The Nigeria Deposit Insurance Corporation (NDIC) says it has carried out liquidation activities on a total of 425 institutions as at December 2019.
The liquidation activities covered a total of 425 institutions, comprising of 51 Deposit Money Banks (DMBs), 325 Micro Finance Banks (MFBs) and 51 Primary Mortgage Banks (PMBs).
This disclosure was made by Mr. John Kayode Abiodun, Assistant Director, Insurance and Surveillance Department of the NDIC at the 2020 Finance Correspondents Association of Nigeria (FICAN) forum in Abuja.
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 licence.”
He lamented: “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 licenses of terminally distressed banks; depositor and creditor apathy and ignorance (delay in filing claims); recovery of debts owed the failed banks.”
Of particular concern to the NDIC he further lamented 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 he said 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.”
Mr. Abiodun noted that before the Corporation moves to liquidate a bank, it looks out for deficiencies observed in bank known as Early Warning Signals (EWS) that raises red flags.
Early Warning Signals he said are divided into Non-Financial Red Flags 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 Flags in a Bank, he said, could include but are not limited to: failure to meet the minimum Capital Adequacy Ratio (CAR) of 10% (National License), rising Non-Performing Credit (NPC) to Total Credit (TC) Ratio of above 5%, failure to meet the prevailing minimum Liquidity Ratio 30%, 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.
According to NDIC Assistant Director, “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.”