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Published On: Tue, Oct 22nd, 2019

NDIC at 30: Prepare for digital banking risks -Osinbajo

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By Etuka Sunday

The Vice President, Federal Republic of Nigeria, Prof. Yemi Osinbajo yesterday admonished the Nigeria Deposit Insurance Corporation (NDIC) and other Financial Institutions in the country to be prepared on how to effectively handle electronic/digital banking risks.
Osinbajo gave the admonition in Abuja at a Public Lecture/Book Presentation organised by the NDIC to mark its 30th Anniversary celebration.
His advice came shortly after an anniversary lecture delivered by a Nigerian banker and co-founder of Access Bank, Aigboje Aig-Imoukhuede on whether the NDIC was ready regulatory wise to face the coming digital banking risks in the country.
The VP said, the gloomy picture painted by the lecture was scary considering the future larger customer base of the Nigerian banks.
“We are committed to lifting 10million persons annually from extreme poverty, so we are looking at a larger customer base for the banks. Again, with the signing of Africa Continental Free Trade Agreement (AfCFTA), we are even hoping to see greater opportunities for our banks whose footprints are firmly all over Africa. This will present challenges for NDIC to regulate,” he said.
He however, expressed confidence that the current dynamic Board of the NDIC will definitely work to be above future challenges.
Meanwhile, Aigboje Aig-Imoukhuede while delivering the lecture: “Emerging Corporate Governance and Risk Management Issues in Banking” attributed the turbulence and systemic weaknesses in the Nigerian bank sector to failures of risk management.
“The turbulence and systemic weaknesses that we have seen in the Nigerian bank sector over the last 15 years, can be linked very clearly, to failures of risk management and while we have had regulatory interventions to partially address the fall out of poor risk management , we still operate a system that is fragile from a risk quality perspective,” he said.
The banker said, “the concept of Libra, as a global alternative currency, is causing regulatory headaches globally. Bitcoin was just the test. The disruption that is coming is much bigger and the success or failure of concepts like Libra will be the true tests of regulatory and other government policy.
“Our traditional understanding of M1/M2 is going to be thrown out of the window so how are we going to manage risk going forwards?
“At the heart of the future of banking is the role that technology, and digital connectivity is playing in bringing information, and services more directly to the people and allowing them to make instant decisions and execute them in real time. That has incredible implications for risk.
“Serious investments need to be made to manage the issues of scale and volume, as new technologies become relevant. The capacity to manage this within the banking sector, AND in the regulatory system needs a huge revamp.
“As a first step, I believe strongly that there is an urgent need for the establishment of a full department dedicated to operational risk in the Central Bank and a re-assessment of the actual assumptions behind the NDIC premium model.
“In the past, when there were only a limited number of bank accounts, 90% of depositors held balances that were greater than the insured sum. That meant that NDIC generated a significant surplus.
“Now if we have 30 million depositors, all under the NDIC threshold, how will NDIC adapt? How does it communicate with a hundred million retail depositors? How does it pay them in the event of a collapse? Is the traditional model one that works? What are the implications of the changes that have taken place?,” he asked.
Earlier, in his Welcome Address, the Managing Director/ Chief Executive, NDIC, Alhaji Umaru Ibrahim said, the Corporation was saddled with the onerous responsibility of managing distress in the banking system.
That, he said was done using multiple distress resolution options including provision of financial assistance to deserving institutions, imposition of holding actions, change of management of affected banks, and assisted mergers.
“It also became necessary to undertake the orderly liquidation of 33 banks whose licenses were revoked by the CBN. The Corporation also implemented the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act 1994, which established Failed Banks Tribunals to prosecute those who were responsible for the failure of the banks.
“The second decade in the corporation’s evolution was defined by its responses to the regulatory challenges of bank consolidation policy of 2005. The Corporation adopted the Purchase and Assumption (P&A) system to resolve the problems of 13 banks whose licenses were revoked for failing to meet the N25 billion capital requirement,” he said.
Rolling out the NDIC’s achievements in the last 30 years, he said, the Corporation introduced significant reforms during the period, such as Enterprise Risk Management, Differential Premium Assessment Systems (DPAS), built capacity of staff in Risk Based Supervision (RBS) and deployed a new performance management system.
“The Corporation also extended DIS coverage to Microfinance Banks (MFBs) and Primary Mortgage Banks (PMBs). It also reviewed the maximum coverage for different categories of deposit taking financial institutions.
“The last 10 years of the Corporation was characterised by accelerated institutional growth, robust collaboration with strategic partners in the financial safety net and renewed drive for financial literacy.
“To assist in the promotion of the financial inclusion initiative of the CBN, the NDIC introduced the Framework for a Pass-through Deposit Insurance scheme to enhance confidence, safety and stability in the mobile payment system. The scheme caters for the Mobile Money depositors.
“In the year 2011, the Corporation established three (3) Bridge Banks to take-over the assets and assume the liabilities of the three (3) failed banks, namely Afribank, Bank PHB and Spring Bank. Polaris Bank was also established in 2018 as a Bridge Bank following the liquidation of Skye Bank,” he said.

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