By OSCARLINE ONWUEMENYI

ABUJA— THE Nigeria Deposit Insurance Corporation, NDIC, said, yesterday, that it has paid over N6 billion to depositors of banks that failed to meet the N25 billion minimum capital requirement initiated by the Central Bank of Nigeria, CBN, in 2005.

It said that litigations by shareholders and directors of some of the failed banks impeded efforts by the Corporation to ensure timely and effective resolution of the bank failures.

Managing Director of NDIC, Mr. Umar Ibrahim, told journalists at the opening session of the International Association of Deposit Insurers, IADI, regional workshop on Resolution of Problem Banks: Purchase and Assumption Option, hosted by the corporation, in Abuja that the corporation had commenced the payment of insured deposits of 91 out of 103 microfinance banks, MFBs, whose licences were revoked by the Central Bank of Nigeria, CBN, in September, 2010.

He said: “Currently, the corporation has paid over N1.5 billion out of the N4.9 billion of insured deposit due for payment to about 45,000 depositors of the affected MFBs. It is noteworthy that the payment was effected with minimum delay from the date of closure.”

Ibrahim said the NDIC continued with the payment of insured sums as well as liquidation dividend to uninsured depositors of the banks closed before 2006.

Insured deposits

He noted: “As at the end of 2010, the cumulative insured deposit paid in the 35 banks-in-liquidation was N3.303 billion. Also the cumulative liquidation dividend paid to depositors in excess of coverage level for the affected banks for the same period was N6.143 billion. It is instructive to note that 11 of the banks had declared a final dividend of 100 percent of total deposits, indicating that their depositors had fully recovered their deposits.”

Ibrahim said NDIC has commenced the payment of about N2.177 billion to the remaining 393,000 depositors of Integrated Microfinance Banks, IMFBs, adding that it was in the process of disposing the assets of the affected MFBs for the payment of the remaining uninsured deposits.

He added: “That means that depositors with balances in excess of the insured limit of N200,000 will be paid liquidation dividends based on the volume of proceeds realized from the assets.”

While noting that the Purchase and Assumption, P&A, option had been confronted with many challenges, including litigations by erstwhile shareholders and directors of some of the failed banks, Ibrahim said: “As of today, two of the 13 banks are still pending before the Federal High Court. The key issue is the need for the legal system to be supportive of timely and effective resolution of bank failures. It is gratifying to note that the new NDIC Act 2006 has enhanced the legal framework for failure resolution in the country.”

Minister of State for Finance, Hajiya Yabawa Wabi, in her address noted that the poor quality of the risk assets of the failed banks had made it an uphill task for the NDIC to effectively dispose of them.

She said that under the P&A strategy adopted for the resolution of the failed banks, the prospective acquiring banks have shown interest mainly in the deposit liabilities and the branch network of the failed banks with a disposition to avoiding their risk assets.

“Hence, the disposal or realization of the risk assets remains a daunting challenge for the NDIC (the liquidator). This is a matter of concern given the poor quality of risk assets. However, the realization of the risk assets is critical to the reimbursements of public_sector depositors and other creditors of the failed banks,” Wabi stated.

She noted that following the revocation in 2006 of the operating licenses of 13 banks that failed to attain the prescribed N25 billion minimum capitalization by the end of 2005 and the guarantee of full coverage to the private sector depositors offered by the Federal Government, the NDIC implemented the novel approach of resolving bank failure through Purchase and Assumption (P&A) mechanism.

“It is worth noting that the option of Purchase and Assumption was based on public policy considerations which included giving depositors easy access to their money, to aid continuity in banking in same premises used by failed banks.

“It is also to promote banking culture which is critical to savings and mobilization for economic development and to generally improve public confidence in the financial sector of the economy,” she explained.

Wabi noted that as at December 31, 2010, P&A arrangements had been concluded for eleven out of the 13 banks closed in 2006, including those which the NDIC had obtained winding_up orders from the court.

The workshop organized by the Africa Regional Committee of the IADI drew participants from Nigeria, Kenya, Tanzania, United States of America (USA), Zimbawe.