NDIC Takes Over 224 Insolvent MFBs

By Obinna Chima, This Day -

The Nigeria Deposit Insurance Corporation (NDIC) has taken over the 224 microfinance banks (MFBs) whose operating licences were repealed last week by the Central Bank of Nigeria (CBN).

A statement from the management of NDIC yesterday explained that the corporation took over in the capacity of the provisional liquidator of the affected banks.

A liquidator is a body appointed to protect the assets of a company prior to the winding up of the firm.

The NDIC also disclosed that it had deployed its staff in various branches of the 224 microfinance banks nationwide.

The banking watchdog had revoked the operating licences of 224 out of the 820 microfinance banks found to be “terminally distressed and technically insolvent” across the country last week. It based its decision on Section 12 of the Banking and Other Financial Institutions (BOFIA) Act 1991 (as amended).

The affected MFBs were those with negative shareholders’ funds, negative capital adequacy ratios and negative liquidity ratios.

The CBN had also stated that the directors and management of the affected microfinance institutions found to have abused their positions at the detriments of their institutions would be handed over to law enforcement agencies for investigation and subsequent prosecution.

Consequently, CBN has directed the NDIC – in line with its statutory role to pay up to the maximum insurance coverage of N100,000 per depositor of the affected banks.

The corporation’s statement said: “The NDIC staff are expected to verify deposit liabilities of each bank with a view to expediting payment of insured deposits.”

Already, the Acting Managing Director and Chief Executive of the NDIC, Alhaji Umaru Ibrahim, has visited the Inspector-General of Police (IG) Hafiz Ringim on current development and the latter has “assured that policemen would be deployed to all branches of the affected banks to ensure safety of the banks’ assets”.

The total deposits in the 224 MFBs was put at N18.2 billion, while total loans as reflected in their books amounts to N19.6 billion. Their combined shareholders’ fund is valued at N6.1 billion.

The revocation of the licences has set the stage for the ongoing review of the microfinance policy framework in the country, the CBN had said.

It also cited inability by the MFBs to meet their matured obligations, poor corporate governance, incompetent boards and weak management among others as some of the reasons for revoking their licences.

MFBs: Customers lay siege at banks’ premises

By Adewale Sanyaolu, Daily Sun -

The last may not have been heard of the revocation of the licences of some microfinance banks in the country by the Central Bank of Nigeria (CBN), as some customers of the banks have already laid siege at the gates of the banks ahead of the Nigerian Deposit Insurance Corporation (NDIC) officials’ visit to the affected banks today.

According to Daily Sun investigations amongst some microfinance banks in the Lagos metropolis yesterday revealed that, customers residing outside Lagos started arriving since Sunday morning.

Some of the depositors who spoke to Daily Sun in separate interviews on the revocation lamented that, they were not carried along by the banks as regards the fate of their investment in the banks, saying they only got to know of the development on the pages of newspapers.

“For months, we have been visiting the banks with no information because most of the time, the office in under lock and key. And most of the account officers have equally switched off their phones. We only hope we can get our money back” they said.

It would be recalled that the CBN had on September 24th, 2010 revoked the operating licences of 230 microfinance banks where the sum of N18.2 billion and N6.1 billion of shareholders’ funds are trapped.
The CBN has also directed that directors and management of the closed banks who abused their positions to be handed over to the law enforcement agencies for investigation and prosecution, adding that those found culpable would be blacklisted accordingly.

Meanwhile, the management of Olive Microfinance Bank has assured its customers of safety of their deposits. This is a follow up to publication in some national dailies in respect of the names of some micro finance banks whose licences were allegedly recommended for revocation.

The Deputy Managing Director of Olive Microfinance Bank Limited, Mr Eniola Agbesoyin said in a statement that the management observed a mixed up in the list. He assured customers that the board of directors and the management of the bank have taken steps to address this mixed-up with the relevant regulatory authorities.

“As a good corporate citizen, we trust in the ability and objective of the Central Bank of Nigeria (CBN) in bringing sanity into the financial sector. “We therefore implore all our stakeholders and customers to remain calm as their investments/deposits are safe with us and will be paid on demand”.

Olive Microfinance Bank has since inception remained open for business and satisfied the needs of our customers and stakeholders till date” the statement said.

Central Bank of Nigeria prosecutes microfinance bank directors

By Bassey Udo, 234next -

The directors and management of 224 microfinance banks (MFBs) that failed a recent target test are to be prosecuted, while those found culpable of abusing their positions are to be blacklisted, the Central Bank of Nigeria (CBN) said on Friday.

Kingsley Moghalu, the bank’s deputy governor, Financial Systems Stability (FSS), who announced the revocation of the operational licenses and closure of the banks while presenting an update on the status of country’s MFBs in Abuja, said the affected banks were either ‘terminally distressed’ or ‘technically insolvent’ or both.

Mr Moghalu put total deposit of the 820 MFBs at about N18.2billion, total loans exposure at over N19.6billion and shareholders’ funds of N6.1 billion, explained that 178 of those classified as technically insolvent had shareholders’ funds, capital adequacy ratio, and liquidity ratios that were negative.

Besides, 46 others under the terminally distressed category had either closed shop for more than six months or failed to submit returns to the CBN as well as response for requests for verification of their operational status.

He said that since the launch of the Microfinance Policy Framework in December, 2005, the industry encountered several challenges as a result of the operators’ lack of understanding of the microfinance concept and the methodology for delivery of the services to the target beneficiaries.

“Many of them lost focus and began to compete with deposit money banks for customers and deposits, leaving their target market unattended, in spite of efforts of the regulatory authorities to put them back on track,” he explained.

The situation, he said became complicated by the impact of the global financial crisis, resulting in credit lines drying up, competition becoming more intense and credit risk increasing, while many customers were unable to pay back their credit facilities owing to the hostile economic environment.

Special examination

To identify factors that accounted for the failure of some MFBs to achieve the policy objective of economic empowerment of people at the lower end of the financial market, particularly their ability to meet matured obligations to depositors, the CBN, in conjunction with the Nigeria Deposit Insurance Corporation (NDIC), conducted a special examination for the 820 registered MFBs in the country.

The special examination, which lasted between February and June, revealed that most of the MFBs was affected by high level of non-performing loans, resulting in high portfolio at risk (PAR), which impaired their capital; gross undercapitalization in relation to the level of operations; poor corporate governance and incompetent boards; high level of non-performing insider-related credits, and other forms of insider abuses.

The test also revealed other problems, including heavy investments in the capital market, with the resultant decline in the value of the investment after the meltdown; poor asset-liability management owing to portfolio mismatch; heavy investments in fixed assets beyond the maximum limit prescribed; operating losses as a result of high expenditure on staff and other overheads; weak management evidenced by poor asset quality, poor credit administration, inadequate controls, high rate of fraud and labour turnover.

Mr Moghalu, who said the decision to wield the big stick against the erring banks was pursuant to the provisions of section 12 of Banks and Other Financial Institutions Act (BOFIA) of 1991 (as amended), said the NDIC would pay a maximum of N100,000 as insurance coverage to each depositor in the closed banks.

The action by the Bank, he said, sets the stage for the completion of the ongoing comprehensive review of the microfinance policy framework, which would soon be made public, warning that in line with the reforms in the banking sector to ensure corporate governance and prudent risk management, MFBs must henceforth operate as responsible institutions by abiding with the regulatory guidelines.

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