Economic Confidential, June, 2009

INTERVIEW

How NDIC Protect Depositors’ Funds

… Fortune and Savannah Banks

Recently the Managing Director of Nigeria Deposit Insurance Corporation (NDIC), Mr. Ganiyu Ogunleye (OFR), invited the Economic Confidential to media activities as part of the events organized to celebrate the corporation's 20th Anniversary. From the interactions that ensured with the MD, the Economic Confidential provides his responses to various burning issues in respect of the corporation. Excerpts:

Lets start with recent controversy over Fortune Bank

The issue of Fortune Bank was orchestrated by one Sylvester Odigie, who wrote a petition to the Senate. Based on his petition, the Senate had a public hearing between January, 28th – 29th of 2009. We were not at the public hearing. He made it clear at the hearing that the two banks were challenging the case that was already in the court as well as the admission to be appointed the liquidators by NDIC. One of the suggestions was that why can’t the Senate mediate by writing the major stakeholders in those two banks, so that they can withdraw their cases in court as well as one other bank, in order for depositors to be paid. As a follow up to that suggestion, another meeting was held in March.  At that meeting we had the resolution of the three banks: Triumph Bank, Fortune Bank and Peak Merchant Bank.

Did they make any attempt to withdraw the cases?

They were insisting that they were not going to withdraw the cases they had in court. At the same time, they wanted depositors to be paid. I was there, it was televised live. And I said look, legally NDIC could pay if and when we are to pay, is just to insure the person. Any payment outside that would have to come from the asset of the bank. Because of the cases they had in court, the Senate asked CBN if there is anything they can do. CBN now said if they could consider the option of providing resources to pay depositors of the three banks whereby assessing the signature of these depositors and when the cases in court are resolved; the CBN can not file claims as depositors of those banks. That was the understanding. They were still contesting the proposal by CBN and I asked if the CBN decided to take a risk, how that affects them. CBN did not say it was going to confiscate their assets neither did it request for the cases to be withdrawn from court. At that meeting it was also agreed that the CBN should try at the end of April to implement that decision. But I’m not sure it was implemented. So that would explain what transpired in the senate.

What Happens after the public hearing?

After the senate public hearing, we got to know that the Senate also wrote to the police because the people in Fortune alleged that certain funds that they left in the bank, they wanted to know where those funds were. And some of those funds that they claimed was left in the bank are just cooked up stories. They said as of the time they left, they had assets worth 7 billion naira. What are those assets? One of those assets by their own capitulation of Judgment in the fortune Towers which they said was worth more than 2 billion naira. But they did not disclose that the same Fortune Towers was mortgaged to Union Bank as clearing collateral, which Union Bank has sold. That is one of the assets they said they left N7 billion. They said they had another N1.3 billion in CBN, I don’t work in CBN. They can confirm whether such funds exist or not. They also said that the sale of Karu Market, that was not even something they delivered because it was a debt recovery which they decided to call the sale.

Please can you elaborate more on the Bank’s involvement in Karu Market?

When Fortune Bank was in business, Nasarawa State Government through its agency, Nasarawa Investment and Mining Company, borrowed money from Fortune Bank to Develop Karu International Market. When it was time to pay, Fortune Bank demanded a repayment of about N2.4 billion from Nasarawa State Government. The bank demanded for what was much higher than the bargain, which resulted in a dispute and the appointment of consultants by the two parties for reconciliation. The borrower disputed what the bank demanded that there was no way the debt could be that high and accused Fortune Bank management of arbitrary and illegal charges. Normally, when you dispute a debt, there must be reconciliation and the reconciliation they had, the two parties appointed consultants. And at the end of the reconciliation the debt was reduced to N1.5b so that is the debt. If you are charging interest you ought not to have charged that which is part of the debt. But surprisingly reports have been rife that NDIC reduced N2.5 to N1.5billion. I have seen all sorts of publications on that baseless allegation. At least there is no basis for that type of allegation or claim.

What about the allegation that NDIC diverted the interest to another account

I challenge petitioners or accusers on my role over Fortune Bank case to mention the account to which the money  was diverted to. I am happy to inform you that the Central Bank of Nigeria has closed the said account since the police were asking that the fund be transferred to its account. Like I said, before then, several meetings were held with the Nasarawa State Government, a party to the case, on the resolution of the bank’s crisis, where the state turned down the four different offers that were made. The state rejected the pay-as-you-go that was also offered them.

How come the Police join in the case?

The police said it is investigating and have gone to court. If they have gone to court, I have not been served. I was invited by the Police where I presented all documents including letters from the Nasarawa state government and I was cleared of any shady deal. The fund in Fidelity has yielded N83 million as at the time the police got involved. Some of the figures being brandish by the distress bank owners are not correct.  Parts of the property being claimed by the owners of the bank as I said, is Fortune House in Lagos at N4 billion. Unfortunately, the same house has been used as clearing collateral with Union Bank and Union Bank has sold the house for N2 billion. But I can tell you that the N1.4 billion liquid asset is intact with interest.

Was the money Recovered?

As a result of an off-shoot of a rejoinder by NDIC the money was recovered. When we recovered the money, we send the cheque to the Interim Management Committee of Fortune. They now used that money to invest in Fidelity Bank at 16 percent interest. As of the time the Police got involved, that investment had earned about 83 million naira interest. It was initially N1.058 billion which has now multiplied to N1.140 billion. The money is still there. There are other aspects that, may be with time they may get to be fully understood. Police said in the course of their investigation, they found that depositors funds that were trapped in Fortune is now held in Fidelity Bank and the Commissioner for Special Investigation now gave a directive that Fortune should terminate the investment, issue a draft in the name of the Inspector General of Police. They wrote a letter dated 4th March, 2009. And Fidelity  said for them to do that, they needed clearance from Central Bank. They wrote to Central Bank who now wrote to the Inspector General of Police a letter dated 18th of March stating that monies held in Trust can not be transferred to the Police. When the attempt to recover the money by the police failed, the next thing they did was to go to the Chief Magistrate Court in Wuse Zone 2, Abuja to obtain a court order to freeze the account. As of now the account is frozen by the Police. 

Are you saying no money was missing?

As far as NDIC is concerned, the money recovered is intact and has even built interest. That is the true situation of whatever money we are talking about. When matters are in court, it’s an open place. There would be more revelations to come. That is the issue of Fortune / NDIC, which I believe ought to have been clarified by me now.

Are the Cases at the Supreme Court?

The two cases were handled at the Federal High Court level not Supreme Court. If you are talking of Savannah Bank, it’s at the Federal High Court Abuja. If you are talking of CBN, it’s Federal High Court, Abuja. They were given 18 months to recapitalize or do whatsoever. I want to say that it is between CBN and those two banks. NDIC has not got any role to play in that.

How soon would Savannah Bank receive its license?

All I know is that NDIC would handover the business premises of Savannah Bank to its owners this month, May 2009. And as far as NDIC is concerned, we have no business with whatsoever recapitalization they are doing. I know as at a point in time they had a foreign investor, International Resources Associates, (IRA). Savannah Bank’s licence that was revoked for whatever reasons is now restored. There is no need to waste our time discussing that. The issue of 18 months within which the bank should be recapitalized rest with the CBN.

Can you shed more light on WEMA Bank imbroglio?

The issue of WEMA Bank had to do with the window dressing of accounts. Any examiner examining banks has own independent assessment. Based on our own assessment we determine the quality of the assets. And whatever impairments we determine, we recommend that they should make appropriate level of provision to cover those impairments. We are still getting cases whereby banks will claim that they have recovered debts. But typically in those instances what they do, is they would take their own money to go and buy drafts in other banks and credit the account of a customer. When they give NDIC such records, because if you are to tell your examiner you have recover debts, they don’t just take whatever you give them, they go on to verify. There are certain trends that when we discover them, we reject such records of claims. We insist on our position to avoid such malpractices. That also happened in WEMA Bank at a particular point in time.

How do you foresee the banking industry in Nigeria?

There has been various stages of development which I am sure you are conversant with. The global financial crisis to some people perhaps, thought or felt that Nigeria is immune. The Nigerian banks did not deal in some of those banking products that form the catalyst in the crisis. To that extent they did not feel the direct impact of those assets caught in the financial meltdown. But that is not to say that they are immune. For various reasons, the banks in Nigeria are likely be affected. One, when it comes to trade finance they need line of credit which forms the bases for international transactions. They need line of credit from other banks that could be partners to foreign banks. And this line of credit may come up with their own challenges and people want to quickly restructure their portfolios. Either the cut off of such credits lines are stringent as a result of the situation in the global economy or increase in the cost of attaining those lines are very high. That is the material on which such effects from the financial melt down can cascade to our shores. There are also a number of banks too who have already provided credit facilities to people in downstream import industries who are so called independent marketers who import petroleum products, who as of the time they went into this arrangement, oil prices was high and because of certain dynamics the prices came down therefore they incurred huge loses.

How would they payback the banks they entered into agreement with?

Certainly not on the basis of their loses so obviously that is an abject reaction from the spill over from other parts of the world on the global economy. We all know that the banks also gave credit to the stock market. There is no way that when the stocks were crashing that it would not affect the liquidity of banks. It has its adverse effects to some extent. Yet in terms of capital, nobody is in doubt that the banks are well capitalized. For example the total source of borrowing is not capital. If by the time you use deposits to make loans to various clients to different investments that incurred loses, you will be in trouble. That will be a liquidity problem for a bank. And central bank would now have to provide a cushion so that banks could have credit support.

What is the total deposits of Nigerian banks

The total deposit liability of insured banks is now N8.7 trillion. Through Purchase and Assumption, the corporation has resolved cases in 11 out of 13 banks that failed post-consolidation. The combined effects of the activities, culminated in the significant growth of financial soundness indicators which include growth of bank deposits liabilities from N30.8 billion in 1989 to N8.7 trillion in 2008 growth of banks’ total assets from N86.9 billion in 1989 to N19.3 trillion in 2008 and growth of deposit accounts from N15.8 million in 2002 to N30.7 million in December 2008.

Can you tell us some of the new measures you put in place?

The corporation has put in place measures aimed at securing the deposits of bank customers through the increase in insurance coverage from N50,000 to N200,000 for depositors in universal banks and N100,000 for depositors of micro-finance banks and primary mortgage institutions. A target of 90 days had been set for payment to depositors of failed bank after being appointed as liquidator. With respect to supervision, special insured institutions have been created to supervise micro-finance banks and primary mortgage institutions besides the creation of electronic Financial Analysis Surveillance System (e- FASS) which is done in collaboration with the CBN.

How do you save depositors when banks were liquidated?

Before liquidation, sequences of examinations would have been exhausted but in most cases ailing banks don’t reveal their true health. Three mechanisms have been set up to save depositors, namely Open Bank Assistance, where the corporation’s accommodation bill was used to resolve liquidity crisis in the banking system; Depositor Reimbursement and Purchase and Assumption. Through the former, NDIC has paid N3.3 billion out of N5.2 billion insured deposit of 34 banks that failed before consolidation.

What are the challenges you face?

The corporation is facing some challenges based on the Fiscal Responsibility Act. The banks pay to NDIC and whatever is the result in terms of surplus or deficit at the end of the year the corporation bears it. NDIC has been making surpluses but under the Act whatever surplus the corporation makes, 80 per cent is transferred to the consolidated revenue of the Federal Government and when transferred as far as the government is concerned that is treasury income.  If the corporation makes any loss that is its loss for the year as the law is not interested in loss. I must express my corporation’s displeasure over protracted court cases which are not disposed off as quickly as possible. Since the nation’s return to democracy, the failed bank tribunals set up to prosecute both criminal and civil cases have been thwarted and as a result of that only 104 persons have been convicted since the end of December 1999 out of 2,464 cases while only N3.541 billion was recovered through the tribunals.