DEPOSITORS’ REIMBURSEMENT : NIGERIA’S EXPERIENCE

1. DEPOSITORS’ REIMBURSEMENT : NIGERIA’S EXPERIENCE BEING A PAPER PRESENTED AT THE INTERNATIONAL ASSOCIATION OF DEPOSIT INSURERS CONFERENCE HELD AT ARUSHA SPRINGS HOTEL, TANZANIA, BETWEEN 29TH - 30TH JULY, 2010. BY A. A. ADENIRAN Depositors' Reimbursement: Nigeria's Experience

2. CONTENT • NDIC – Brief History • Depositors’ Reimbursement • Payment of Insured & Un-Insured Deposits • Payment of General Creditors & Shareholders • Disbursement Methods • Challenges • The Way Forward Depositors' Reimbursement: Nigeria's Experience

3. ABOUT NIGERIA DEPOSIT INSURANCE CORPORATION {NDIC} • Nigeria Deposit Insurance Corporation {NDIC} as an Agency of the Federal Government of Nigeria was established by NDIC Act No. 22 of 1988 (now repealed and replaced by NDIC Act No. 16 of 2006). • VISION : “To become one of the leading Deposit Insurers in the world” • MISSION : “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 financial institutions”. Reasons for Establishing NDIC: • Federal Government ‘s adoption of the Structural Adjustment Programme (SAP) in 1986 which included the deregulation of the financial sector; • Lessons from other jurisdictions with explicit DIS; • Lessons of History: Experience of prior bank failure; • Change in Government Support Policy from protecting owners of banks to protecting depositors. • To benchmark with the best practice in the world. Depositors' Reimbursement: Nigeria's Experience

4. DEPOSITORS’ REIMBURSEMENT • The primary mandate of the NDIC is “Prompt payment of guaranteed sums of failed insured financial institutions”. NDIC pays the following categories of Claims: • Insured deposits (Paid from the Deposit Insurance Fund – DIF); • Un-insured deposits (Paid from recovery of Assets of Closed Banks); • General Creditors ( -Do-); • Shareholders of Banks in liquidation( -Do-). Priority of Payment: • Insured Depositors; • Un-Insured Depositors; • Creditors; • Shareholders. Depositors' Reimbursement: Nigeria's Experience

5. DEPOSITORS’ REIMBURSEMENT (Contd) • At Inception, Maximum Coverage Limit was N50,000.00 For Commercial & Merchant Banks; • Coverage Level Increased In 2006 To: • N200,000.00 ($1,333.33)For Depositors of Failed Licensed Universal Banks; • N100,000.00($666.67) For Depositors of Other Deposit-taking Financial Institutions (such as Micro Finance Banks -MFBs and Private Mortgage Institutions PMIs). Depositors' Reimbursement: Nigeria's Experience

6. DEPOSITORS’ REIMBURSEMENT (Contd) • The Board has recently approved an increase in the coverage levels as follows: • N500,000.00($3,333.33) For Depositors of Failed Licensed Universal Banks; • N200,000.00($1,333.33) For Depositors of Other Deposit-taking Financial Institutions (such as Micro Finance Banks -MFBs and Private Mortgage Institutions PMIs). • A retreat was conducted for relevant Committees of the National Assembly to get their buy-in before implementation Depositors' Reimbursement: Nigeria's Experience

7. Payment of Insured & Un-Insured Deposits • Bank Failures occurred on seven (7) different occasions since the Establishment of the NDIC: • Four(4) banks in 1994; One(1) 1995; Twenty-Six (26) 1998; Three (3) 2000; One (1) 2002; One (1) 2003 and Thirteen (13) banks in 2006. • The bank closed in 2002 had its licence restored by the Court in 2009 and three of the remaining closed banks are still in court challenging the revocation of their licences. • Effectively the Corporation had liquidated 45 banks. • NDIC paid about N6.84 Billion ($45.6million) to insured depositors of 45 banks in liquidation out of N11.98 Billion($79.87million) or about 57% of insured deposits as at 30/06/2010. • About N6.75 Billion($45million) or about 58% of N11.58Billion ($77.2million) Liquidation dividend declared was paid to un-insured depositors of the 45 banks in liquidation as at 30/06/2010. Depositors' Reimbursement: Nigeria's Experience

8. Payments to General Creditors & Shareholders • Corporation paid N682.91 million ($4.35million)or about 68% of N1,004.47 million ($6.70million)liquidation dividend declared for the general creditors of 6 closed banks. • Cumulative dividend payments to shareholders of Alpha, NMB and PAB as at 30/06/2010 were N373 million($2.49million), N620 million($4.13million) and N293($1.95million0 million respectively. Depositors' Reimbursement: Nigeria's Experience

9. Disbursement Methods • Direct Payments to Insured Depositors by the Corporation’s staff. This was used during the 1998 mass liquidation of 26 banks. • Payments of liquidation dividends to un-insured depositors through appointed Agent Banks Agency arrangement with live banks to pay liquidation dividends; 1994 - 2005. • Purchase & Assumption (P & A) for banks closed in 2006. Depositors' Reimbursement: Nigeria's Experience

10. Challenges Mitigating Effective Disbursement • Movement of physical cash to remote locations (especially in Direct pay-off) with the attendant security implications; • Poor maintenance of depositors’ records by failed banks- missing/non-availability of mandate files, signature cards, ledgers, etc. • Poor Depositors’ response • Apathy on the part of depositors; • Lack of commitment by Agent Banks; • Poor documentation & returns by Agent Banks; Depositors' Reimbursement: Nigeria's Experience

11. The Way Forward The Corporation put in place the following measures to ensure efficient deposit disbursement. • Extension of claim-filing period beyond 18 months provided by the Act; • Advertisement, Publicity, Seminars & Conferences for public awareness; • Introduction of e-Fass (Electronic Financial Analysis Surveillance System) to gather information from banks prior to liquidation to ensure integrity of records; • Introduction of Depositors’ Tracers. Depositors' Reimbursement: Nigeria's Experience

12. Thank you for your attention Depositors' Reimbursement: Nigeria's Experience