NDIC commences sale of Heritage Bank assets to compensate uninsured depositors

.Completes liquidation of 651 financial institutions

BY MOTOLANI OSENI

The Nigeria Deposit Insurance Corporation (NDIC) has initiated the sale of Heritage Bank’s assets to compensate depositors whose funds exceed the maximum insured amount of N5 million.

This is part of the NDIC’s broader effort to ensure that all depositors, including those with uninsured balances, are reimbursed through liquidation dividends generated from the sale of the bank’s assets and debt recovery.

The NDIC’s announcement coincides with the confirmation of the closure of 651 financial institutions in Nigeria, comprising 50 Deposit Money Banks (DMBs), 55 Primary Mortgage Banks (PMBs), and 546 Microfinance Banks (MFBs). While depositors of Heritage Bank have already been reimbursed up to the insured limit, the NDIC is now focused on compensating those with larger balances.

READ ALSO: Breaking!Gov. Umo Eno looses wife

Speaking at a recent workshop organised by the Financial Correspondents Association of Nigeria (FICAN) in Ikeja, Lagos, and NDIC Managing Director/CEO Hassan Bello shared updates on the liquidation process. He assured the public that the corporation is actively recovering debts and realising assets from Heritage Bank to ensure prompt payment to depositors with uninsured funds.

“The corporation has already initiated the process of debt recovery and realisation of investments and physical assets of the defunct bank,” Bello stated. “This is to ensure the timely payment of the uninsured deposits.”

In addition to depositors, the NDIC’s responsibilities extend to the creditors of the defunct bank, who will be compensated after all depositors have been reimbursed. Bello emphasised that an orderly process of asset realisation and prioritisation of claims is essential for maintaining public trust in the banking system and promoting financial stability.

“The handling of the Heritage Bank liquidation illustrates the broader role of the NDIC in ensuring that even in times of financial disruption, depositors can rest assured that their funds are protected,” Bello said. He stressed that confidence is crucial to maintaining financial system stability, and that the NDIC, as a key safety net, is committed to fostering trust in the banking system and preventing bank runs during periods of uncertainty.

Pamela Roberts, Deputy Director of the NDIC’s Enugu Zonal Office, elaborated on the corporation’s experiences with bank closures, noting that the liquidation of 651 banks has occurred over 18 distinct episodes since the NDIC’s inception. She outlined early challenges faced during the process, such as a lack of experience among staff and threats from aggrieved bank owners whose licences had been revoked. Roberts cited notable examples, including Jimi Lawal and Chief Ajayi, who were particularly hostile during the bank closure process.

“Skills and competence of staff were key issues during the early episodes of bank closures,” Roberts explained. “Staff had limited knowledge in the field, as it was a new experience, and we faced threats from bank owners who were unhappy with the revocation of their licences.”

Despite these challenges, the NDIC has successfully liquidated many financial institutions while ensuring prompt reimbursement for depositors. However, some cases remain unresolved due to prolonged litigation. For instance, the closure of Savannah and SGN Banks was stalled by legal proceedings, while disputes regarding Triumph and Fortune Banks have persisted for over 14 years, with no resolution in sight.

Roberts further explained that depositor apathy has been a significant barrier to effective resolution. She urged depositors to be more proactive in coming forward to claim their funds, noting that prompt payment is not solely the NDIC’s responsibility.

“While the NDIC has made significant progress in ensuring prompt payment to depositors, the response of depositors themselves is crucial to successful bank failure resolution in Nigeria,” Roberts said. “Depositors need to actively come forward to make their claims.”

The NDIC continues to innovate its policies and procedures to enhance the efficiency of bank closures and ensure that all depositors are covered under its insurance coverage, contributing to a more stable and secure financial system.

At the same workshop, NDIC’s Director of Research, Dr Kabir Katata, emphasised the impact of the NDIC’s insurance coverage on confidence in Nigeria’s banking system. Katata explained that nearly 99 per cent of depositors in the Nigerian financial system are fully insured by the NDIC, which has significantly reduced the risk of bank runs in the country.

He added that the NDIC’s maximum deposit insurance coverage of N5 million has helped bolster confidence in the banking sector, with the Deposit Insurance Fund rising to N2.31 trillion as of May 2024. Katata shared data showing that as of December 2022, 99.68 per cent of depositors were fully covered by NDIC insurance, accounting for 27.87 per cent of the total value of deposits. By June 2023, this coverage extended to 98.98 per cent of depositors, representing 25.37 per cent of the total deposit value.

“For Microfinance Banks (MFBs), with the NDIC set at N2 million, 99.27 per cent of depositors were fully covered, with 34.43 per cent of the total value of deposits insured, based on data from June 2023,” Katata explained. “For Payment Service Banks (PSBs), the N2 million maximum deposit insurance coverage implies that 99.99 per cent of depositors were fully covered, representing 42.7 per cent of the total value of deposits.”

Katata highlighted that, on average, 95 per cent of accounts in Nigeria are fully covered by NDIC insurance, with comparable figures in regions like Latin America (98 per cent) and North America (97 per cent). Coverage is slightly lower in Europe (92 per cent) but remains substantial. Globally, the median coverage rate stands at 97 per cent, while total deposit coverage averages 40 per cent, with lower rates in Africa, the Middle East, and Asia-Pacific (30-31 per cent) and higher rates in Europe (51 per cent).

Despite the challenges and complexities of the liquidation process, the NDIC remains dedicated to ensuring that depositors are reimbursed and that Nigeria’s banking system remains resilient. By safeguarding depositors’ funds and overseeing an orderly liquidation process, the NDIC plays a critical role in promoting financial stability and maintaining public trust in the country’s financial institutions.