CBN, NDIC clash: Experts urge dialogue

It’s not the first time the Nigeria Deposit Insurance Corporation would seek amendment to its enabling law.

In 1996, a similar attempt led to the enactment of Decree No. 5 of 1997, to expand the membership of its Board from five to nine and remove the governor, Central Bank of Nigeria as Chairman.

The ultimate aim was to give the corporation a breather of independence and autonomy to resolve banking distress in the financial sector.

The NDIC Act, enacted in 1988, was later replaced altogether with Decree No. 39 of 1998.

That decree was repealed and replaced with the NDIC Act of 2006, which in turn was later replaced with the NDIC Act of 2012.

But the repeals and re-enactments of 2006 and 2012, hardly generated acrimony as the latest attempt to repeal the NDIC Act of 2012 and re-enact the NDIC Act 2015.

The NDIC says its enabling law has become inadequate for the effective pursuit of its mandate in view of recent developments in the international and Nigeria financial systems, which have necessitated strengthening the supervisory capacities of regulatory agencies.

The corporation cites the recent experience where its efforts to refund depositors’ funds trapped in closed distressed banks were frustrated as a result of inadequate legal framework.

The frustration, the Commission said, was not because there was no money to pay the affected depositors, but because the owners of the closed banks had instituted several lawsuits that tied its hands.

To avoid such experience in the future, the corporation believed more powers could make it more effective in settling such cases expeditiously, irrespective of the litigations.

In proposing amendments to the National Assembly for consideration and approval, the Commission said it took into consideration mistakes observed in the draft Bill that was later approved as the NDIC Act 2006.

Again, it said its proposal was based on additional insight from deposit insurance best practices around the world and experiences from the operation of the Deposit Insurance Scheme in Nigeria.

NDIC Managing Director, Umaru Ibrahim, said the NDIC was seeking the amendments to ensure safety and soundness in the banking system.

Major highlights of the 25-point amendments being proposed included the need to state clearly the public policy objectives of the NDIC to protect small, uninformed and less financially sophisticated depositors; contribution to financial system stability and enhancement of public confidence and system stability.

The amendment also captured the core mandates of the corporation – deposits guarantee, banking supervision, distress resolution and failed banks liquidation – in compliance with international standards and best practices and principles.

The proposed law also seeks the powers for the NDIC to revoke operational license of insured institutions to replace the current practice of insured deposits payments when there is an imminent or actual suspension of payments by insured institutions.

On the composition of the Board of the corporation, the proposed amendments want membership to consist a Chairman, Managing Director and two Executive Directors, Permanent Secretary, Federal Ministry of Finance, with members appointed from the six geo-political zones. The representative of the Central Bank of Nigeria must not be below the rank of deputy governor.

Rather than its Chairman and members being part-time, the proposed amendment wants only the Chairman and the six members appointed from the six geo-political zones to be part-time for a period of four years, subject to renewal once.

To demonstrate commitment to transparency, accountability and probity to enhance corporate governance, the amendment is seeking powers for NDIC to remove anyone from office or Board who exhibits acts of conflict of interest and unprofessionalism.

To discourage non-payment of assessed premium by insured banks and other financial institutions, the proposed amendment also demands payment of dividends on capital stock or declared profit in default of assessment, in line with the Banks and Other Financial Institutions Act 1991 provisions.

To boost NDIC’s debt recovery role, the draft Bill demands that in the event of the revocation of the license of an insured entity or insolvency, the affected institution must pay within 30 days insured deposits for inability to meet its obligations to depositors.

To enable the NDIC have a global picture of the banks’ operations and adequately assess their risk profiles, the draft law is seeking powers for the corporation to supervise related entities of insured institutions.

On examination and report of examination of banks, the draft law is seeking the power for NDIC to appoint two or more persons to conduct a special secret examination of the books and affairs of an insured institution as risk minimizer.

A fresh provision in the draft law includes the establishment of an Insured Institution Resolution Fund to provide statutory contingency plan for open bank resolution to prevent the failure of consolidated banks.

To provide the legal basis for the CBN to handover distressed banks to NDIC, the draft document is asking for powers for the corporation to inject equity into an insured entity that is failing. Alternatively, the failing or under-capitalised institution can merge with another.

In all these, the amendment is seeking immunity for NDIC from any court seeking to restrain, challenge or stop any of such actions.

Besides, to address the challenge of inability to reimburse depositors in liquidated or failed insured institutions, the draft Bill is also seeking powers for the NDIC to appoint itself as liquidator, conservator and supervisor, in addition to all other powers spelt under the Companies and Allied Matters Act without any court having jurisdiction to restrain or stop it.

In exercising these functions, the draft document is asking that the NDIC should not be subject to the direction or supervision of any other institution, including the CBN.

The NDIC’s Director, Legal Services Unit, Belema Taribo, said the proposed amendments are in good faith to strengthen its supervisory mandate and eliminate current challenges regulatory agencies face in the wake of the global financial meltdown.

For a former Executive Director of NDIC, Peter Umoh, the new sections included in the proposed amendment were inadvertently omitted in the previous laws.

According to Mr. Umoh, from inception in 1989, the NDIC was empowered to act as “risk minimizer” by being given the powers to take decisions to reduce the risk to its insurance fund through periodic examination of the books of the insured institutions for early warning signals of distress.

He said this was opposed to the corporation being taken as a “pay box”, which merely waits to pay off depositors at the failure of an insured institution.

On the proposal that the CBN representatives and the Federal Ministry of Finance – the two shareholders in NDIC – should not be below deputy Governor and Permanent Secretary respectively, Mr. Umoh said this was necessary to avoid undue delays in decisions requiring the attention of top management.

He said NDIC’s power to supervise insured institutions was necessary to allow for regular examination of the books of the insured institutions, pointing out that prior to the corporation’s involvement, CBN examiners were only to visit banks once in two or three years.

Since the introduction of NDIC examiners, Mr. Umoh said the examination cycle has reduced considerably to at least once every year.

This, he noted, has greatly enhanced the cooperation between the CBN and NDIC in discharging their roles to the benefit of the financial system.

For a former pioneer NDIC staff, AB Nyako, who retired as a director in 2014, the proposed amendments, if approved, would enable the corporation discharge its mandate and functions effectively and efficiently, to engender depositors’ confidence in the banking system as well as promote financial system stability.

As a risk minimizer, Mr. Nyako said the NDIC’s mandate should not be merely to provide deposit insurance guarantees, but also participate actively in monitoring the health status of insured institutions, resolve cases of distress to minimize the risk of failure and protect the insurance fund.

“The promotion of financial system stability”, Mr. Nyako noted, “is therefore not the sole responsibility of the Central Bank of Nigeria, or indeed any single institution, but a shared responsibility among several safety net players.”

He said this mandate required clear legislative delineation of the roles of the respective players, adoption of principles of checks and balances and the establishment of effective mechanism for collaboration and cooperation.

However, despite NDIC assurances, the proposed amendments appear to have sent wrong signals to its closest regulatory ally, the CBN, which feels they were being sought to confer coordinate functions and powers.

For the CBN, if the proposed amendments are passed into law, its mandate as the prime regulator in banking supervision the country would be compromised.

Apart from making the NDIC a parallel/coordinate regulator for banks, the proposed law will confer conflicting supervisory powers and overlapping regulatory responsibilities on NDIC over banks.

CBN Governor, Godwin Emefiele, said all the powers the amendments are seeking for the NDIC are ostensibly to enable it carry out its function as a risk minimizer, particularly to allow it settle depositors of distressed banks and other deposit taking financial institutions without delays.

While the CBN supports NDIC’s desire to discharge those functions promptly, Mr. Emefiele said the proposal to make the corporation “the judge and juror” in cases involving banks was not only fraught with dangers, but a clear recipe for chaos, anarchy and financial instability.

Mr. Emefiele drew attention to the moral hazard of the NDIC, as a deposit insurer, charging premium on the basis of how risky an institution it supervises without recourse to the CBN to rate such institutions as riskier than they actually are to enhance the premium charged to bolster the deposit insurance fund.

Specific areas of concern to the CBN include the power to license banks; power to supervise banks without reference to the CBN; power to remove Boards and managements based on the report of its examinations on them; powers to carry out consolidated supervision of banks subsidiaries, associates and affiliates without due regard for the sector regulators of such entities and power to determine the licenses of banks and power to appoint self as bank liquidator.

CBN believes bank supervision is its primary responsibility and NDIC must have an agreement with before getting involved.

Though the CBN said it was not against most of the amendments sought by NDIC, the inclusion of banking supervision as part of its mandate was objectionable.

The CBN believes NDIC should limit its role to guaranteeing payment of deposits and liquidation of failed banks, as there cannot be two captains in one ship.

Experts say the friction between CBN and NDIC over the proposed amendments appears to be borne out of a misunderstanding.

The NDIC Managing Director, Umaru Ibrahim, expressed surprise with turn of events, as the CBN governor was not only informed over the proposed amendments, but Mr. Emefiele had sent a letter to confirm his agreement to their importance to their regulatory mandates.

At the public hearing organized by the Senate Committee on Banking, Insurance and Other Financial Institutions last week, some financial sector experts and operators called for dialogue over the issue.

Most contributors were of the view that allowing the crisis between the CBN and NDIC to fester was capable of sending wrong signals to the sector and consequently a threat to the stability of the sector.

A former Managing Director of NDIC, Ganiyu Ogunleye, said banking supervision is globally acknowledged as the mandate of the deposit insurer, as such all support the NDIC requires to discharge its mandate effectively and efficiently should be encouraged.

According to Mr. Ogunleye, this was what informed the decision of the founding fathers of NDIC to deliberately include banking supervision as one of its responsibilities when drafting the enabling mandate at inception.

He, however, agreed that both the CBN and NDIC were complementing each other in the discharge of their bank supervision function.

On the disagreement over the proposed amendment seeking to give the NDIC power to terminate the insured status of an insured institution for violating the Act, without the consent of the CBN, but through a mere notification, Mr. Ogunleye said such decisions should be consensual of both parties.

Mr. Umaru said the NDIC cherished its operational independence and mandate as provided by its Act, as such was not in competition with the CBN.

“Yes, we may have disagreements here and there, but we are not reinventing the wheel. We are for collaboration. We are for the safety and soundness of the system. We are not in competition with the CBN.

Urging those who may have issues with the proposed amendments to show understanding, Mr. Umaru said he was confident that by the time the issues are reviewed in details, only very few areas would still need to be resolved.

“Not involving NDIC in bank supervision was 25 years ago. I don’t think anybody should take us 25 years back by abrogating the power of NDIC to continue with its mandate. All we are trying to do is to add value and enhance financial systems stability, especially the stability of the banking system,” Mr. Umaru said.

Chairman, Senate Committee on Banks, Insurance, and other Financial Institutions, Bassey Otu said the amendments being sought in the bill were targeted at revitalizing and enhancing the operational framework of the nation’s financial institution and in “essence strengthen their capacities in addressing challenges in line with

A former CBN Deputy Governor, Banking Supervision, Victor Odozi under whose tenure the NDIC was established in 1988, said the corporation was established to complement and support the CBN and not to supplant and undermine it.

He therefore urged for greater collaboration between the two institutions, noting that the financial system stood to gain a lot from both bodies.

Another former Deputy Governor of the CBN, Tunde Lemo, said the policy objective of the NDIC should be limited to deposit protection, adding that the NDIC should be seen as a supervisor of the deposit taking institutions for deposit protection purposes and not as a regulator as the role would be in conflict with the CBN.

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