Ongoing reforms won’t protect banks from future crisis, says NDIC

Despite the gains in the country’s financial system as a result of the ongoing reforms in the sector, the Nigeria Deposit Insurance Corporation (NDIC) has cautioned banks that their protection from future crisis may not be guaranteed if their managers engage in sharp practices that could undermine the integrity of the system.

Sector stakeholders who spoke at the two-day Workshop for Business Editors and Finance Correspondents said negative activities that compromise the integrity of the financial system may expose the banking sector  to a fresh crisis as a result of unforeseen ugly developments in the global economic system in the future.

NDIC Managing Director, Ibrahim Umaru, warned that recent developments in the global economy have continued to show that domestic remedial measures alone may not completely hedge banks from shocks arising from depression in other economies.

According to Mr Ibrahim, this calls for operators to act in strict compliance with the operational guidelines stipulated by the regulating authorities in the sector, underlining the increasing importance of corporate governance, efficient risk management system and other prudential guidelines to the current drive for stability in the financial services sector.

“There is the need for managers of the banks to be much more cautious in their business decisions with a view to ensuring that shareholders’ funds are invested safely in all aspects of their operations. When we are talking of banking crisis, we should not isolate it from developments in the global system. So, nobody can predict with certainty what will happen in the next few years in the global financial system.

“This is why managers of the banks in the country must always observe the guidelines, entrench corporate governance, create mechanisms that can help further in strengthening internal control and risk management as a way of ensuring security of their shareholders investments.

“The current reform has provided the platform for sustainable growth and stability of the banking sector but it cannot alone guarantee the stability of the system. Operators must constantly ensure that their actions do not expose their banks to future risks that might arise from developments in the global financial system”, Mr Ibrahim said.

Recalling the recent measures taken by the monetary authorities to strengthen the financial sector, the NDIC boss restated the commitment of the corporation to fulfilling its statutory roles, particularly to ensuring that investors, depositors and other stakeholders’ funds are secured through insurance cover.

“It is obvious that the regulatory/supervisory authorities have at different times articulated and implemented necessary reform programmes aimed at enhancing the stability of the Nigerian banking industry in particular and the financial system in general. Yet, in spite of the reform measures, some banks still failed. The reason for this was simply because by their nature, banks that are badly-managed by their operators, will ultimately fail.

“In other words, banking reforms do not by any means constitute an antidote to or elixir of bank failure. For this singular reason, the role of deposit insurance system (DIS) in banking reforms cannot be over-emphasized”, he added.

As a demonstration of the corporation’s resolve to achieving this, Mr Ibrahim said steps were being taken to support key initiatives to strengthen the banking system, by amongst others, collaborating with all relevant regulatory authorities to develop a framework for integrated deposit insurance system as well as the framework for effective resolution of significantly important financial institutions (SIFIs).

The NDIC boss also canvassed the licensing of more micro- finance banks, particularly in the rural areas, as a strategic option of enhancing financial inclusion and boosting the nation’s productivity.

Angela Adeboye, a financial consultant, who spoke on “Issues in Financial Inclusion”, noted that since the Central Bank of Nigeria’s intervention in the banking sector in2009, the industry has undergone further consolidation, with three banks acquired by existing local players and a further three nationalized by the Asset Management Corporation of Nigeria (AMCON).

Ms Adeboye acknowledged the challenge posed by fraud through the roll out of ICT platforms in the provision of banking services such as automated teller machines (ATMs) and other point of sale (POS) payment systems, saying bank managers are aware of the peculiar environment of the country’s banking system and have taken steps to protect customers.