How Bridge Bank’s option averts systemic crisis, secures over N1trn depositors’ funds ─NDIC

*The Nigeria Deposit Insurance Corporation discloses its adoption of the Bridge Bank’s option has prevented systemic crisis and secured N1.021trillion depositors’ funds, and ensured consumers access their funds and financial services in the banking sector

Isola Moses | ConsumerConnect

As part of its constitutional mandate to apply failure-resolution initiatives to avert financial crisis in the system, the Nigeria Deposit Insurance Corporation (NDIC) has revealed how it prevented systemic crisis and secured depositors’ funds in the banking sector of the economy.

It was gathered that the NDIC’s adoption of the Bridge Bank’s option has prevented systemic crisis and secured N1.021trillion deposits, which ensured that depositors access their funds and financial services.

Mr. Bello Hassan, Managing Director of NDIC, disclosed this develooment Saturday, November 27, 2021, at the 2021 Editors’ Forum with the theme: “Enduring Extreme Disruptions: Resilience & Reinvention for Banking System Stability & Deposit Insurance”, in Lagos.

Hassan 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.

ConsumerConnect reports 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,” agency report stated.

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 consumers 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.

Application of the Bridge Bank option

Hassan also explained that the option has so far secured N1.021trillion deposits in the system, which ensured that depositors would continue to access their funds and financial services in the country.

The NDIC Managing Director said: “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.”

Of insured and uninsured bank depositors

Hassan further noted: “NDIC had paid a cumulative sum of ₦8.268billion to 443,946 insured depositors and ₦100.080billion to uninsured depositors of deposit money banks in-liquidation as of 30th September, 2021.

“It also paid N3.413billion to 90,945 insured depositors of microfinance banks and ₦1.218 million to uninsured depositors.

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

Hassan stated: “Most importantly, the payment of N1.274billion to 991 creditors and ₦4.886billion to 965 shareholders of banks in-liquidation as of 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 (Deposit Money Banks) in-liquidation fall into this category.”

He, therefore, urged the editors to continue to partner with the NDIC in propagating its mandate to Nigerian consumers in order to improve service delivery.

“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 of Bank Examination, NDIC, and “The role of Deposit Insurance System (DIS) in Failure Resolution by Mr. Galadima Gana, Director, Insurance and Surveillance, NDIC, report said.

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