Failed Banks: NDIC Bails Out Customers, Liquidates 425 Institutions

• Identifies insider abuses, protracted legal tussles, others as huge challenges

BY COBHAM NSA, ABUJA – The Nigeria Deposit Insurance Corporation (NDIC) says efficiency and diligence in its liquidation activities have put smiles on the faces of customers in 18 failed Deposits Money Banks (DMBs) that were both insured and uninsured.

However, the Corporation said it is not all good news as payments to depositors of three financial institutions; Fortune International Bank, Triumph Bank and Peak Merchant Bank had to be suspended due to litigation over Central Bank of Nigeria (CBN)’s revocation of their operating licences.

This is as the Corporation also disclosed that its liquidation activities were successfully undertaken on 425 financial institutions in the country since NDIC’s establishment in 1988.

These statistics were reeled out by Assistant Director, Insurance and Surveillance Department of NDIC, Mr John Abiodun at year 2020 Finance Correspondents Association of Nigeria (FICAN) Forum/Annual General Meeting (AGM) in Abuja at the weekend.

Abiodun however admitted that despite recording milestone achievements in its mandate delivery, NDIC’s efforts at failure resolution in the banking industry have not been smooth sailing because of numerous challenges.

According to him, among these challenges are delays in revoking the licenses of terminally distressed banks; worrying level of depositors and creditors’ apathy and ignorance; delay in filing claims; and tortuous process of recovering debts owed the failed banks.

He also said NDIC is worried about protracted litigation processes; disposal of low-quality physical assets of failed banks; inadequate provision of timely liquidity support; and frivolous legal battles by closed banks’ owners.

In a presentation titled: “Speedy Bank Failure Resolution Strategies: Challenges, Prospects”, the NDIC official, who gave a breakdown of the 425 liquidated banks, said 51 of them are DMBs; 325 Micro Finance Banks (MfBs); and 51 Primary Mortgage Banks (PMBs).

On banks’ failure and distress in the country, Abiodun highlighted the causes as: Insiders’ abuse; abusive ownership and weak Board of Directors; Weak corporate governance; poor risk management process; Inadequate capital; weak regulatory and supervisory measures as well as Economic and political factors.

“Liquidation of a failed bank through revocation of license becomes the final bus stop when all efforts made by the shareholders and regulatory authorities do not yield the desired result. Once a bank’s license is revoked, NDIC takes over for liquidation”, Abiodun said

He explained that before a bank is finally liquidated, the Corporation always looks out for obvious deficiencies, captured in its rule books as Early Warning Signals (EWS), that raise the red flags for caution.

For him, some of these EWS include aggressive growth and excessive competition for deposits; frequent changes in management and ownership; change in major business lines; and prolonged squabbles among banks’ shareholders.

Others are failure to meet the minimum Capital Adequacy Ratio of ten per cent; and failure to meet the prevailing minimum liquidity ratio of 30 per cent.

Mr Abiodun also listed high total expense to total income ratio; high incidences of fraud; and rising Non-Performing Loans (NPLs) to total credit ratio of above five per cent as part of infractions that expose the nation’s banks to stress, distress, failure and eventual liquidation by the NDIC.

He said given series of systemic actions designed to end banks’ distressed conditions, NDIC’s effective resolution strategies have helped to enhance confidence in the nation’s banking sector, thereby promoting financial system stability over the years.