BAMIDELE OGUNWUSI
Since it was established through the promulgation of Decree No. 22 of 15th June 1988, the Nigeria Deposit Insurance Corporation (NDIC) has instituted confidence in Nigeria’s banking industry by ensuring that bank customers have hope even in the ‘unlikely’ situation where a bank is liquidated.
Over the years, the NDIC has played its role excellently well by strengthening the safety net for the banking sector in difficult times in the country.
The Deposit Insurance Scheme (DIS) being implemented by the NDIC was designed as a risk minimizer with deposit Insurance, bank supervision, failure resolution and bank liquidation mandate.
The most significant and distinct activity of the corporation is deposit insurance and as an insurer, NDIC guarantees the payment of deposits up to the maximum limit in accordance with its statute in the event of failure of an insured financial institution and it also has the mandate of supervising banks to protect depositors; foster monetary stability; promote an effective and efficient payment system; and promote competition and innovation in the banking system.
Banking supervision is an essential element of the Nigeria deposit insurance scheme as it seeks to reduce the potential risk of failure and ensures that unsafe and unsound banking practices do not go unchecked.
Another important role of the NDIC is to ensure that failing and failed institutions are resolved in a timely and efficient manner while the bank liquidation option is always adopted by the corporation for banks that fail to respond to failure resolution measures.
The liquidation process involves orderly and efficient closure of the failed institutions with minimum disruption to the banking system, cost-effective realisation of assets and settlement of claims to depositors, creditors and where possible, shareholders.
As part of its preparedness for any eventuality and to move with current realities, the NDIC last month raised the maximum deposit insurance coverage of Deposit Money Banks (DMBs) and Mobile Money Operators (MMOs) by 900 per cent to N5 million from N500,000, while those of Primary Mortgage Banks (PMBs), Payment Service Banks (PSBs) were increased by 300 per cent to N2 million from N500,000.
While announcing the new lifeline for bank customers, Managing Director of NDIC, Mr Bello Hassan, said that the maximum deposit insurance for Microfinance Banks (MfBs) has now increased to N2 million, 900 per cent up from N200,000.
Deposit Insurance coverage refers to the proportion of customers’ deposits in a bank which is insured against bank failure, meaning that the proportion will be immediately paid to such depositors in the event of the bank’s collapse.
But, under the extant provisions of the deposit insurance guidelines, a depositor who has more than N5 million can still receive their deposits over the insured amount through liquidation dividend, after the sale of a failed bank’s assets or with the recovering of loans from debtors.
Hassan said NDIC has a war chest of deposit funds above N2 trillion with which to implement the policy, meant to boost depositors’ confidence and stability in the nation’s banking system.
He said that the decision to raise the coverage levels was taken by the Interim Management Committee of the corporation during its 18th meeting held recently, following a 2023 study of the organisation, to determine the adequacy of the maximum deposit insurance coverage in the country.
His words: “NDIC’s Interim Management Committee (IMC), during its 18th meeting held on April 24 and 25 approved an increase in the maximum deposit insurance coverage levels for all licensed deposit-taking financial institutions with immediate effect. The adjustments are as follows: DMBs – The increase of the maximum deposit insurance coverage from N500,000 to N5 million, would provide full coverage of 98.98 per cent of the total depositors compared with the current cover of 89.20 per cent
“In terms of the value of deposits covered, the revised coverage would increase the value of deposits covered by deposit insurance to 25.37 per cent compared with the current cover of 6.31 per cent of the total value of deposits.
“MFBs – The increase of the maximum deposit insurance coverage from N200,000 to N2 million, would provide full coverage of 99.27 per cent of the total depositors compared with the current level of 98.76 per cent and would increase the value of deposits covered by deposit insurance to 34.43 per cent compared with 14.38 per cent of the total value of deposit, currently covered.
“PMBs – The increase of the maximum deposit insurance coverage from N500,000 to N2,000,000 would provide full coverage of 99.34 per cent of the total depositors compared with the current 97.98 per cent and would increase the value of deposits covered by deposit insurance to 21.04 per cent compared with 10.77 per cent of the total value of deposit, currently covered.
Heritage Bank as a test
As a litmus test for the new deposit improved deposit insurance coverage, the Central Bank of Nigeria (CBN), two weeks ago, revoked the banking license of Heritage Bank with immediate effect.
The bank said in a statement that the move was under its mandate to promote a sound financial system in Nigeria, and in exercise of its powers under Section 12 of the Banks and Other Financial Act (BOFIA) 2020.
According to the Acting Director, Corporate Communications of the apex bank, Hakama Ali, Heritage Bank had breached Section 12 (1) of BOFIA, 2020, adding that the Board and Management of the bank have not been able to improve the bank’s financial performance, a situation which constitutes a threat to financial stability.
It said “This follows a period during which the CBN engaged with the bank and prescribed various supervisory steps intended to stem the decline. Regrettably, the bank has continued to suffer and has no reasonable prospects of recovery, thereby making the revocation of the license the next necessary step.”
Consequently, the CBN said it took action to strengthen public confidence in the banking system and ensure that the soundness of the financial system is not impaired.
NDIC kickstarts the liquidation process
Immediately after the CBN’s announcement, the NDIC said it had started the process of liquidation of the bank as a great succour to customers who earlier in the day were worried by the announcement by the CBN.
The corporation said: “The NDIC wishes to announce to depositors that it has commenced the liquidation of Heritage Bank Plc by Section 55 sub-section 1 & 2 of the NDIC Act 2023, the Corporation has commenced liquidation process of the failed bank with immediate verification and payment of insured deposits to the bank depositors.
“Depositors of the bank that have alternate accounts within the industry will be paid up to the insured amount of N5 million per depositor using their Bank Verification Number (BVN) to locate their alternate account. While depositors with funds above N5 million will be paid liquidation dividend upon realization of the bank’s assets and recovery of debts owed to the bank”.
It added that “All depositors of the defunct bank without an alternate bank account in the industry are advised to visit the nearest branch of the bank with proof of account ownership, verifiable means of identification such as driver’s license, permanent voter’s card, National Identity Card, together with their alternate account and Bank Verification Number (BVN) for the verification of their deposits and subsequent payment of insured sums”.
According to Hassan, the NDIC put the total depositors at Heritage Bank at 2.3 million while it was disclosed that 99 per cent of Heritage Bank depositors have total balances of less than N5 million.
Subsequently, the NDIC listed the head office in Lagos and branches of failed Heritage Bank across the country for sale in its role as liquidator of the bank.
It announced the sale of the bank properties numbering 48 and its chattel including vehicles, office equipment, plant, and machinery in another 62 locations across the country.
“The Nigeria Deposit Insurance Corporation in the exercise of its right as Liquidator of failed Deposit Money Banks hereby invites interested members of the general public to buy the assets (landed property and chattels) of defunct Heritage Banks through public competitive bidding,” the NDIC stated.
Payment begins
Daily Independent gathered that all depositors at the bank are currently being verified for onward payment of insured benefit of five N5 million while depositors with insured deposits above N5 million naira will be paid upon the sale of the assets of the bank.
Investigations revealed that customers of the bank have begun receiving funds from The Nigeria Deposit Insurance Corporation (NDIC) deposited in the bank two weeks after the bank lost its license.
Analysts speak
The unfortunate liquidation of Heritage Bank, according to analysts, has shown NDIC as a proactive insurer who is ready to respond at the quickest time to the pains associated with bank liquidation. The response has won the corporation some accolades.
Cyril Ampka, an Abuja-based financial analyst, said the move by NDIC is an attestation to the responsiveness of the leadership of the corporation.
He said: “I am not surprised. The NDIC has been reputable for roles like this in the past but the swiftness of this response to the liquidation of Heritage Bank is “world-class”.
“Deposit Insurance cannot be displayed more than this anywhere in the world. The NDIC told Nigerians, few hours after the CBN withdrew the license of the bank, that it was ready to liquidate the bank and respond to the customers.
Stephen Iloba, another analyst, said the move has shown that the NDIC is of age and can walk shoulder-high among comity of deposit insurers.
“I was worried when the CBN announced the withdrawal of license of Heritage Bank but my worry evaporated when NDIC announced it was ready to liquidate and pay customers at least in the interim. Kudos to the management.
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