By Bashir Ibrahim Hassan
Increasingly analysts and the Nigerian public are looking up to the annual report of the Nigeria Deposit Insurance Corporation (NDIC) to grasp the true situation of their economy, especially the banking sector. The 2014 report is out and remains as pungent as ever. The NDIC expectedly knows how its report has become the decider of actions in some quarters so it is always presented with cautious optimism.
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 and healthy banks scoring 15 banks with “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.
“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 asserted.
The barely two months old administration of President Muhammadu Buhari might welcome the report which portends the regime has no much to worry about the fundamentals.
But as his regime knew; his energy will be needed in the areas of tackling corruption and other financial crimes—the cyber type is now rearing its ugly head in the banking sector as the report showed. A whopping N6.2 billion was lost by Nigerian depositors and banks in 2014 to cyber crimes with majority of cases related to internet banking and ATM scam according to the report.
The report revealed that the total number such scams grew astronomically from 3,786 cases in 2013, to 10,612 cases in 2014. While it involved about 25.61billion 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 populations has only about 28.5 million adults bank accounts holders.
In February 2014 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. And by end of June when the deadline for obtaining the number expired only around 12 million account holders complied.
On a positive note the report revealed that total loans and advances granted by banks across the country climbed from 10.04trillion in 2013 to 12.63trillion in 2014. The report was however quick to point out that despite significant improvement in banking industry’s asset quality, the volume of non-performing loans rose from 321.66billion in 2013 to 354.84bn in 2014. But allay any fears that the ratio of the bad debts to total loans is within the regulatory threshold of 5percent. 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 disclosed.
The NDIC as part of it 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 revealed 15 banks with “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, on one hand the regulatory bodies (CBN, NDIC, etc) need to be cautious in setting up a credit policy that might negatively affect profitability while on the other the banks’ boards also need to know how credit policy affects the operation of their banks to ensure judicious utilization of deposits.
After all approaches to risk in general have changed across organizations and the whole world in recent times as economists observed. This involves the recognition by many business leaders that risks are no longer mere hazards to be avoided but 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’s annual report. The report said the oil and gas sector led the banking industry sectoral credits distribution, accounting for 25.74% of the top ten 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 the respect of international community in areas of peace-keeping and diplomacy and increasingly with NDIC’s activities accolades for strong financial cooperation. Take for example 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 would 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 when it comes to articulating 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 service in Africa.
Clearly, this is a fast growing area of e-commerce that needs effective regulation especially with the vulnerability of the web-base platforms. With the speed telecommunication is evolving breaking barriers to sharing information and accelerating collaboration across different markets, the role of regulatory bodies is never before imperative and urgent.
The report also reminded the public 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 amount 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 undecided 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 boosting the powers of the Corporation 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 of banking policy. It has a lot to achieve if extended with the correct measure of power. Its annual report is now the stethoscope the public confidently uses to take the pulse of the banking sector.
Hassan wrote from Abuja
