BOFIA Amendment:NDIC, CBN clash over authority to manage distressed banks

CBN

…Corporation  seeks prohibition of insider loans

By Babajide Komolafe

The Nigeria Deposit Insurance Corporation (NDIC) and the Central Bank of Nigeria (CBN) are on collision course over authority to  manage distressed banks in the country.

This followed the divergent positions of the two regulators at the  Senate Committee Public Hearing on the   Bill for an Act to Repeal the Banks and Other Financial Institutions Act (BOFIA) 2004 and re-enact the Banks and Other Financial Institutions Act 2020.

The CBN in its presentation wanted statutory powers for  resolution of    distressed (failing) banks and other non-financial institutions, while the NDIC should be limited to   resolving banks and other financial institutions whose license have been revoked.

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NDIC however rejected this position, insisting that proposed Bill should recognise it   as the primary actor in the resolution process while the CBN intervenes in the event of systemic crisis.

Managing Director/Chief Executive, NDIC, Ibrahim Umaru stated this   at the   Corporation’s presentation during the Public hearing in Abuja.

Noting that   there is a need to closely examine enacting laws with a view to harmonising the positions of the NDIC and the CBN   in the NDIC Act 2006 and The Banks and Other Financial Institutions Act (BOFIA) 2004, Umaru explained that variances in the bills that may be perceived as overlapping mandates between the NDIC and the CBN should be clarified in order to avoid any ambiguity in the laws governing their operations and should be reflected in the BOFIA 2020.

This, he said, was specifically critical in the area of the resolution of failing banks where the NDIC should be recognised as the primary actor in the resolution process while the CBN intervenes in the event of systemic crisis.

Umaru   also expressed the need for the NDIC   to be involved in the process of licensing banks in collaboration with the CBN in order to ensure the necessary fit and proper checks and to establish clearer assessment of the status of financial institutions before licensing.

He also noted that the bill seems to suggest the option of the appointment of other entities in the liquidation of failed banks adding that the Bill should be amended to reflect the NDIC as the sole liquidator of failed banks based on the Corporation’s core mandate of Bank Liquidation.

He said, the clear delineation of roles between the NDIC and CBN would strengthen the legal framework and contribute towards effective and efficient collaboration in the supervision and regulation of the Banking Sector.

Umaru stressed that there is no need for approval of the Central Bank to be sought in the implementation of supervision, control and management and distress resolution of banks as reflected in the Bill as this constitutes the core mandates of the Corporation.

“The Corporation should therefore carry out these functions in consultation with the CBN not with the consent of CBN as both institutions are independent and compliment the functions,”he said.

The Corporation also called for express prohibition of insider loans/criminalising insider loans by making it an offence punishable with imprisonment and fine for directors of licensed banks to obtain credit facilities from their own banks, whether such credit facilities are secured or not.  “Directors of banks should be held personally liable without any limitation for the causes of the failure of their banks where they have been found to be negligent in managing the bank.

“The imposition of penalties and prosecution of various offences serve as a deterrent to officers and directors of banks and will ensure that the banking industry ensures compliance with available laws and regulation in order to avoid paying stiff penalties,” the Corporation stated.

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