE OF THE NIGERIAN FINANCIAL SYSTEM-CONTD • One of the avenues for close collaboration amongst the players in the Nigerian financial system is the Financial Services Regulation Coordinating Committee (FSRCC) established in 1998. • Members of the Committee include : (1)The Central Bank of Nigeria (CBN), (2)The Nigeria Deposit Insurance Corporation (NDIC), (3)The Federal Ministry of Finance, (4)The Securities and Exchange Commission(SEC), (5)The National Insurance Commission(NAICOM), (6)The National Pension Commission(Pencom), (7) Corporate Affairs Commission(CAC), (8)The Federal Inland Revenue Service(FIRS)(9)Abuja Commodity Exchange and (10)The Nigerian Stock Exchange 7

STRUCTURE OF THE NIGERIAN FINANCIAL SYSTEM-CONTD Objectives of the Committee include: • Coordinate the supervision of financial institutions especially conglomerates. • Reduce arbitrage opportunities usually created by differing regulatory and supervisory standards among supervisory agencies. • Deliberate on problems experienced by any member in its relationship with any financial institution. • Eliminate any information gap encountered by any regulatory agency in its relationship with any group of financial institutions, and • Articulate strategies for the promotion of safe, sound and efficient practices by financial intermediaries. • Deliberate on such other issues as many be specified from time to time. 8

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC Establishment of the NDIC : The Nigeria Deposit Insurance Corporation was established in 1989 by NDIC Act no 22 of 1988 which had since been repealed and replaced with NDIC Act no 16 of 2006 (As Amended) • Five main reasons could be adduced for the establishment of the Corporation at the time: • To avoid the repeat of the bitter experiences of bank failures in late 1940 s to early 1950 s with many depositors losing their funds because there was no formal deposit protection arrangement in place. • 9

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • The establishment of the scheme in Nigeria was also informed by the salutary lessons of countries with the Explicit Deposit Scheme. A ready example was the stabilizing role of the Federal Deposit Insurance Corporation each time there was a banking crisis in the USA. • Another rationale for the establishment of the NDIC was the change in government support policy from protecting all banks’ stakeholders to that of protecting depositors especially Small Depositors in the wake of the deregulation of the industry as a major plank of the Structural Adjustment Programme (SAP introduced in 1996). • Apart from the foregoing, was the government’s determination to further protect depositors from the ensuing competition occasioned by the liberalization of the banking industry. • It was also the view of government that with the establishment of an Explicit Deposit Insurance Scheme, the Federal Government will be relieved of its contingent liability of bailing out distressed banks. 10

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Mandate: Section 3 of the enabling Act establishes the Corporation as the sole Deposit Insurer in the country. According to the section: ‘Notwithstanding any provision contained in any other law, no person other than the Corporation shall insure deposit liabilities or guarantee payments to depositors of insured banks or such other insured deposit taking financial institutions operating in Nigeria. • Section 3 [2] further reinforces the sole deposit insurer status of the Corporation by prescribing penalties for the contravention of the provision as follows : ‘Any person who contravenes the provisions of this section commits an offence and is liable on conviction to: • [a] in the case of an individual, a fine of N 100, 000. 00 or imprisonment for a term not exceeding 5 years or to both such fine and imprisonment; (and) • [b] in the case of a corporate body, a fine of N 500, 000. 00 for each day the contravention continues. 11

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • • • Functions of the NDIC : According to section 2 of the Act, the Corporation shall have responsibility for – a) Insuring all deposit liabilities of licensed banks and such other deposit taking financial institutions (hereinafter referred to as “insured institutions”) operating in Nigeria within the meaning of sections 16 and 20 of this Act so as to engender confidence in the Nigerian banking system. Giving assistance to insured institutions in the interest of depositors, in case of imminent or actual financial difficulties particularly where suspension of payments is threatened to avoid damage to public confidence in the banking system; Guaranteeing payments to depositors, in case of imminent or actual suspension of payments by insured institutions up to the maximum amount as provided for in section 20 of this Act; 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; and Pursuing any other measures necessary to achieve the functions of the Corporation provided such measures and actions are not repugnant to the functions of the Corporation. 12

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Apart from section 2 quoted above, other aspects of the Corporation’s mandate are established by Part Four, Part Six, as well as Parts Eight and Nine of the Act. • A perusal of the above referenced sections of the Act, we can identify the four (4) components of the Corporation’s mandate as follows : I. III. IV. Deposit Insurance/Guarantee, Banking Supervision, Distress Management and Failure Resolution 13

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Deposit Insurance/Guarantee : Section 2 and Part Four of the enabling act deal extensively with this. The maximum amount of deposit guaranteed by the Corporation had since moved from N 50, 000 at inception to N 200, 000 and N 100, 000 in 2006 for depositors of failed licensed DMBs and MFBs /PMIs respectively. The Maximum Deposit Insurance Coverages MDICs are currently N 500, 000 For DMBs, N 500, 000 For PMBs, N 200, 000 For MFBs. 14

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Banking Supervision: As a risk minimiser, the NDIC has the responsibility for ensuring the stability of the banking industry through offsite surveillance and on-site examination of books, accounts and records of insured deposit- taking institutions. The supervisory roles of the Corporation are described in Part Six of the enabling Act. 15

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Distress Management : Another mandate of the Corporation is the management of deposit- taking institutions in distress. Section 2 of the Act defines the responsibility of the Corporation to provide financial and technical assistance to failing or distressed institutions in the interest of depositors in case of imminent or actual financial difficulties in particular where suspension of payments is threatened. This is to avoid erosion of public confidence in the banking industry. Technical assistance can take various forms like : take over of management or control of a bank, effecting changes in management of failing institutions as well as assisted merger or acquisition. Another potent instrument in the hands of the Corporation to manage distress in the industry is Bridge Bank. Recent examples were the bridging of the defunct Afribank Plc, Bank PHB, Spring Bank to become Keystone Bank, Heritage Bank and Polaris Bank. • Distress Management function furthered strengthened by CBN supervisory Intervention Framework for the Nigerian Banks 2011. 16

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Failure resolution: This is closely related to Distress Management. The roles and responsibilities of the Corporation as a liquidator of failed insured institutions are clearly defined in Part Nine of the enabling Act. • The enabling act has given the Corporation powers to Discharge the above roles and responsibilities. These powers include : Authority to enter into contract and set business regulations, Authority to source and manage funds of the Corporation, Authority to vary Maximum Deposit Insurance Claim, Powers to access information from insured institutions and examine their books and affairs, Powers to give financial and technical assistance to failing institutions and to undertake statutory liquidation and Powers to enforce sanctions against insured institutions. 17

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Governance : The Corporation has a twelve (12)member Board comprising a part -time chairman, a full time Managing Director/ Chief Executive Officer who is responsible for the day to -day running of the Corporation, two (2) executive directors, who assists the MD/CEO, six (6) part- time non -executive directors representing the six geo-political zones, and a representative each (not below the position of Director) from the Central Bank of Nigeria and The Federal Ministry of Finance. 18

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • The Journey so far : What is the scorecard of the Corporation for past 30 years? • The major achievements of the Corporation since its establishment in 1989 include: • Deposit Insurance/Guarantee: The bank insures the deposit liabilities of Deposit Taking Institutions licensed by the CBN to operate in Nigeria thereby engendering confidence in the banking industry. As at today, the Corporation insures the deposit liabilities of 26 Deposit Money banks, 1 Noninterest Bank, 868 MFBs and 36 PMBs, thus Guaranteeing payment to insured depositors of these institutions if and anyone fails or is failing. 19

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Bank Liquidation: Closely related to the above, are payments of dividends to uninsured depositors, creditors and shareholders of banks in liquidation. In recent time, as on 29 th September, 2018, CBN revoked the licenses of 154 MFBs and 6 PMBs and handed them over to NDIC for Closure and Liquidation. 20

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Bank Supervision: Sinception, the Corporation, has -been collaborating with the CBN to ensure stability of the banking industry through offsite surveillance and on site- examination of the records of insured institutions. In 2009, the Corporation changed from the episodic, rather reactive compliance – based system of supervision which it had adopted since 1989 to the more proactive, Risk -Based Supervision. Besides, the Corporation at times in close collaboration with CBN, carries out investigations into the operations and activities of banks , their directors and employees based on petitions received from stakeholders. For instance, in 2017, the Corporation investigated eighty three (83) petitions / complaints on various matters like : excessive and arbitrary interest charges, breach of trust, abuse of trust of some Directors and failure to credit accounts of customers. 21

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Other initiatives of the Corporation to ensure stability and safety of the financial sector include : Development of Supervisory Framework for Systemically Important Financial Institutions (SIFIs), Development of Framework for Integrated DIS for Sensitization as well as various Research Studies and Surveys, Formulating a Framework on Financial and Technical Assistance for DMBs, MFBs and PMBs. 22

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Public Awareness Initiatives : The Corporation sets much store by the need to create public awareness for its activities, roles and responsibilities. Some of the public awareness initiatives of the Corporation include seminars like : The Annual Workshop for Financial Correspondents Association of Nigeria (FICAN) and Business Editors’ Forum , advertisements like : ‘NDIC CALLING’ Television Programme and Depositor Protection Radio/TV jingles, and event/programme sponsorships. An example was the recent sponsoring of popular sports competition in seven states across the six Geopolitical Zones of the country. 23

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Corporate Social Responsibility: The Corporation provides assistance to institutions of higher learning in the country under its Education Support Programme. Under the scheme, the Corporation funds specific projects in the beneficiary institutions. Some of the recent beneficiaries include: Rumfa College, Kano, Katsina State University, Delta State Polytechnic, Akwa-Ibom State University, Anambra State University, Ajayi Crowther University, Ramat Polytechnic, Maiduguri and Yobe State University. 24

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Collaboration within and without: The Corporation maintains cordial relationship with the Central Bank of Nigeria and other members of the Financial Services Regulation Coordinating Committee(FSRCC) like: the SEC, National Insurance Commission(NAICOM), National Pension Commission (PENCOM, Nigerian Stock Exchange (NSE) and the Federal Ministry of Finance. 25

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • The Corporation maintains a visible presence on the international scene most especially at it relates to deposit insurance. For instance, the Corporation is not only an active member of the International Association of Deposit Insurers (IADI) but acted for close to a decade, as the Africa’s regional chair of the association. Furthermore , the Corporation continues to assist fellow African members of IADI with capacity building. In this regard, a number of African members of IADI like Tanzania and Lesotho have sent their staff on attachment to the Corporation at one time or the other. • The MD/CEO, NDIC is the Current Chairman of IADI, African Region. 26

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • Challenges: Some of the challenges of the Corporation are: • Weak legal framework ( as manifested in lack of enforcement powers, legal actions by owners of closed banks, recovery of debts owed failed banks, criminal prosecution and execution of judgement). • The effect of the Fiscal Responsibility Act on the finances of the Corporation. 27

THE NIGERIAN FINANCIAL SYSTEM AND THE NDIC CONTD • • Limited investment outlets of its Funds. Poor public awareness, and Data Integrity Human Resources Capacity 28

CONCLUSION • The Nigerian financial system has come a long way and as characteristic of financial systems in many jurisdictions, the system is still evolving. • It is expected that the Regulators and the Supervisors like the CBN, NDIC , NAICOM, SEC etc will continue to be proactive in the discharge of their onerous tasks. • It’s critical that Regulators/Supervisors remained Vigilant, Proactive and watchful. 29

CONCLUSION Questions & Answers 30