BY MICHAEL EBOH
Big banks and financial institutions seen as systemically important or deemed ‘too important to fail’, will henceforth, be made to set aside certain amount on an annual basis to guide against the effect of their failure on the economy, says the Nigerian Deposit Insurance Corporation, NDIC.

Also, NDIC has commenced moves to extend the Deposit Insurance System, DIS, to Islamic banking institutions and non-interest bearing financial institutions.

Managing Director, NDIC, Alhaji Umaru Ibrahim, who disclosed this in Lagos, weekend, hinted that NDIC and the Central Bank of Nigeria, CBN, may likely set new capital requirements for financial institutions in the country, based on their importance to the economy.

He said CBN and NDIC are already working on developing a framework for resolving the problems of Systemically Important Financial Institutions, SIFI, to minimise the usage of public funds for their resolution, in case of their eventual distress and failure.

According to him, the framework involves requirement for such SIFIs to develop the resolution framework which should include setting aside an amount on an annual basis, also called living will, to take care of their resolution when such occurs.

“There is also the requirement for maintaining larger capital by the SIFIs to serve as buffer to enhance their resilience to shocks,” he added.

Abdullahi further stated that NDIC has developed a draft framework that would enable it extend DIS to non-interest bearing financial institutions that would be licensed in due course by the CBN.

To this end, he added that NDIC has also issued an exposure draft on Non-Interest Deposit Insurance Scheme (NIDIS) to all deposit money banks, DMBs, in the country.

Ibrahim disclosed that as part of strategy aimed at enhancing its effectiveness, NDIC has commenced the process of reviewing the law setting it up to so as to protect its assets against creditors who obtain judgement against closed institutions, increasing its powers to deal with erring banks and their officials and giving it powers to review the books of banks’ subsidiaries.

The NDIC boss further stated that the corporation has been able to recover N22.158 billion for failed banks in liquidation from between 1994 to August 2011, out of N179 billion, while it has recovered N8.33 million in respect of closed microfinance banks.

As at July 2011, he added that the cumulative insured deposits paid in the 35 banks in-liquidation stood at N3.304 billion out of N5.24 billion, representing about 63 per cent, while it has paid N2.024 billion to about 69,000 depositors of 103 microfinance banks whose operating licenses where revoked in 2010.

He affirmed that the establishment of NDIC has helped in no small measure in ensuring the necessary stability and confidence in the Nigerian financial system, noting that despite the numerous challenges facing it, it is poised to further its activities.

“However, the Deposit Insurance Scheme is still faced with many challenges which include inability to recover liquidated banks’ loans through the courts, wrong public perception of the scheme and weak corporate governance on the part of operators, among others.

“In spite of the challenges, there are enough reasons to state that there is a bright future for an effective DIS in Nigeria,” he said.