Law News
CBN rejects proposed amendment of NDIC Act

The Central Bank of Nigeria, CBN, yesterday opposed the proposed amendments of the Nigeria Deposit Insurance Corporation, NDIC, Act, alleging that the Act was a deliberate plan to strip the apex bank of some of its regulatory functions.

Mr Godwin Emefiele answering questions  during his screening by the Senate for  Central Bank Governorship in Abuja on Wednesday

But the management of NDIC said there was nothing new in the proposed amendments as most of the proposals had been on the Act, adding that the commission will not compete with the CBN, rather will collaborate with the apex bank to ensure sanity in the financial institution.

Speaking 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, the CBN, Godwin Emefiele, rejected the proposed amendments, saying it was capable of causing chaos in the financial sector.

The CBN governor represented by one of his deputy, Sulieman Barau said that the NDIC is risk undertaker and cannot seek to be a judge and prosecutor in its own case, adding that some of the proposals on the amendments bill seek to confer coordinate functions and powers on the Corporation.

He said there was the need to distinguish between an institution that was in the business of buying risk and other institution saddled with the responsibility of managing business.

According to him, an insurance company basically buys risks. It is an institution that manages risks and in position to ensure that risks do not happen, and advised that in this era of global financial crisis, there was the need to address issues that border on conflict of interest.

The Managing Director of NDIC, Alhaji Umaru Ibrahim, in his presentation said even though disagreements exist, they were not seeking any role out of their lawful mandate and that what the Corporation was seeking for was the amendments to ensure safety and soundness in the banking system.

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

Ibrahim, who was represented by the Acting Board Secretary of NDIC, Delema Taribo said, “Yes, we may have disagreements here and there, we are not reinventing the wheel. I noticed from the presentation of Mr. Barau 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.

“I can assure you that by the time we go through the details you will find that there are very few areas of misunderstanding or conflict that we need to resolve. There are very few new things that we have introduced and some of them have been read out. Emefiele who said that it was pertinent to determine which institution that was saddled with the responsibility to serve as a regulator, insisted that the implications of the proposed amendment to the NDIC Act enactment would make the NDIC a parallel/coordinate regulator for banks as CBN; confer conflicting supervisory functions and powers on NDIC over banks; and create overlapping regulatory responsibilities for the NDIC.

He added that the powers that the Corporation sought to assume and exercise and their consequences were analyzed to include; Power to license banks, power to supervise banks without reference to the CBN, power to determine the licenses of banks and power to appoint itself as liquidator.

The CBN boss 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 minimizer 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 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 practiced 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.”

 

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