Business Feature 

Appraising NDIC’s Purchase and Assumption model in resolution of banking crises

The Purchase and Assumption P&A resolution model employed  by the NDIC reflects a structured and disciplined approach to resolving failed banks while maintaining stability in the financial system; signals regulatory maturity and reinforces trust in Nigeria’s banking industry framework writes Onu Okorie

 Among the Nigerian regulatory financial institutions, there is no doubt that the Nigeria Deposit Insurance Corporation NDIC stands out when it comes to safety of depositors’ money, particularly in banking industry. The Corporation supervises banks so as to protect depositors; foster monetary stability; promote an effective and efficient payment system; and promote competition and innovation in the banking system. By so doing the Corporation seeks to reduce the potential risk of failure and ensures the unsafe and unsound banking practices do not go unchecked. 

This was exactly what played out recently as NDIC disclosed that it has commenced the process of concluding the liquidation activities of 89 closed Microfinance Banks MFBs and Primary Mortgage Banks PMBs following their successful acquisition by new owners under the Purchase and Assumption P&A resolution model employed by the Corporation. The 89 closed banks were part of the 179 MFBs and four PMBs whose banking licenses were revoked by the Central Bank of Nigeria CBN on May 22nd and 23rd, 2023. A statement made available to the media in Abuja by the NDIC recently explained that through the Purchase and Assumption agreements, 89 new eligible institutions were issued licenses by the CBN, to acquire the assets and liabilities of the defunct banks and have since commenced operations under new names. However, in order to legally conclude the liquidation process in accordance with the provisions of its enabling Act and other relevant laws, the NDIC in its capacity as the Liquidator of the defunct banks, will be presenting applications to various Judicial divisions of the Federal High Court to obtain orders of dissolution for the closed banks and to release the Corporation as Liquidator.Following the action of NDIC, Nigerians have applauded the Purchase

 and Assumption P&A resolution model applied by the Corporation, to resolve the crises, particularly the 89 Banks and the Primary Mortgage Banks. 

Speaking on the issue, Coordinator/Research Team Leader YADEI Initiative Comrade Inyanda Emmanuel said that the CBN move in May 2023 was basically a cleanup and reset for Nigeria’s microfinance and primary mortgage sector. And it’s necessary for the NDIC to step in to ensure that depositors’ fund of the Banks are safe.Acccording to him, “what the policy was doing include: weeding

 out insolvent players, because the 179 MFBs and 4 PMBs that lost licenses had already failed the CBN’s capital adequacy, governance, or operational standards. Letting them limp along risks depositors and erodes trust in smaller banks.”

And also to apply Purchase & Assumption by the NDIC instead of outright liquidation for customers, it meant their money didn’t vanish into NDIC claims queues. They just got a new bank name on their account. “That’s better for them” he explained.

He commended the Corporation, saying that the model is good for stability, reduces systemic risk from zombie banks and helps NDIC avoid massive payouts.According to him, “the 2023 revocations signaled CBN won’t tolerate serial non-compliance, which cuts the other way.

 Nigeria had over 800 MFBs pre-2023. Many were undercapitalized and barely functional. Forcing exits and licensing stronger replacements pushes the sector toward fewer, healthier players that can actually serve SMEs.’He however, argued that the

 real test is whether those 89 new institutions are genuinely stronger, or just rebranded versions of the same problems.

Also a politician and chieftain of the APC Hon Taiwo Adebowale Jante in his remarks said that the NDIC’s 

moves by transiting the failed MFBs to new owners through the Purchase and Assumption (P&A) model is highly commendable. “Apart from the fact that the approach of the NDIC will ensure continuity of services between the various concerned account holders in the affected financial institutions, it would also help in securing the confidence in banking industry. Now

 that the security of customer’s funds is guaranteed, building and maintaining public trust in the financial sector have also been proven possible.” He stated.On his part, an ICT expert Real Estate consultant Ayodele Adebawole said that the maturity with which the NDIC handled the resolutions of the 89 MfB through 

Purchase & Assumption is a demonstration of the fact that the Nigerian financial system has come of age. He insisted that before now it was a different ballgame, where many people have lost their hard earned money as a result of Bank failure.”This move by the Nigeria Deposit Insurance Corporation reflects a structured and disciplined approach to resolving failed banks while maintaining stability in the financial system. 

“By leveraging the Purchase and Assumption model in collaboration with the Central Bank of Nigeria, the transition of assets and liabilities to new institutions helps protect depositors and sustain confidence in the banking sector. 

Overall, the final dissolution process signals regulatory maturity and reinforces trust in Nigeria’s banking industry framework.” He stated.

A teacher, Mrs Ogonna while commending the policy also said method used by the NDIC to salvage the depositors’ fund in the 89 MfB will not only boost confidence in the system but will also strengthen the small business owners who are supposed to be patronising MFBs. According to her, “it’s a good innovation of NDIC, this action will promote the economy and build customers’ confidence, particularly in the Small and Medium Enterprises, SMEs.” She however, urged the Corporation to ensure that the continue to develop the financial system with other financial regulatory agencies for the overall good of the nation.