-
Bridge bank strategy secures N1.021 deposits, prevents systemic crisis
The Nigerian Deposit Insurance Corporation (NDIC) paid out a cumulative sum of N8.3 billion to 443,946 insured depositors and N100.1 billion to uninsured depositors in 27 years of bank liquidation in Nigeria to the period ended September 2021.
The corporation said this was a result of its drive to begin strengthening its failure resolution and liquidation mandate, through the improvement of internal processes and procedures.
Bello Hassan, the managing director and chief executive of the NDIC, disclosed during his keynote address at the just concluded 2021 Editors’ workshop with the theme, ‘Enduring Extreme Disruptions: Resilience & Reinvention for Banking System Stability & Deposit Insurance’, in Lagos and organised as an annual interactive platform between the NDIC’s Executive Management and Senior Editors on the implementation of the Deposit Insurance System (DIS) in Nigeria.
The NDIC boss said during the 27 year period since 1994, N3.4 billion was paid to 90,945 insured depositors of microfinance banks and N1.2 million to uninsured depositors. In the same vein, the cumulative insured amount paid to 1,553 depositors of closed primary mortgage banks as at the end of September 2021 stood at N110.2 million, while N7.9 million was paid as uninsured deposits.
He also said the corporation’s payment of N1.3 billion to 991 creditors and N4.9 billion to 965 shareholders of banks in liquidation as of September 2021 underscored the corporation’s success story in bank liquidation.
“What this implies is that the corporation had realised enough assets to pay all the insured and uninsured depositors of the banks that presented themselves for payment. Currently, 19 out of the 49 DMBs in liquidation fall into this category.
“In all the foregoing, we are very mindful of the need to foster stronger collaboration with publishers and senior editors of media organisations. Through a better understanding of our programmes and policies, it is believed that you will assist our other stakeholders to gain the right insight into the role of the NDIC as a member of the financial safety net and the contributions of DIS to the stability of the nation’s financial system.
“I, therefore, call on you to continue to support the Corporation in its resolve to effectively discharge its core mandates. On our part, we promise to keep our doors open to your suggestions and observations, while partnering with you on capacity building and other areas of mutual benefit,” he concluded.
Also, Galadima Gana, NDIC’s director, insurance and surveillance department, in his presentation titled: ‘The Role of Deposit Insurance System (DIS) in Failure Resolution,” noted that the adoption of the Bridge Bank option by the corporation has prevented systemic crisis and secured N1.021 trillion deposits which ensured that depositors access their funds and financial services. He said that several failure resolution initiatives such as Open Bank Assistance (OBA), Purchase & Assumption (P&A) and Mergers & Acquisition (M&A) had been adopted in resolving distress in various banks from 1989, culminating in the novel Bridge Bank option.
“The implementation of the Bridge Bank option also saved over 12,667 jobs while over 877 branch networks and services of the affected banks were maintained. The corporation’s accomplishment in the payment of guaranteed sums and liquidation dividends speaks volumes of its commitment to the discharge of its unique mandate,” he said.
For an understanding of the concept, a bridge bank is an institution created by a national regulator or central bank to operate a failed bank until a buyer can be found. The bridge bank is usually established by a publicly backed deposit insurance organisation or financial regulator and may be instituted to avoid systemic risk and provide an orderly transition avoiding negative effects. Some of the tasks of a bridge bank are to assume the deposit of and honour the commitments of the failed bank, so that service to retail clients is not disrupted, and to service secured existing loans to avoid their premature interruption or termination. These tasks are carried out on a temporary basis (usually for no more than two or three years) to provide time to find a buyer for the bank as a going concern.
The NDIC director emphasized that the failure of banks can be minimized if the industry is supported by a strong and effective prudential regulation and supervision; effective corporate governance/risk management practices; a robust and comprehensive legal framework imperative in fighting financial malpractice and recovery of debts; and political-will to implement and enforce regulatory sanctions.
Responding to the inquiry on the economies of the corporation to pay out these amounts to depositors, Galadima noted that at the NDIC, there is the Depositors Insurance Fund (DIF) which comes from banks, microfinance and private merchant banks, and are insured deposits with the corporation.
“These insured deposits are paid into the DIF which comes from the deposit money banks. Also, we have assets either risk assets and or physical assets, which are also insured with the corporation and when these assets are being converted to cash, after their sales, are used for the payouts to these depositors in the event of a failed bank,” he said.
