NDIC can never supervise banks, CBN insists

The Central Bank of Nigeria (CBN) on Monday rejected some proposed amendments to the Nigeria Deposit Insurance Corporation (NDIC) Act, saying they were targeted as usurping some of its core mandates.

Godwin Emefiele, CBN Governor, made the statement at a one-day public hearing on the 'NDIC Act 2006, Cap N102 LFN 2012 (repeal and re-enactment) Bill, 2015″ organized by the Senate Committee on Banking, Insurance and other Financial Institutions in Abuja.

Represented by his deputy, Sulieman Barau, Emefiele said the amendments being sought to the NDIC Act should be rejected as they are capable of causing chaos and anarchy in the financial sector.

The governor, who noted that some of the proposals seek to confer coordinate functions and powers on the NDIC also argued that the Corporation, being the undertaker, cannot seek to be a judge and prosecutor in its own case.

Specifically, Emefiele insisted that the implications of the proposed amendment to the NDIC Act enactment would make the NDIC a parallel/coordinate regulator for banks as CBN; confer conflicting supervisory functions and powers on NDIC over banks; and create overlapping regulatory responsibilities for the NDIC.

The CBN boss added that the powers that the Corporation sought to assume and exercise and their consequences were analyzed to include; Power to license banks, power to supervise banks without reference to the CBN, power to determine the licences of banks and power to appoint itself as liquidator.

'It is pertinent to mention that all the above powers, which the NDIC seeks to assume and exercise, are ostensibly to ensure that it carries out its function as a risk minimizer and that depositors of distressed banks and other deposit taking financial institutions are paid in good time to avoid delays.

'While the CBN supports the desire to pay depositors of distressed institutions in good time, the proposal to make NDIC 'the judge and juror' in cases involving banks is fraught with dangers and is a recipe for financial instability.

'It is indeed the ingredient for chaos and anarchy and is not practiced in any financial system in the world.

'There is also the moral hazard of the NDIC as a deposit insurer that charges premium on the basis of the riskiness of an institution which it supervises without recourse to the CBN to rate such institutions as riskier than they actually are in order to enhance the premium charged to bolster the deposit insurance fund.

'Consequently, it is essential that the NDIC must flow from its primary function, which is the basis for its establishment, that is, Deposit Insurance.

'Then and only then, will its role in the financial system as it relates to banks and other deposit taking financial institutions be properly defined,' the CBN boss stated.

The Managing Director of NDIC, Alhaji Umaru Ibrahim, in his presentation said even though disagreements exist, they were not seeking any role out their lawful mandate.

Ibrahim said the NDIC is seeking the amendments to ensure safety and soundness in the banking system adding that the agency was not in competition with the CBN.

Ibrahim said: 'Yes, we may have disagreements here and there. We are not reinventing the wheel. I noticed from the presentation of Mr. Barau that apparently he may not be aware of the fact that a lot of these have been resolved and will be resolved.

'We are for collaboration. We are for the safety and soundness of the system. We are not in competition with the CBN. At the same time we cherish our own operational independence and we cherish our mandate as provided by our Act.

'I can assure you that by the time we go through the details you will find that there are very few areas of misunderstanding or conflict that we need to resolve.

'But a lot of the issues still remain valid, in our rules and I keep saying that the founding fathers of NDIC, who decided that NDIC should operate as a risk minimizer, in other words, given full powers to be involved in supervision and bank examination and in the liquidation among others, did not do that by mistake.'

While declaring the public hearing open, Senate President, David Mark, said the exercise was aimed at obtaining authentic information from various shades of interest and opinion to enhance and guide the Senate in its legislative action.

Mark, represented by Senate Leader, Victor Ndoma-Egba, said: 'It is hoped that this exercise if successfully completed would produce results that are acceptable to the generality of our citizenry.'

Chairman Senate Committee on Banks, Insurance, and other Financial Institutions, Senator Bassey Otu said the repeal and reenactment being sought in the Bill is targeted at revitalizing and enhancing the operational framework of the nation's financial institutions and in 'essence strengthen their capacities in addressing challenges in line with international best practices.'

On his part, the Minister of State for Finance, Bashir Yuguda, represented by the Director of Home Finance, Mr. Khali Zaji, noted that even though the NDIC had made giant strides since its establishment, there have been 'some operational challenges that have threatened the ability of the Corporation to discharge its mandate effectively which, if left unchecked will undermine the safety, stability and soundness of the banking system.'