2017 Budget Defence: House Committee Applauds NDIC Performance

The House ofRepresentatives Committee on Insurance and Actuarial Matter has commended the NigerianDeposit Insurance Corporation (NDIC) during the presentation of 2017 budgetdefence, as part of the committee oversight function.

The Managing Director/Chief Executive Alhaji Umaru Ibrahim successfully defended theCorporation’s proposed 2017 budget began by calling the attention of theHonourable members to the delay in the approval of 2016 budget whichcontributed to the modest execution of the budget.

He restated theCorporations commitment to performance based budgeting system (PBBS) theessence of which was to ensure efficient allocation of resources to enable theCorporation achieve its strategic mandate.

In his presentation,Alhaji Umaru Ibrahim stated that in 2016, the Corporations actual income (netof provisions) was N85.020 billion which was expendable to the limit of 75percent in line with the provisions of Fiscal Responsibility Act (FRA) 2007while its total expenses was N31.551 billion.

This according to him, gavea net operating surplus of N53.469 billion out of which the Corporation madeprovision to transfer the sum of N42.775 billion which was 80 percent intoConsolidated Revenue Fund (CRF). As at date (Feb 2017), the Corporation hadmade a total transfer of N35.893 billion into CRF while awaiting the conclusionof its 2016 External Audit report before transferring the outstanding balanceof N6.882 billion to the CRF in line with FRA 2007.

Noting that “With thisthe Corporation had surpassed its budgeted sum of N35.893 billion as againstthe actual sum of N42.775 billion transferred into CRF”. He urged the HouseCommittee to approve the Corporation’s 2017 proposed budget of total income ofN102.294 billion and expendable income of N76.720 billion. This comprisedOperating expenses of N43.227 billion or 49.94 percent of total expenditure anda total capital expenditure is N43.323 billion which is 50.06 percent of thetotal budget.

He pointed out that thecapital expenditure would be funded by the Corporation’s General Reserve Fundwhich stood at N45.670 billion as at 31st December, 2016. He concluded that atotal of N47.254 billion is proposed as 80 percent net Operating surplus to betransferred into CRF in 2017.

Members of theCommittee expressed their satisfaction with the level of execution of theCorporation’s 2016 Budget and its proposed 2017 Budget especially itscommendable efforts by consistently contributing to the Consolidated RevenueFund of the Federation and urged the Corporation to remain steadfast.

In the course ofgeneral discussion on the banking system, the members of the Committeeexpressed grave concern over the increasing wave of Non-Performing Loans (NPLs)particularly delinquent insider related facilities in various banks and itsconsequences on the stability of the nation’s banking system. The membersdemanded for an update on the state of the Nigerian banking system.

Alhaji Ibrahim stressedthat while the banking industry indicated strong fundamentals in regulatoryassessment and rating, regulators were concerned about the rising tide of NPLsin the banking system.

He informed the Honourable members that as at December2016, the 25 Deposit Money Banks (DMBs) had total loans portfolio of N18.53trillion out of which N1.85 trillion or 10 perecnt were NPLs where N740 billionor 40 percent constituted Insider/Directors related loans. This was far aboveregulatory threshold of 5 perecnt for the DMBs.

In other bankingsubsectors like the microfinance banks, (MFBs), he noted that there were 978MFBs in existence as at December, 2016 with total deposits liabilities of N158billion and total loans and advances amounting to N195 billion out of whichN87.75 billion or 45 percent were NPLs where N68.25 billion or 35 percentconstituted Insider related/Directors loans. The NPLs indicated a classic case of over-lending, accumulated interests’charges and poor corporate governance.

Similarly, byextension, the existing 42 primary mortgage banks (PMBs) had total depositsliabilities of N69 billion but  withtotal loans portfolio of N94 billion, which indicated another case ofover-lending, accumulated interests, poor corporate governance and high ratioof NPLs which stood at N51.7 billion or 55% out of which N42.3 billion or 45%were Insider related/Directors loans. The resultant effects of these negativetrend would be poor earnings and erosion of shareholders fund.

The NDIC boss observedthat this development had posed serious issues bordering on corporategovernance which were capable of eroding public confidence in the bankingsystem. He advocated for strict compliance with the existing code of ethics forbank directors and a review of the existing laws and regulations to profferstiffer sanctions for Directors who exploit their positions and default in thepayment of their credit facilities while still occupying Directorship positionsin the banks.

Speaking in response tothe proposed budget, the Chairman of the Committee, Hon. Femi Fakeye, commendedthe Corporation on its performance in the 2016 budget where the NDIC stood outamongst its peers especially its transfer of huge sums into ConsolidatedRevenue Fund (CRF). He urged the Management not to rest on its oars and striveto achieve greater heights.

The Chairman of the House Committee went down memory lane to recall the 2008/2009 banking crisis.He requested the Corporation and other regulatory authorities to come withideas and advise the Honourable members on the ways of salvaging the financialsituation.

Towards this end, theChairman called on the Corporation to bring forth credible proposals for theamendment of the NDIC Act, BOFIA as well as other banking related laws  that would enable the Corporation to achieve greater performance in order to engender public confidence in the banking sector.