Bridge bank option prevents systemic crisis in banking operations — NDIC

The adoption of the Bridge Banks option by the Nigeria Deposit Insurance Corporation (NDIC) has prevented systemic crisis and secured N1.021 trillion deposits which ensured that depositors access their funds and financial services.

Mr Bello Hassan, Managing Director of the NDIC, disclosed this on Saturday at the 2021 Editors Forum with the theme: “Enduring Extreme Disruptions: Resilience & Reinvention for Banking System Stability & Deposit Insurance” in Lagos.

He said that the several failure resolution initiatives such as Open Bank Assistance (OBA), Purchase & Assumption (P&A) and Mergers & Acquisition (M&A) had been adopted in resolving distress in various banks from 1989 culminating in the novel Bridge Bank option.

A bridge bank is an institution created by a national regulator or central bank to operate a failed bank until a buyer can be found.

The bridge bank is usually established by a publicly backed deposit insurance organisation or financial regulator and may be instituted to avoid systemic risk and provide an orderly transition avoiding negative effects.

Some of the tasks of a bridge bank are to assume the deposit of and honour the commitments of the failed bank, so that service to retail clients is not disrupted, and to service secured existing loans to avoid their premature interruption or termination.

These tasks are carried out on a temporary basis (usually for no more than two or three years) to provide time to find a buyer for the bank as a going concern.

Hassan explained that the option has so far secured N1.021 trillion deposits which ensured that depositors had continued access to their funds and financial services.

“The implementation of the Bridge Bank option also saved over 12,667 jobs while over 877 branch network and services of the affected banks were maintained.

“The corporation’s accomplishment in the payment of guaranteed sums and liquidation dividends speaks volumes of its commitment to the discharge of its unique mandate.

“NDIC had paid a cumulative sum of N8.268 billion to 443,946 insured depositors and N100.080 billion to uninsured depositors of deposit money banks in-liquidation as at 30th September, 2021.

“It also paid N3.413 billion to 90,945 insured depositors of microfinance banks and N1.218 million to uninsured depositors.

“In the same vein, cumulative insured amount paid to 1,553 depositors of closed primary mortgage banks as at 30th September, 2021 stood at N110.15 million while ¦ 7.965 million was paid as uninsured deposits.

”Most importantly, the payment of N1.274 billion to 991 creditors and N4.886 billion to 965 shareholders of banks in-liquidation as at 30th September 2021 underscored the Corporation’s success story in bank liquidation.

“What this implies is that the Corporation had realised enough assets to pay all the insured and uninsured depositors of the banks that present themselves for payment. Currently, 19 out of the 49 DMBs in-liquidation fall into this category,” he said.

Hassan called on the editors to continue to partner with the NDIC in propagating its mandate to Nigerians in order to improve service delivery.

He said, “Through better understanding of our programmes and policies, it is believed that you will not only provide informed scrutiny and analysis of our activities, but also assist our other stakeholders to gain the right insight into the role of NDIC as a member of the financial safety net, and the contributions of DIS to the stability of the nation’s financial system.”

Two papers were presented: “Resilience and Reinvention Strategies for Deposit Insurance System in the Face of Extreme Disruption in the Banking System” by Mr Olatayo Babatolu, Director Bank Examination, NDIC,  and “The role of Deposit Insurance System (DIS) in Failure Resolution” by Mr Galadima Gana, Director, Insurance and Surveillance, NDIC.

The papers dwelt on various measures taken by the NDIC to sanitise the financial sector to face current challenges, steps put in place to mitigate failures and ensure depositors are adequately catered for while conducting business with financial institutions in the country.