Ms Hauwwau Gambo is the head, media relations at the Nigeria Deposit Insurance Corporation (NDIC). In this interview conducted during the 2023 annual conference of the Finance and Business Online Publishers (FIBOP) held in Lagos under the theme ‘Mitigating risk and insecurity using insurance and technology in a harsh economy’ she speaks on the role of the corporation in lessening risks, failure resolution options to mitigate financial crisis, synergy with similar regulatory and enforcement agencies as well as the digital financial institutions and their attendant newer, faster and more devastating risks.
Ime Akpan
Stabilising the financial sector
We have seen the damage that can occur when a financial system breaks down. It’s not just peculiar to third world or developing countries; in fact it happens more often in the western countries. Everybody has seen the problems that were caused by the 2008 financial crisis and the effect it had across the world which made regulators around the world sit up and think and even rethink the way in which the financial sector, specifically the banking sector operates and how best to regulate them. The banking sector is a business sector but it is also a very peculiar one because it has to do with mobilising deposits and using those deposits to be given out as loans to the real sector, the business sector so that it contributes significantly to the economy. Now if you look at a lot of social crisis, political crisis…you will find out that financial instability is part of or maybe the main cause of it. So we in the NDIC play a critical role in contributing to the stability of the banking system. Now the NDIC protects the depositors, I mean its mandate is to protect depositors against the negative impact of bank failure. We started operations in 1988; we were established by the NDIC Act of 1988 and we recently had our Act amended in 2023 and we work in collaboration with the CBN to supervise banks in order to ensure that they are more stable.
Between NDIC and insurance companies
The NDIC is not like the normal insurance company. So you can’t come to the NDIC and say you want to insure your car or your home. Our primary mandate is deposit insurance. In other parts of the world that do not have deposit insurers when banking crisis happens it is usually left to the government to bail them out and usually those funds are taken from tax payers. But the beauty of the deposit insurance system is that the banks themselves pay the premium on behalf of the depositors. So if you have an account in any licensed bank in Nigeria the bank pays the premium on your behalf, you don’t have to come to the NDIC and register. So the responsibility of maintaining good banking business is squarely on the bank itself so that in the event of bank failure it is from the deposit insurers’ fund from where we collect the premium that we now use to reimburse the depositors.
How NDIC mitigates risk
The type of deposit insurance that the NDIC implements is the risk minimiser deposit insurance scheme. It is not a pay box. What this means is that we just don’t sit back and wait for banks to fail then we start to run and pay depositors. We are actively involved in banking supervision; we are actively involved in failure resolution and bank liquidation. Now in the banking supervision aspect we have a risk-based approach which means that it is a risk management kind of approach where bank examiners go to the banks and analyse the banks’ activities not just on the basis of liquidity or credits risks. We look at the holistic approach like how the boards behave and some of the external circumstances that may affect the business of the bank that may affect negatively on the depositors. So we are looking at all the activities and management practices that may have impact. So risk-based provision is very critical and it has more of a tailor-made approach and not a one-size-fits-all approach and from there we can really see the size of impending problems and then try to find ways in which we can mitigate them.
Cloud computing
Very recently, we instituted what we call single customer view which is specifically like a data base where we have all the information about the depositors and this is something we are working on so that in the event of bank failure we don’t have to wait…we can automatically reimburse depositors. Very recently too following the revocation of licences of almost 179 micro-finance banks and primary mortgage institutions, the NDIC this time around started paying the depositors within seven days and the payment is ongoing.
The issue before was the problem of data, trying to get the micro-finance banks have proper data of the depositors so that in the event of failure we can get to those depositors that have lost their money. We have done a lot of mileage in that sense. We have also collaborated with the National Association of micro-Finance Banks; there is also an IT platform where micro-finance banks post their returns and their daily activities so that NDIC can monitor them off-sight and that means that we can quickly determine if a bank is in trouble so that we can quickly intervene. The NDIC has done a lot in terms of trying to mitigate such risks.
Bridge bank option
In terms of failure resolution, the NDIC implements different failure resolution options. One of the most successful is the bridge bank option which it started implementing as far back as 2011 when three banks – Afribank, Spring Bank and Bank PHB failed. What happened then was that we did not just wait for the CBN to revoke their licences. As the CBN was revoking the licenses NDIC in collaboration with AMCON set up something like a SHELL Bank where all the assets and liabilities of those banks were put in a shell bank. For example, this happened during a weekend, so by Friday close of business Afribank was alive but by Monday 8am it was Mainstreet Bank. Depositors’ fund was intact; all the money and everything they had access to on the Friday they still had them on Monday. All the business activities they were doing and transactions went on smoothly. Meanwhile, Afribank was dead.
Recent case
Even recently in 2018/2019, the same intervention was done in Skye Bank which became Polaris Bank. People said we just changed the name from Skeye Bank to Polaris. No, what happened was that Skeye Bank actually failed but the depositors were saved and also a lot of staff jobs were saved. So in that sense this is a very critical tool to ensure the stability of the financial sector. You can imagine a bank that had as many branches as Skye Bank, or Afribank. Imagine the banks failed and you have to wait two, three weeks, one month or two months before you have access to your funds, that impact would have been so negative. So the NDIC in collaboration with the other financial regulators are doing a lot to shore up the economy.
More to do
But there is still a lot of work to do especially now with the emergence of a lot of digital financial institutions – fintechs – bringing up a lot of very positively disruptive different types of payment systems, different ways of investment and so on. And Nigeria is really at the forefront of this. But in developing these newer, faster and more efficient ways of finance, you are also opening up to a lot of newer, faster and more devastating risks. So, it is really important for financial regulators like us to really catch up with all of these new things. NDIC, Central Bank of Nigeria (CBN) collaborate a lot in terms of what is really happening in the fintech sector. The other side of it is prevention of fraud; the other side is also consumer protection which is very important. NDIC collaborates with the Financial Services Regulation Coordinating Committee (FSRCC), Securities and Exchange Commission (SEC) is a member, Economic and Financial Crimes Commission (EFCC) is also a member and they sit down and coordinate and share ideas and see how we can address some of these issues. Another important thing is that we also have to look at our country in relation to others. Digital financial payments and fintechs have really gone far ahead in Nigeria and even other countries around the world and we really have a lot of opportunities here to really grow the economy and make an impact especially in financial inclusion but at the same time we also need to implement systems and strategies in order to mitigate some of the risks.
