Nigerian Deposit Insurance Corporation (NDIC) has listed factors responsible for collapse banks in the country including; massive insider abuses by their owners; poor corporate governance arrangement; and inadequate risk management processes.
NDIC also identified weak board of directors’ structure, inadequate capital, weak regulatory and supervisory measures as well as economic and political factors as other reasons.
John Abiodun, assistant director, Insurance and Surveillance Department of the corporation, who spoke recently in Abuja, gave reasons why the NDIC has not been able to speedily resolve issues involving failed banks in the country.
Mr Abiodun identified some of these challenges to include delays in the revocation of the licenses of terminally distressed banks, depositor and creditor apathy, ignorance, delay in filing claims, and recovery of debts owed the failed banks.
Other concerns include the legal actions of owners of closed banks, protracted litigations, disposal of low-quality physical assets of the closed banks and provision of timely liquidity support.
Despite the challenges, Mr Abiodun said since its incorporation in 1988, the NDIC has carried out liquidation activities on 425 financial institutions in the country.
Details of the 425 liquidated banks during the period showed that 51 of them are Deposit Money Banks, 325 Micro Finance Banks and 51 Primary Mortgage Banks.
Abiodun said through efficient and diligent liquidation activities, the corporation has successfully paid in full the deposits of customers of 18 DMBs that were both insured and uninsured.
On Fortune International Bank, Triumph Bank and Peak Merchant Bank, the director said payments have been put on hold to depositors due to litigation challenging the revocation of their operating licence.
“Liquidation of a failed bank through revocation of license becomes the final bus stop when all efforts made by the shareholders and regulatory authorities do not yield the desired result.
“Once a bank’s license is revoked, NDIC takes over for liquidation,” he said.
Abiodun explained that before the corporation liquidates a bank, it usually takes time to look out for deficiencies, known as early warning signals that raises red flags.
Some of the early warning signals, he said, include aggressive growth and excessive competition for deposits, shareholder’s squabbles, frequent changes in management and ownership change in major business lines.
Other warning signs include failure to meet the minimum Capital Adequacy Ratio of 10 per cent, rising non-performing loans to total credit ratio of above five per cent, failure to meet the prevailing minimum liquidity ratio of 30 per cent, high total expense to total income ratio and high incidences of fraud.