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NDIC can’t supervise banks – CBN tells Senate

By BusinessNews Staff on March 11, 2015

The Central Bank of Nigeria on Monday rejected some of the proposed amendments to the Nigeria Deposit Insurance Corporation Act.

The central bank insisted that some provisions in the document were targeted at usurping some of its core mandates, especially the supervision of the banks.

The CBN Governor, Mr. Godwin Emefiele, stated this at a one-day public hearing on the ‘NDIC Act 2006, Cap N102 LFN 2012 (repeal and re-enactment) Bill 2015’ organised by the Senate Committee on Banking, Insurance and other Financial Institutions in Abuja.

Represented by one of his deputies, Mr. Sulieman Barau, the CBN boss said the amendments being sought to the NDIC Act should be rejected because they were capable of causing chaos and anarchy in the financial sector.

He explained that some of the proposed amendments sought to confer coordinate functions and powers on the NDIC.

The governor argued that the NDIC, being the undertaker, could not be a judge and a prosecutor in its own case.

“The implications of the proposed amendment to the NDIC Act enactment will make the NDIC a parallel or a coordinate regulator for banks as the CBN,” Emefiele said.

He added that the controversial bill was also seeking to confer conflicting supervisory functions and powers on the NDIC over banks and create overlapping regulatory responsibilities for the two agencies.

Emefiele also stated that the powers that the NDIC was seeking and the consequences were analysed to include among others, power to license and supervise banks without reference to the CBN.

He also noted that the power to determine the licences of banks and to appoint itself as a liquidator were contained in the proposed NDIC Act.

Emefiele said, “It is pertinent to mention that all the above powers, which the NDIC seeks to assume and exercise, are ostensibly to ensure that it carries out its function as a risk minimiser and that depositors of distressed banks and other deposit-taking financial institutions are paid in good time to avoid delays.

“While the CBN supports the desire to pay depositors of distressed institutions in good time, the proposal to make the NDIC the judge and juror in cases involving banks is fraught with dangers and is a recipe for financial instability. It is indeed the ingredient for chaos and anarchy, and is not practised in any financial system in the world.

“There is also the moral hazard of the NDIC as a deposit insurer that charges premium on the basis of the riskiness of an institution, which it supervises without recourse to the CBN to rate such institutions as riskier than they actually are in order to enhance the premium charged to bolster the deposit insurance fund.

“Consequently, it is essential that the NDIC must flow from its primary function, which is the basis for its establishment; that is, deposit insurance.

“Then, and only then, will its role in the financial system as it relates to banks and other deposit-taking financial institutions be properly defined.”

However, the Managing Director, NDIC, Alhaji Umaru Ibrahim, in his presentation, said even though disagreements existed between the corporation and the central bank, the NDIC was not seeking any role outside its lawful mandate.

Ibrahim said the NDIC was seeking the amendments to its Act in order to ensure safety and soundness in the banking system.

He added that the corporation was not in competition with the CBN but cherished its operational independence and mandate as provided by its Act.

The NDIC boss said, “We may have disagreements here and there, we are not reinventing the wheel. I noticed from the presentation of the CBN governor that apparently he may not be aware of the fact that a lot of these have been resolved and will be resolved.

“We are for collaboration, we are for the safety and soundness of the system. We are not in competition with the CBN. At the same time, we cherish our own operational independence and we cherish our mandate as provided by our Act.”

Senate President, David Mark, while declaring the public hearing open, said the exercise was aimed at obtaining authentic information from various interest groups to guide the Senate in its legislative action.

Mark, represented by the Senate Leader, Victor Ndoma-Egba, said, “It is hoped that this exercise, if successfully completed, will produce results that are acceptable to the generality of our citizenry.”

[Punch]

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