Banking Supervision: Between The CBN and The NDIC

Banking Supervision: Between The CBN and The NDIC


By Noel Onoja

Financial Industry watchers in Nigeria will not have thought of a time when the Central Bank of Nigeria (CBN) and her sister-regulator organisation the Nigerian Deposit Insurance Corporation (NDIC) will argue-out or lock horns as to who bears the responsibility of supervising the operations of deposit money banks DMBs and other financial institution operation in the country.

For a role which has traditionally been the obligation of the CBN, inculcating parallel banking supervisory roles into the duties of the NDIC through a planned Amendment of the 2006 NDIC Act without adequate recourse to the CBN may be considered a little across board howbeit to the benefit of the country’s financial system operations.

Representing the Governor of the CBN, Mr Godwin Emefiele, the Deputy Governor Alhaji Sulieman Barau had on Monday told the Senate Committee on Banking, Insurance and other financial Institution hearing that the NDIC sought to assume power to license banks.

He said the corporation also sought to assume power to supervise banks without reference to the CBN, determine the licences of banks and to appoint itself as liquidator.

A position which the Managing Director of the NDIC Alhaji Umaru Ibrahim clearly made case for arguing that the corporation was only asking for additional responsibility but not with the aim of competing with the CBN but to compliment it.

In addition, NDIC Acting Board Secretary, Mr Belema Taribo argued that the corporation was not asking for powers to supervise banks as the power to supervise banks had been in its act since 1998.

CBN’s Position:

The CBN which is clearly opposed to the taking over of banking supervision by the Nigeria Deposit Insurance Corporation, as recommended in the corporation’s amendment act also raised other pertinent concerns

The CBN said that if the bill was passed as recommended, it would make NDIC parallel regulators of banks.

“Following the decision of the Nigeria Deposit Insurance Corporation (NDIC) to amend its 2006 Act, the CBN held various meetings to review the proposals to ensure consistency with the goals of financial system stability.

“The CBN drew the attention of the NDIC to several objectionable clauses in the proposed Act, which at the least sought to confer coordinate functions and powers on the NDIC.

“Specifically, the attention of the corporation was drawn to the implications of the enactment of the act as proposed as it will make the NDIC a parallel/coordinate regulator for banks as CBN.

“It will confer conflicting supervisory functions and powers on NDIC over banks and create overlapping regulatory responsibilities for the NDIC,” The CBN noted.

NDIC’s Position

To add that the primary role of the Nigerian Deposit Insurance Corporation, NDIC as envisaged by the founding fathers was to insure all deposits liabilities of licensed banks and such other deposit taking financial institutions operating in Nigeria.

One of the corporation’s major role is to give assistance to insured institutions in the interest of depositors, in case of imminent or actual financial difficulties where suspension of payments is threatened, to avoid damage to public confidence in the banking system among others.

Alhaji Umaru Ibrahim, Managing Director, NDIC, said that the corporation was ready and would continue to work in collaboration with the CBN.

“This has been the culture; we may disagree at one point but I know that some of the issues you have raised have been resolved.

“We are not in competition with the CBN; we are here in collaboration, to work together for the growth and development of the banking sector.

“All we are asking is additional powers to work effectively and do not compete with the CBN,” he said.

Also, Mr Belema Taribo, NDIC Acting Board Secretary, said that the NDIC would want to be involved in licensing of banks, to enable it to discharge its functions as a deposit insurer.

He added that the corporation was not demanding for powers to license banks, adding that the power to supervise banks had been in its act since 1998.

He said that the review of the act would not in any way affect the supervisory powers of the apex bank but that it was imperative that the corporation was not relegated to assume ‘pay-box system’ in its operation.

Grey Areas:

Apparently, interest of duties between the two regulators may be set on a collision course if not clearly and carefully spelt out.

The CBN specifically objected to some areas of the recommendations in the amendment of the NDIC Act.

These areas include section three mandate of the NDIC that sought to appropriate the supervision of financial institutions in Nigeria along with its primary responsibility of providing deposit insurance.

The CBN posited that it wants the mandate of the NDIC to be specific in relation to its functions and the reason for which it was established to be clearly addressed.

“The mandate of the NDIC in the draft bill includes the effective supervision of insured institutions, to reduce the risk of failure and ensure that unsafe and unsound practices are minimised.

“Others include section seven, article two, that seeks the replacement of director of banking supervision with a deputy governor and Section 32, article five, six and seven on supervision of related entities of insured Institutions.

“Section 32, article five empowers the corporation to directly obtain information from the subsidiaries or affiliates or associated companies of an insured institution.

“Also, Section 32 (6) and 32 (7) further accentuate the power of the corporation over these institutions, including the holding companies, without regard for the specific sector supervisors of the Financial Services Regulation Coordinating Committee,”

The CBN further objected to section 49 of the draft which empowered the corporation to appoint itself as liquidator upon the revocation of licence by the CBN, among many others.

Committee’s Position:

The committee’s Chairman, Mr Bassey Otu, said it would allow CBN to do its work effectively, adding that various commendations from stakeholders on NDIC indicated that it worked hard.

“What we will do is that we will invite some stakeholders, sit with them and get things done well.

“We will try our best because we need the act and we will do what we can to ensure effective existence of the institutions,” he said

It is therefore pertinent to state clearly that in amending the Act tendered, the committee must make sure that the roles of each regulator is clearly spelt out so as to avoid a collision course, duty overlap or parallel operation between the institutions.

But then again, another school of thought will argue thus: what is wrong in having two parallel institution work for the betterment of the sector considering the peculiarity of the finance sector.

These are issues for another write-up, let’s hope this issue of conflicting interest is properly trashed out.

Noel Onoja writes from Abuja ([email protected])