CORPORATE GOVERNANCE IN FINANCIAL INSTITUTIONS: NDIC PERSPECTIVE

1. CORPORATE GOVERNANCE IN FINANCIAL INSTITUTIONS: NDIC PERSPECTIVE BY Umaru Ibrahim, mni Ag. Managing Director/CEO Nigeria Deposit Insurance Corporation Presented at the CBN/FITC 2010 Edition of the Continuous Education Programme for Directors of Financial Institutions. Held at Federal Palace Hotel, Lagos on November 2 – 3, 2010.

2. PRESENTATION OUTLINE • Introduction • NDIC – Who We Are and What We Do • DIS Governance Framework • Pre-requisite For Effective Governance • Corporate Governance: NDIC Experience • Challenges • Way Forward • Conclusion

3. 1.0 Introduction • Governance basically refers to the process, structure and information in directing and overseeing the management of an organisation. • For a deposit insurance system (DIS), it also covers relationships between the deposit insurance agency and the authority that confers its mandate or to which it is accountable, as well as between the agency and other stakeholders.

4. 2.0 NDIC –Who We Are And What We Do • NDIC is an independent agency of the Federal Government of Nigeria, established by Decree 22 of 1988 which was repealed and replaced with NDIC Act 16 of 2006. • The purpose of the DIS is to protect depositors and guarantee the settlement of insured funds when a deposit-taking financial institution can no longer repay its deposits, thereby helping to maintain financial system stability.

5. 2.0 NDIC –Who We Are And What We Do • NDIC’s Vision is to become one of the leading deposit insurers in the world. • NDIC’s Mission is to protect depositors and contribute to the stability of the financial system through effective supervision of insured institutions, provision of financial and technical assistance to eligible insured institutions, prompt payment of guaranteed sums and orderly resolution of failed insured institutions

6. 3.0 DIS Governance Framework • Four key elements: • Operational Independence - This refers to ability to exercise assigned powers without undue influence from external parties (e.g., political or industry influence) • Accountability - This requires the agency, board or management to be responsible for their actions and achieving set objectives

7. 3.0 DIS Governance Framework (Cont’d) • Integrity - Involves pursuit of organisational objectives without compromising them through self-interest. • Transparency and Disclosure - This involves communicating the basis for decisions and clarifying actions taken to stakeholders as well as disclosure of information to enable stakeholders assess organisational performance

8. 4.0 Pre-requisites For Effective Governance • Appointment of board members to be based on skill, experience and competence. • Board members, management and employees should be subject to codes on conflict of interest and ethical behaviour. • Board should have a charter or policy that spells out its responsibilities. • Board, management and employees must have legal protection for decisions or actions taken in good faith.

9. 5.0 Corporate Governance: NDIC’s Experience • NDIC GOVERNANCE - The governing body of the NDIC is the Board of Directors which is responsible for policy formulation and oversight of its affairs. • Appointmentof Board Members - The Board are appointed by the President, Commander-in-Chief of the Armed Forces of Nigeria, subject to the confirmation of the Senate.

10. 5.0 Corporate Governance: NDIC’s Experience • Board Composition – 12-Member Board created by NDIC Act 2006. • NDIC Management Team - Presently, a provision for a team of 3 (Managing Director/CE plus 2 Executive Directors (EDs)) who are responsible for day-to-day affairs of the NDIC.

11. 5.0 Corporate Governance: NDIC’s Experience • Operational Independence - • Appointment of Board members subject to Senate confirmation (although no safe guard against abrupt dissolution). • Prohibition from serving on the board of insured institution seek to promote independence and conflict of interest. • Requirement to declare shareholding or significant interest in insured institutions also seek to promote independenceand conflict of interest..

12. 5.0 Corporate Governance: NDIC’s Experience • Disclosure, Accountability and Transparency - • NDIC had consistently complied with the provisions of relevant Acts of the Federal Government of Nigeria with regard to information disclosure of its operations to its stakeholders and the general public. • Published NDIC Annual Report and Statement of Accounts are made available to NDIC’s shareholders, the Public Accounts Committee of the Senate, the CBN and Federal Ministry of Finance as well as the banking public.

13. 5.0 Corporate Governance: NDIC’s Experience • Board and Management Role • The Board continued to set strategic directions for the NDIC with input from Management • There is effective communication between Board and Management • Board and Management dichotomy de-emphasized in NDIC pursuant of organisational goals • Provision for Ministerial Intervention on irrevocable differences between Board and Management.

14. 5.0 Corporate Governance: NDIC’s Experience • Legal Protection – Legal protection for decisions and actions taken in good faith in discharging DIS Mandate. • Board Committees - 6 Committees of the Board (Corporate Strategy; Establishment; Audit; Debt Recovery; Finance & General Purpose; and Information Technology (IT) Strategy) – Created (with terms of reference and distinct responsibilities), to assist Board in the discharge its responsibilities. NDIC Board Chairman not a member of any Committee.

15. 5.0 Corporate Governance: NDIC’s Experience • Governance Policy/Charter- • NDIChas adopted a Code of Corporate Governance for its Board which is hinged on sound governance structures, enhanced relations and protection of the rights of stakeholders, sound risk management and internal audit, greater disclosure and business sustainability. • NDIC Board also comply fully with the Code of Corporate Governance put together for all regulators under the auspices of the Financial Services Regulation Coordinating Committee (FRSCC)

16. 5.0 Corporate Governance: NDIC’s Experience • Governance Policy/Charter (cont’d)- • NDIC has also put in place a Code of Conduct for its Bank Examiners to ensure that they act in a manner that would promote the integrity, image and reputation of the NDIC • Board Training/Skills development- • On an on-going basis, the NDIC consistently reviews and determines what training is needed for its Board Members to ensure skills development and their effective performance.

17. 5.0 Corporate Governance: NDIC’s Experience • Board Training/Skills development (Cont’d) - • As part of the on-going efforts to reposition NDIC in the light of the on-going reforms in the banking system, members of the NDIC Board had undertaken study visits to key deposit insurance agencies in other jurisdictions that had undergone financial system reforms.

18. 6.0 Corporate Governance Challenges In NDIC • Uncertainty of Board Tenure under NDIC Act 2006. • Restriction to Operational Independence by Public service Rules • Threat of Political or Industry Capture.

19. 7.0 Way Forward To Strengthen Governance In NDIC • Management Team of 5 (MD/CE plus 4 EDs) recommended in the proposed amendment to NDIC Act 2006 before the National Assembly in view of the expanding nature of the activities of the NDIC (for example, the increasing number of banks-in-liquidation and the advent of the MFBs and PMIs) • Representative of CBN not below the rank of a Deputy Governor, and Permanent Secretary of Federal Ministry of Finance as members to replace existing structure which provides for Directors as representatives of both institutions on NDIC Board in the proposed amendment of NDIC Act.

20. 7.0 Way Forward To Strengthen Governance In NDIC • Tenure of Members– Proposed amendment provides that part-time NDIC Board members should hold office for 4 years which is renewable for another 4 years to give room for continuity in the board so as to enhance policy matters. • Qualifications of Members – Members required to possess relevant skills and qualification in insurance, finance, accounting, law, banking and management.

21. 7.0 Way Forward To Strengthen Governance In NDIC • Requirement of declaration of interest in insured institutions – To formalise its commitment to transparency, accountability and probity, Board members and all employees are required to exhibit high level of professionalism and ethical conduct. For example, no Board Member is expected to act as a representative of any insured institution or receive direction in respect of duties performed under the NDIC Act.

22. Conclusion • Sound corporate governance has become a matter of major concern not only to business enterprises, but also to regulatory/supervisory agencies and governments worldwide. • Within the limit of its enabling Act, the NDIC Board has over the years in conjunction with the Senior Management, provided value-based and purpose-driven leadership in directing the affairs of NDIC.