NDIC PAST PRESENT, FUTURE

It was need that occasioned the establishment of the Nigeria Deposit Insurance Corporation 25 years ago. NDIC has its origin in the report of a committee set up in 1983 by the Board of Central Bank of Nigeria (CBN), to examine the operations of the banking system. The Committee in its report recommended the establishment of a Depositors Protection Fund. Consequently, the Nigeria Deposit Insurance Corporation was established a few years later.

Years down the road, it can be confidently said that the agency has worked effectively to justify its existence. Modeled after its American counterpart, the Federal Deposit Insurance Corporation (FDIC) which was established in 1933, the NDIC was set up among other things to protect depositors and contribute to the stability of the financial system through effective supervision of insured institutions, provision of financial and technical assistance to eligible insured institutions, prompt payment of guaranteed sums and orderly resolution of failed insured financial institutions. 

There were at least five major reasons for establishing a formal bank deposit insurance scheme in Nigeria. The first was the lesson of history connected with the experience of prior bank failures in Nigeria. The establishment of NDIC was also informed by the approach which some other countries adopted to ensure banking stability. For example, Czechoslovakia which was the first country to establish a nation-wide deposit scheme in 1924, used the scheme to revitalize the country’s banking system after the First World War. In addition, the scheme served to encourage saving, by increasing the safety of deposits and ensuring the best possible development of banking practice in that country. 

NDIC insures CBN approved deposit taking institutions including the deposit Money Banks, Microfinance banks and Primary mortgage institutions. Financial institutions not covered by NDIC include development finance institutions such as bank of industry, development banks, discount houses, finance companies, investment firms, unit trusts/mutual funds, insurance companies and pension fund administrators. 

The establishment of an explicit deposit insurance scheme with supervisory powers over insured institutions was expected to complement the supervisory efforts of the CBN. Indeed, since the establishment of the Corporation, it has been possible for both institutions (CBN and NDIC) to carry out routine and special examinations of licensed financial institutions in their collective domains more frequently than before, despite the increase in the number of institutions. The banks are now examined more frequently prior to the establishment of the Corporation. 

Finally, prior to the establishment of the Corporation, government had been unwilling to let any bank fail, no matter a bank’s financial condition and/or quality of management. Government feared the potential adverse effects on confidence in the banking system and in the economy following a bank failure. Thus, government established the Corporation to administer the deposit protection scheme on its behalf and to serve as a vehicle for implementing failure resolution options for badly managed insolvent banks.

The NDIC has witnessed a series of challenges in recent times as the operating environment becomes more complex and financial vehicles more diversified. But the important thing is that each time, the corporation has stood up to the occasion in managing distressed institutions and promoting confidence in depositors. Currently, the recovery of loans of the banks under liquidation, the unwillingness on the part of some debtors to honour obligations, the slow pace of the judicial system in resolving some NDIC related disputes and the increasingly dicey financial landscape are major challenges NDIC has faced.

One particular issue which has affected the corporation is the  transfer of cases being handled by the defunct Failed Bank Tribunals to the Federal High Courts in 1999. This process has exacerbated the challenges faced by NDIC in its liquidation activities in particular and for banks’ operations in general. This is because the normal court processes and procedures is not only slow and cumbersome, but easily susceptible to abused by bank debtors.

The delay in disposing of cases brought before the courts has adversely affected the NDIC in debt recovery in respect of banks in liquidation and other operating banks’ ability to recover hard-core debts.

These challenges notwithstanding, the corporation has stood up to the task before it. Last year the NDIC was instrumental at resolving the crisis which followed the closure of 103 microfinance banks. The corporation successfully handled the pay-out exercise after the closure of the microfinance banks in the most professional manner. NDIC was strongly behind the CBN in managing the commercial banking process and worked to see to it that there was no bank run occasioned by the shake up in the banking sector in the past two years.

The corporation has also grown its funds so as to be prepared to carry out its role. As at the end of 2010, the size of the deposit insurance fund available to NDIC was N295.72 billion, 31 percent higher than its previous value in 2009 and 75 percent bigger than the size of the fund in 2008. The Special Insured Institutions Funds (SIIF) experienced exponential growth between 2008 and 2009 from surpluses set aside by the NDIC. As at the end of 2010, the total invested fund and the current account balance of NDIC stood at N338.8 billion.

Item	2008		2009	2010
Total number of depositors	30.3million		40.1million	44.5million
Total number of depositors fully covered at N5000,000	Na		na	41.9million
% of fully covered depositors				94
Total number of depositors partially covered at N5000,000				2.6million
% of partially covered depositors				6million
Total deposit fully covered at N500,000				1,310 billion
Total deposits partially covered at N500,000				9,526billion

Source: NDIC

Even though NDIC is faced with various challenges, the institution has been successful at recovering a considerable amount of debt and distributing funds to the appropriate individuals. The Corporation had as at October 2011, recovered a total of about N22.20 billion from the debtors of the closed banks. Similarly, the corporation had recovered about N9.44 million from the debtors of microfinance banks in liquidation as at October 2011. In the past, the NDIC has done a lot to make the deposit insurance scheme sustainable; there is enough evidence that the future of deposit insurance in Nigeria is bright.