NDIC: Health status of Nigeria’s financial institutions

Transparency and accountability is the spinal cord of corporate governance. Nothing demonstrates how genuine any corporation’s commitment to these tenets is than its annual report, in which it presents to the public for scrutiny its scorecard, with a view to building confidence and conveying assurances. The Nigeria Deposit Insurance Corporation (NDIC) is in the lead of the league of such corporations with uncompromising commitment to transparency and accountability. The Corporation has since released its 2015 annual report to the public. As usual, the report x-rays the true situation of our financial institutions. And, in doing this, it calls spade a spade.

The importance of NDIC’s annual report cannot be over-emphasised. It is a tool for stock investors to analyse and rate the strengths of their portfolios; to bank depositors it is a barometer to measure the financial status of their banks; and to the policy makers a means to know when to apply appropriate measures to stem any downward slides that can tamper with the equilibrium of the financial system of the country.

The NDIC report is blunt where it needs to be; conversely it offers praises where there is progress; and sounds caution where it is needed. The report is blunt when it reports that out of the 42 primary mortgage banks (PMBs) in operation, a total of 14 failed to render returns to the NDIC. It reports that, as a result, unpaid premiums from nine (9) PMBs amounted to N238.30 million in 2015. In the same vein, it frankly reports that the quality of MFB risk assets deteriorated further as the Non-Performing Loans (NPLs) increased to 23.13 per cent in 2015, from 18.54 per cent in 2014 which exceeded the prudential maximum threshold of five per cent.”

On the other hand, however, the report praises the rise in shareholders’ funds of the PMBs when it says: “The PMBs shareholders’ funds increased by 93.91 per cent to N138.92 billion in 2015 from N71.64 billion in 2014. The subsector Capital Adequacy Ratio (CAR) was 74.04 per cent as at December 2015 which exceeded the prudential threshold of 10 per cent.”

The NDIC 2016 report sounded a cautionary note to shareholders of Microfinance bank that “The unaudited profit before tax for MFBs decreased by 77.63 per cent to N1.68 billion in 2015, from N7.51 billion in 2014. Also, return on assets (ROA) and return on equity (ROE) for the subsector declined from 3.39 per cent and 14.70 per cent in 2014 to 0.47 per cent and 13.74 per cent in 2015, respectively.”

In addition to x-raying the true situation of our financial institutions, the NDIC’s annual report also informs the public of how it is relieving some of its obligations such as payments to depositors of closed banks. The report indicates that the corporation made a cumulative payment of N6.796 billion to 426,324 insured depositors of the closed DMBs as at December 31, 2015 as against N6.795 billion to 426,320 insured depositors in 2014. Similarly, it made a cumulative payment of N2.86 billion to 81,328 depositors of the closed MFBs as at December 31, 2015, as against N2.77 billion paid to 80,178 depositors in 2014. Also, the NDIC made a cumulative payment of N45.05 million to 595 depositors of closed PMBs as at 31st December, 2015 as against N2.02 million paid to 30 depositors in 2014.

The NDIC’s report is a primary source of news of innovative policies the corporation is embarking upon. In the report we learn that the corporation, during the year under review, extended deposit insurance coverage to subscribers of mobile money operators (MMOs) via the concept of pass-through deposit insurance up to a maximum of N500,000. Similarly, we learn that the Corporation reduced the premium paid by banks by N9.09 billion in 2015 following the reduction of the premium-base rate from 40 basis point to 35 for each DMB/NIB under the Differential Premium Assessment System (DPAS).

But the most important aspect of the report is always the section on the risk assessment of the banks carried out usually by NDIC, in collaboration with the Central Bank of Nigeria (CBN). In the report under review the Corporation reports that the two regulatory bodies duly carried out routine risk assessments of all the 24 DMBs while the NDIC alone conducted risk-based examinations of 205 MFBs and 6 (six) PMBs. The examinations were with a view to providing reliable information on their financial health, particularly as it affects the quality of risk assets; adequacy of loan loss provisions; capital adequacy; their level of compliance with banking rules and regulations; risk appetite; and adequacy of risk management frameworks.

It was during such risk assessment exercises that the issue of the non-performing loans and other risk management issues of banks were uncovered and appropriate remedies proffered. The example that readily comes to mind is the recent CBN intervention in the management of Skye Bank due to its high loan exposure which stood at the sum of N700 billion. It was for such a reason that NDIC has been clamouring for more powers to deal with these issues as soon as they are noticed. Part of the Corporation’s proposal for an amendment to its Act is to have the power to enforce the recommendations contained in its Examination Reports, to strengthen its supervisory capacity.

This is to prevent a situation where a bank is examined and the same lapses observed in previous examinations report are repeated due to failure of the bank’s management to implement the earlier recommendations as well as to ensure prompt corrective action is taken on problem banks.Overall, the report concludes that “the banking industry remained stable and sound during the period under review.”
• Hassan is an Abuja-based business and financial analyst.