Increasingly analysts and the Nigerian public are looking up to the annual report of the Nigerian Deposit Insurance Corporation (NDIC) to grasp the true situation of the nation’s economy, especially from the perspective of the banking sector. The 2014 report is out and remains as pungent as ever. Knowing how its report has become critical in decision-making, NDIC expectedly attaches much importance to the report.
Ideas are only interesting if they lead to results. The idea of deposit Insurance in Nigeria is blossoming year after year. The overall verdict of the 2014 annual report pronounces a positive outlook of the economy.
“The banking industry performance and level of soundness in 2014 indicated that 23 Deposit Management Banks (DMBs) were rated sound and satisfactory; only one DMB was rated marginal during the period under review. Overall the banking industry was safe and sound in 2014,” the report asserts.
The barely two-month old administration of President Muhammadu Buhari is very likely to welcome the report for the assurance that the administration has not much to worry about in the fundamentals. So he’ll be able to concentrate his energies on tackling corruption and other financial crimes. He will do well to give special attention to the cyber variant of financial crime that has reared its ugly head in the banking sector. As the report shows, a whopping N6.2 billion was lost by Nigerian depositors and banks in 2014 to cybercrimes, with the majority of cases related to internet banking and ATM scams. According to the report, the total number of such scams grew astronomically from 3,786 cases in 2013, to 10,612 cases in 2014. While it involved about N5.61billion in 2014 (compared to N21.80billion the previous year), the actual loss was N6.19 billion.
This is obviously a worrying signal that has the potential to erode the confidence of account holders and scare away those yet to enter the banking net. Nigeria, with 170 million population, has only about 28.5 million adult bank accounts holders. In February 2014 the Central Bank of Nigeria (CBN) introduced Bank Verification Numbers (BVNs), an initiative which obliges customers to do biometric registration and obtain a unique number for proper identification, which is part of measures to stem bank account fraud. By the end of June when the deadline for obtaining the number expired, only around 12 million account holders had complied.
On a positive note, the report reveals that total loans and advances granted by banks across the country climbed from N10.04 trillion in 2013 to N12.63 trillion in 2014. The report is however quick to point that, despite significant improvements in banking industry’s asset quality, the volume of non-performing loans rose from N321.66 billion in 2013 to N354.84bn in 2014. But it allays any fears by stating that the ratio of the bad debts to total loans is within the regulatory threshold of 5 percent. Accordingly “all the DMBs in the industry had liquidity ratios in excess of the minimum prudential requirement of 30 per cent, as at 31st December 2014, indicating that all DMBs were sufficiently liquid,” the report says.
The NDIC, as part of its mandate, carried out the risk assessment of all deposit banks in collaboration with the Central Bank of Nigeria to provide reliable information on the banks’ risk assets quality, adequacy of loan loss provisioning and capital adequacy positions. And the result is something quiet promising: the assessment reveals that 15 banks have “high” and “above average” composite risk rating, while eight others had “low” and “moderate” rating, showing their level of compliance with banking rules and regulations, their risk appetite and the adequacy of their risk management frameworks.
Credit risk, one of the many types of risks banks are exposed to, has a significant impact on the profitability of Nigerian banks. Therefore, while on the one hand the regulatory bodies (CBN, NDIC etc.) need to be cautious in setting up a credit policy that might negatively affect profitability, on the other, the banks’ boards also need to know how credit policy affects the operation of their banks to ensure judicious utilisation of deposits. After all, approaches to risk management in general have changed across organisations and the whole world in recent times, as economists observed. This necessitates the recognition by many business leaders that risks are no longer mere hazards to be avoided — they also, in many cases, constitute opportunities to be embraced.
This balancing act can be seen in the result of the report on credit distributions in the 2014 NDIC annual report. The report said the oil and gas sector led the banking industry sectoral credits distribution, accounting for 25.74% of the top 10 of 22 sectors of the economy that accounted for 87.35% of total credits, compared with 81.99% in the previous year. The manufacturing sector was next with 13.19%, while the other sectors accounted for 12.65%, as against 18.01% of the total credits extended by the DMBs in 2013.
On the international scene Nigeria has earned respect in areas of peace-keeping and diplomacy, which is complemented by NDIC’s achievements in the financial sector. An example is the Memorandum of Understanding (MoU) signed between the NDIC and the Poland-based Bank Guarantee Fund (BFG) in 2014. The issues included cooperation around Cross Border Supervision; Cross Border Resolution Colleges; Early Warning Models and Macro Prudential policy etc.
Similarly, the World Bank granted technical assistance to the NDIC for development of Target Fund Ratio Framework. The assistance will enable the NDIC determine adequacy of its DIF as well as address the deficiencies identified during the 2011 assessment of its compliance with the IADI Core Principles for effective Deposit Insurance System (DIS).
At the regional level NDIC is in the forefront of the effort to articulate a collective vision for the continent. This was displayed at the Kenya meeting of the African Mobile Phone Financial Service Policy Initiative (AMPI) roundtable on the future of mobile phone financial services in Africa. Clearly, this is a fast growing area of e-commerce that needs effective regulation, especially with the vulnerability of the web-based platforms. With the speed at which telecommunication is evolving and breaking barriers to sharing information and accelerating collaboration across different markets, the role of regulatory bodies has become, more than ever before, imperative and urgent.
The report also reminds the public of the state of the NDIC’s efforts at seeking the bill for the repeal and re-enactment of the NDIC Act 2006, which was pending before the just concluded 7th National Assembly and had scaled through second reading and was subjected to public hearing. One of the major issues contained in the proposed amendment is granting the NDIC power to pay insured amounts to depositors in the event of imminent or actual suspension of payment by an insured institution before the revocation of its licence. This is to forestall legal actions such as the ones shareholders of Fortune International Bank Plc. and Triumph Bank Limited instituted challenging the revocation of their licences, which is still pending in court.
The bill generated unnecessary furore from unsuspecting quarters last year. But the 8th National Assembly needs to urgently look at the bill with a view to giving it speedy consideration, in view of the need to boost the powers of the NDIC to carry on with its enormous work of protecting depositors by providing an orderly means of compensation in event of failure of insured financial institutions in line with international best practice. Surely, NDIC contributes to the financial stability of the economy through its function of assisting monetary institutions in formulating and implementing banking policy. It has a lot to achieve if given the correct measure of power. Its annual report is now the stethoscope the public confidently uses to take the pulse of the banking sector.