1.0 The Nigerian Deposit Insurance Corporation hosted a three-day regional workshop on December 4 – 7, 2012 under the auspices of the Africa Regional Committee of IADI, as part of its contribution to capacity building on DIS within the ARC member countries as well as other African countries wishing to establish new systems. The theme of the workshop was: “Deposit Insurance Systems and Designs”.
2.0 The objectives of the workshop were as follows:
i) To build capacity among regional member countries that have an established deposit insurance system as well as those wishing to establish new ones in their jurisdictions;
ii) To provide participants with a useful platform to share their experiences with DIS;
iii) To review the implementation challenges being faced by different types of DIS in different jurisdictions;
iv) To deliberate on the best possible ways to address the implementation challenges; and
v) To foster greater cooperation among IADI Africa Regional Committee members.
3.0 The workshop drew participants from Kenya, Senegal, Tanzania, Uganda, Ghana, Zimbabwe and the host country Nigeria. In all a total of 36 participants attended the workshop with Nigeria and Kenya having the highest delegates of 17 and 6 respectively. The delegates from Nigeria included 2 participants each from the CBN and Federal Ministry of Finance. Also in attendance at the workshop were Chairman of IADI Africa Regional Committee (ARC), Mr. John Chikura, the CEO of Zimbabwe Deposit Protection Corporation, some members of the NDIC Board of Directors and the resident Advisor under the NDIC/OTA Project, Mr. Phillip Morris.
4.0 A total of fourteen papers were presented at the workshop. The papers were presented by experienced practitioners in DIS and the banking industry from within and outside the country. They included:
i. Dr. Seungkon Oh – Korea Deposit Insurance Corporation
ii. Mr. John Chikura – Zimbabwe Deposit Protection Corporation
iii. Mr. Keith Ligon – Federal Deposit Insurance Corporation
iv. Dr. Sam Omale – A Consultant
v. Mr. G. A. Ogunleye – Former MD/CEO of NDIC
vi. Mr. Attang Anselm – FSRCC
vii. Mr. A. B. Nyako – Director, Legal NDIC
viii. Mr. M. O. Sulaimon – Director, Asset Management Department (AMD) NDIC
ix. Dr. J. A. Afolabi – Director, Research NDIC
x Mr. Z. A. Anate – Director, Insurance & Surveillance Department (ISD) NDIC
xi. Mr. A. A. Adeleke – Director, Bank Examination Department (BED) NDIC
xii. Mr. M. A. Ahmed – Director, Human Resources Department (HRD) NDIC
4.1 The presentations at the workshop were on the following topics:
- · Overview of IADI Core Principles
- · Types of Deposit Insurance System
- · DIS: Rationale, Governance Structure, Power and Core Mandates
- · Legal Framework for the Establishment of DIS
- · Inter-Relationship Among financial Safety Net Players
- · Supervisory Roles of DIS in the Financial System
- · DIS Coverage: Level and Scope
- · DIS Funding and Funds Management
- · Risk and Risk Management Framework in DIS
- · Public Awareness and DIS Implementation
- · Bank Failure Resolution Measures
- · Bank Closing and Liquidation Process
- · Integrated Deposit Insurance System: Issues and Implementation Challenges
- · Resolution of Systemically Important financial Institutions (SIFIs)
5.0 Some of the observations made during the 3-day workshop included the following:
i. The recent global financial crisis has not only brought about the need for a review of the DIS, but also emphasized the need for the system to be part of a country’s safety-net arrangement.
ii. DISs are experiencing phenomenal growth all-over the world. While there were 22 schemes in 1992, the number increased to 110 in 2012 with only 9 countries from Africa.
iii. The Core Principles for Effective Deposit Insurance System were described as key standards or guidelines in implementation of deposit insurance system, and are intended to be a voluntary framework for effective deposit insurance practices. The IADI Core Principles could be useful for setting up of new DIS or for assessing the compliance of existing DIS with best practices.
iv. Premium contributions by insured institutions constitute the major source of funding for deposit insurance system.
v. An Explicit Deposit Insurance System is the most preferable model to any other deposit protection arrangement, because it has governance structure with clear mandate, funding arrangement and a legislation guiding its operations.
vi. Non-Interest Deposit Insurance System (NIDIS) is a novel form of explicit DIS different from conventional DIS set up to protect insured Islamic deposit-like products in banks and other financial institutions in the event of collapse.
vii. DIS and the primary regulator (usually the central bank) must maintain an excellent relationship that must be formalized. That could be achieved through either a strategic alliance agreement, memorandum of understanding or as mandated by law. Financial Services Regulation Coordinating Committee (FSRCC) in Nigeria was set up to improve the coordination and collaboration of all financial sector regulators.
viii. Public awareness campaign is a very important strategy for having an effective DIS.
6.0 The following are the major recommendations offered at the workshop:
i. The need for African countries to be in the vanguard of establishing DIS in order to boost confidence in the banking system and enhance banking culture. Currently, out of the 110 countries with DIS, only 9 countries in Africa have explicit DIS. There is therefore the need for collaboration amongst African countries to establish/streghten their DIS.
ii. IADI African member countries need to develop capacity in deposit insurance systems on a continuous basis to meet emerging challenges.
iii. There is need to improve the collaboration between all safety-net players. The relationship should be transparent, devoid of any suspicion, complimentary and backed by strategic alliances agreement or a Memorandum of Understanding.
iv. IADI Core Principles should always serve as a guiding framework in setting-up DIS or as a benchmark to improve DIS performance and assessment.
v. There is a need to make DIS contribute effectively to banking stability by ensuring that coverage level covers the vast majority of depositors (ranging from 90-95 percent of the number of depositors).
vi. Public awareness campaign on the functions and objectives of DISs should be pursued by all DISs using appropriate channels and targeting the right audience. It should be carried out on a continuous basis and intensified in crisis periods.
vii. The DIS should undertake regular self assessment and peer review of its compliance with the guidelines on Core Principles. This would help in identifying areas of weaknesses.
viii. There is need for IADI to develop supplementary guidelines (core principles) on Islamic Deposit Insurance practice. There is also need to fast track the investment guidelines on the Islamic Deposit Insurance Fund and other related funds from non-interest bearing banking products in compliance with the dictates of Islamic jurisprudence.
ix. To preserve institutional memory, the appointment of members of DIS Boards should be staggered in order to ensure consistency in policy, as against outright transition of the entire Board in one clean sweep.
x. All risks that affect DIS must be identified, assessed and managed. Risk management needs the full support and backing of Board and management of a deposit insurance agency. The risk Management process must be subjected to review on a systematic basis.
xi. If foreign currency deposits are covered, holders of foreign currency deposits should be compensated in the local currency to mitigate foreign exchange risk in the event of bank failure.
xii. The legal framework must give DIS sufficient powers in order to apply a variety of failure resolution options such as Open Bank Assistance, Depositor Reimbursement, P & A, Bridge Bank and Asset Purchase.
xiii. DIS must embrace the promotion of financial inclusion as a principal public policy objective. This is because financial inclusion has been identified as a useful strategy to grow the macro economy. Similarly, there is the need to encourage and strengthen both institutional and systemic collaborative effort of all regulators and other financial safety-net players in promoting financial inclusion.
xiv. DIS should consider implementing an Integrated Protection System (IPS) where the deposit insurer provides guarantee/protection to investors in the capital market and insurance policy holders in addition to deposit-taking banks.
xv. The DIS should be armed with more powers by law to act as a receiver of systemically important financial institutions (SIFI). The DIS should also acquire necessary skills and capacity to supervise and regulate the SIFIs as no financial institution should be regarded as ‘too-big-to-fail’ by any financial safety-net player.
xvi. There is the need to involve Non-English speaking African countries in subsequent IADI workshops and events. That could serve as an avenue for widening the IADI membership in Africa.