The Nigeria Deposit Insurance Corporation (NDIC), weekend, disclosed
that has liquidated about 425 banks, due largely to bad loans in the
past 22 years. The Corporation, in collaboration the Central Bank of
Nigeria (CBN), also said it has worked out a system, which allows a
debtor’s fund domiciled anywhere outside the bank owed to be withdrawn
to service the loan that is not being serviced by the delinquent
customer.
An Assistant Director, Insurance and Surveillance Department, NDIC,
John Kayode Abiodun, disclosed this in a lecture, titled: “Speedy Banks
Resolution Strategy,” at the 2020 Finance Correspondents Association of
Nigeria (FICAN) forum, in Abuja.He declared that the new loan management
strategy by the two regulatory institutions is backed by the Bank
Verification Number (BVN) regulation, which is known to loan seekers.
He gave the breakdown of the liquidated institutions as: 51 Deposit
Money Banks (DMBs), 325 Micro Finance Banks (MFBs), and 51 Primary
Mortgage Banks (PMBs).
Abiodun said, “through efficient and diligent liquidation activities,
the Corporation has successfully paid in full the deposits of the
customers of 18 DMBs (both insured and uninsured), while payment to
depositors of Fortune International Bank, Triumph Bank, and Peak
Merchant Bank, was put on hold as at end of 2019, due to litigation
challenging the revocation of their operating licences.”
He decried that “the effectiveness of the NDIC’s efforts in failure
resolution had been impaired by a number of constraints and challenges,
which included: delays in revocation of the licences of
terminally-distressed banks; depositor and creditor apathy and ignorance
(delay in filing claims); and recovery of debts owed the failed banks.”
Of particular concern to the NDIC, he said, is the “legal actions of
owners of closed banks; protracted litigations; disposal of low quality
physical assets of the closed banks, and provision of timely liquidity
support.”
Other challenges include, “delay in the NDIC Act proposed amendments;
poor Corporate Governance; poor record keeping by banks; poor lending
culture; uncooperative attitude with the bank closing team; slump in
property market, and court sympathy for debtors.”Abiodun noted that
before the Corporation moves to liquidate a bank, it looks out for
observed deficiencies known as Early Warning Signals (EWS) that raise a
red flag.
Early Warning Signals, he explained, are divided into non-financial
and financial red flags. The non-financial red flags may include the
following: aggressive growth and excessive competition for deposits,
shareholder’s squabbles, frequent changes in management and ownership,
change in major business lines.
Financial red flag can include but are not limited to: failure to
meet the minimum Capital Adequacy Ratio (CAR) of 10 per cent (National
Licence), rising Non-Performing Credit (NPC) to Total Credit (TC) Ratio
of above five per cent, failure to meet the prevailing minimum
Liquidity Ratio 30 per cent, high Total
Expense to Total Income Ratio, and high incidences of fraud.
Abiodun identified the causes of bank failure to be, insider 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.He concluded that “liquidation of a failed bank through
revocation of licence 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 licence is revoked, NDIC takes over for
liquidation.”
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