The Nigeria Deposit Insurance Corporation’s (NDIC’s) call on members of the public to ignore rumours of financial distress in some banks, based on past experience, should give depositors real cold comfort. It claims that those rumours, already in the social media, were deliberate acts of mischief intended to de-market those banks and destabilise depositors’ confidence in the banking system.
At the same time, the deposits’ insurer is worried at the level of non-performing loans (NPLs) in the sector. NDIC put the volume of Non-Performing Loans in Nigeria’s banking industry at N1.85 trillion or 10 per cent of the total loans portfolio of N18.53 trillion as at December 2016. The NPLs, it stated, indicated a classic case of over-lending, accumulated interest charges and poor corporate governance.
The corporation pointed out that while the banking industry indicated strong fundamentals in regulatory assessment and rating, regulators were concerned about the rising tide of NPLs in the banking system.
It didn’t stop there as it disclosed that N740 billion or 40 per cent of those NPLs constituted insider/directors related loans which is far above regulatory threshold of five per cent for the Deposit Money Banks (DMBs).
Similarly, in other banking subsectors like the microfinance banks, (MFBs), NDIC noted that there were 978 MFBs in existence as at December 2016 with total deposit liabilities of N158 billion and total loans and advances amounting to N195 billion out of which N87.75 billion or 45 per cent were NPLs where N68.25 billion or 35 per cent constituted insider related/directors’ loans. By extension, the existing 42 primary mortgage banks (PMBs) had total deposit liabilities of N69 billion but with total loans portfolio of N94 billion, which indicated another case of over-lending, accumulated interests, poor corporate governance and high ratio of NPLs which stood at N51.7 billion or 55 per cent out of which N42.3 billion or 45 per cent were insider related/directors’ loans.
NDIC warned, appropriately, that the resultant effects of this negative trend in the industry would be poor earnings and erosion of shareholders fund just as it observed that this development poses serious issues bordering on corporate governance which were capable of eroding public confidence in the banking system.
As a way out, NDIC advocated for strict compliance with the existing code of ethics for bank directors and a review of the existing laws and regulations to proffer stiffer sanctions for directors who exploit their positions and default in the payment of their credit facilities while still occupying positions in the banks.
NDIC must be reminded that we have been through this path before. We do not doubt its assertion that it plays critical role towards ensuring that banks are safe through effective supervision, financial and technical assistance and adoption of timely failure resolution options. What we are looking at is the long history of failures in banks and other financial institutions even with Banks and other financial institutions’ decree (BOFID) later BOFIA.
It is obvious that the major cause of failures in the banking industry is insider dealings. Members of board and other top management staff in those institutions take unsecured loans and other facilities and refuse to pay back. But there is no way one can close ones eyes to failure of regulation. Before the former Governor of Central Bank, Sanusi Lamido Sanusi came on board, many Nigerian banks were winning laurels for being the best managed and capitalised banks. Soon after, majority of them went into receivership and became headaches for AMCON. Some of the chief executives of those banks also ended up in jail while some are battling to save what is left of their reputation.
NDIC is in a position to eulogise itself over what it perceives as its critical role towards ensuring that banks are safe. That will make more sense if through its role the banking and other financial institutions sector is made really safe for depositors who have had a series of raw deals in the past through the inappropriate behaviour of the banks, their boards and management.
Besides, we are genuinely concerned that with the rampaging effects of recession, one thing the nation can ill-afford is a hiccup in the banking sector. Denying the so-called rumours making the rounds in the social media, in our opinion, is good for the image and integrity of NDIC. However, making sure that depositors’ funds are safe and sound will reaffirm the reliability of the deposits’ insurer. President Muhammadu Buhari reassured the nation on coming to power that the era of easy money is over. What that statement implies is that Nigerians must have to earn every kobo they own and, to that extent, they expect NDIC to guarantee that the hard earned money is safe in banks. That will be the only testimony to their effectiveness and efficiency. No self adulation or chest- beating will suffice.