By AMAKA ABAYOMI
Managing Director, Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, has said banking distress can not be ruled out in the sector despite efforts of regulators to stem banks’ distress.
In his welcome address at the 2011 annual seminar for financial journalists holding in Dutse, Jigawa State, Ibrahim said it would be difficult for any regulator anywhere in the world to accurately predict the time another bank failure or crisis might occur, stressing that efforts are being made by the Corporation to stem any bank failure.
He pointed out that there is new trend in the world financial system called Globally Significantly Important Financial Institutions (GSIFS) targeted at protecting the big banks from failing, stressing that the NDIC is working to ensure that even if any of the bank banks fail in the country, it would not lead to systemic failure.
“Distress syndrome usually occurs in the normal process of business of an institution and this means it can happen anytime. The best that any regulator can do in the circumstance is to put in place stricter regulatory and compliance measures that would not allow managers of the respective banking institutions to abuse the rules of the game,” he said.
On the recent concern by members of the National Assembly over the use of public funds to bail out sick banks, Umaru said it was an attempt to tackle that concern that the CBN and the Bankers Committee decided to set up N1.5 trillion Financial Stability Fund which would be funded over the next ten years to cushion the effects of distress.
He explained that while the CBN was contributing about N50bn to the fund, the banks counterpart funding would be would be about 3.5 per cent of their annual profit before tax
According to him the essence of the fund was to compensate the Asset Management Corporation of Nigeria (AMCON) for any losses incurred in the process of bailing out rescued banks.
Meanwhile, as the five banks that successfully executed transaction implementation agreements (TIAs) and court-ordered extra-ordinary general meetings move to seal the final agreements, the NDIC has identified payment system efficiency, distress resolution, range of products lines available to consumers and confidence of the banking sector system as challenges to ongoing merger and acquisition (M&A) in the banking sector.
The banks and their preferred investors are Intercontinental Bank (Access Bank), Oceanic Bank (Ecobank Transnational Inc.), Union Bank (shareholders and African Capital Group), FinBank (First City Monument Bank) and Equitorial Trust Bank (Sterling Bank).
Director Research, Policy and International Relations department of NIDC, Dr Ade Afolabi, who identified these challenges in his paper on: ‘Mergers and Acquisitions in the Nigerian Banking Industry: Issues and Challenges’ warned that regulators must work assiduously to reduce the probability of failure, reduce the impact of failure and provide a level playing field to all players in the banking sector.
He was optimistic that with the current stricter regulation in the sector, the merger and acquisitions would achieved the desired objectives.