CHAPTER ONE
1.0 INTRODUCTION
As part of the reform measures taken to strengthen the supervisory all over the banking sector, the Nigeria deposit insurance corporation (NDIC) was established in 1985 by decree No 22 in order to promote public confidence in Nigeria banks. But in addition to this, there was also the long-term need to create and sustain an enabling environment that will engender safe and sound banking practices by protecting the banking system against destructive runs, protecting bank deposits and ensuring fair play amongst the competing banks. These cardinal consider actions were rain formed by the lessons of history of bank features in Nigeria, the experience of other countries where deposit insurances scheme are being operated and there alive of the prevailing distressed financial condition of the banks in particular and other financial intermediaries in the financial sector in general.
In Nigeria today, hardly can any year pass by without one hearing of one kind of distress or the other in the banking sector. The number of banks, today, classified as problem banks are on the increase and have continued to be of serious concern to depositors, government and regulatory authorities. According to NDIC reports by the end of 1991, 8 banks were officially classified as distressed, the number rose to 15 in 1992. as at December 1993 27 banks were classified as distressed, the number rose to 47 in 1994, 63 in 1995 and 89 in 1996. However the figure dropped after the establishment of deposit insurance scheme to 34 banks in liquidation as at December 2000. deposit insurance is a financial guarantee scheme, which ensures that bank depositors do not lose al their deposits in the event of bank failures.
1.1 BACKGROUND TO THE STUDY
The federal military government decree No. 22 of 15th, June 1988. There is hereby established a body to be known as the Nigeria deposit insurance corporation. This corporation is not to insure bank deposits thereby helping to promote safe and sound banking system in Nigeria, protect depositors interest and further inculcate banking habit amongst Nigerians.
NDIC in an autonomous supervisory body with powers among others, to examine the books and affairs of insured banks and other deposit taking financial institutions operating in Nigeria, to insure their total deposit belonging to the board members and staff of the insured bank, deposits used as collateral and such other deposits board of NDIC may exempt from time to time.
Deposit insurance is financial guarantee instituted as a measure of safety for the banking system to protect depositors. Deposit insurance promotes the stability of the banking system. It assures the saver that his funds are safe and that the failure of one bank does not mean that all bank is are in danger of failing. The authorized capital of the corporation is N1000m Naira out of which N50m Naira has already been called and paid up by the federal government of Nigeria to establish the (NDIC).
1.2 STATEMENT OF THE PROBLEM
These problems militating against the distressed banks in Nigeria.
i. Incompetent bank management: Most of the management teams of problem banks are not competent enough to address the issue of distress squarely.
2.Inadequate debt recovery process: The legislative provision for debt recoveries is inadequate. The debt recovery process is sluggish, cumber some and does not encourage speedy recovery of banks debts.
3.Political factors: The harmful effects of the persistent political upheavals in the country have the toll on business enterprises as well as on the banks. A politically stable economy is necessary for effective performance of NDIC.
4. Macro – economic recession: The depressed condition of the has continued to adversely affect the operation of most banks especially the distressed ones.
5.Poor funding: The funding of the NDIC is grossly inadequate. This explains wh6 the maximum insurance claim depositor of a failed bank is pegged at N50, 000 this amount is grossly inadequate.
1.3 OBJECTIVE OF STUDY
It must at outset be acknowledged that the sanitation of the banking system has bee collaboratively carried out by a lost of regulatory authorities namely CBN, NDIC and the federal ministry of finance among others. However, distress resolution which is the card of the revamping exercise that is legally a primary responsibility the NDIC going by the amendment to its decree. The corporation has therefore taken a number of initiatives in this regard leading to evolution of a co-ordinate approach for distress resolution.
In this project of the role of the NDIC in the revamping efforts, it is network to distinguish between some normal or ordinary supervisory actions of the corporation that however, imp[act on the sanitization effort and those more or less one-of actions taken to sanities the system. The first set of actions refers to the normal on site examination and off-set supervisory activities of the corporation. These actions provide the dial gnosis for updating the trend in distress as well as indicating the next possible line of actions in the sanitization drive. However, these normal supervisory activities will not be elaborated upon here to minimize digression from the focus of the presentation. The second set of actions conceptualized and implemented to sanities the banking system are expectedly corrective as well as preventive of further deterioration in the financial condition of the distressed banks.
1.4 SIGNIFICANCE OF STUDY
BDIC has a very important role it is playing with banking sector, NDIC insures bank deposits thereby helping to promote stability safety, confidence and sound banking system in Nigeria, protect depositors interest and further inculcate healthy banking habits. Through the instrumentally of special promulgation of government and the collaborative efforts of CNB, the federal ministry of finance and the federal ministry of justice, the corporation has been able to recover debts otherwise August 1999, about N7.6 billion has been recovered by distressed banks under the control and management of the regulatory. Supervisory authorities while N35 billion have been recovered from debtors of the 31 banks in liquidation.
In addition, the NDIC has since its establishment been providing financial information on insured banks to the general public. Such information has enabled the public to know the financial conditions of the Nigeria banking industry. The dissemination of financial information is done through the corporation’s publication seminars workshops and symposia.
SCOPE OF STUDY
The NDIC insures deposits in commercial and merchant banks and other deposit banking financial institutions, each insured bank must meet high standards of safety and soundness in its banking practices. Adherence of these standard is determined through regular bank examinations by the regulatory supervisory authorities. The NDIC and the central bank of Nigeria, if despite these precautions and insured bank get into financial difficulties and must be closed for purpose of liquidations the NDIC is on hand promptly with cash to relieve a depositor up to the maximum of N50,000.
Deposit in this context means monies lodged by the general public with any insured bank or financial institution whether or not if is for safe keeping or for the purpose or earning interest or earning whether or not such monies are repayable upon demand, upon a given period of notice or upon a fixed date. The Nigeria deposit insurance corporations protect the interest of creditors or shares of a failed bank.
