By ISMAIL ABDULAZIZ
Mr Ajayi Audu banks with the 37 year-old Unity Bank Plc and has been a customer for the past 19 years since he started work in the civil service.
The Central Bank of Nigeria (CBN) recently announced the bank’s merger with Providus Bank Ltd.
In a statement, the CBN said the merger is contingent on its financial support, adding that the fund would be instrumental in addressing Unity Bank’s total obligations to the Central Bank and other stakeholders.
“It is unequivocal to state that the CBN’s action is in accordance with the provisions of Section 42 (2) of the CBN Act, 2007. This arrangement is crucial for the financial health and operational stability of the post-merger organisation,” it said.
What came to the mind of Audu was the security of his money in this bank, taking into cognisance the recent liquidation of the Heritage Bank by the CBN.
‘’I hear about the merger but I don’t understand what this means to my deposits with Unity Bank. I would not like to hear stories or face the hardship involved in such events.
‘’Many people have started withdrawing their hard-earned money from the bank for fear of uncertainties. I am just waiting for my salary to drop and go and collect,’’ hequipped. .
Abigail Jimoh is another customer of Unity Bank. She has been banking with the bank for upwards of 15 years. The same fear of losing her deposit is high in her mind.
“I can’t afford to waste my money. The experience of most Nigerian bank customers that I hear is not palatable, to say the least.
“I pray something tangible will be done to safeguard our deposit,” she said.
In light of the economic challenges and headwinds occasioned by external and domestic shocks, the CBN has mandated a recapitalisation programme for banks to strengthen their asset base.
The apex bank also hopes that the measure would support economic growth in line with the Federal Government’s target of achieving a 1 trillion-dollar economy by 2030.
The CBN believes that the capital market will play a major role in facilitating the recapitalisation programme as the banks are expected to leverage the market to raise the needed funds and engage in various forms of business combinations.
The fear of any change in the banking system of Nigeria is a common decimal among customers.
Such a fear arose from how to get back their money, the long process of getting it back and also the amount to be refunded in the long run.
This fear, undoubtedly, is due to a lack of proper understanding among the majority of customers of financial institutions in the country.
They have little understanding of when a bank is at risk, what will happen if a bank is declared at risk, how they will get back their money, and from whom.
The Nigerian Deposit Insurance Corporation (NDIC) is a government entity that deals with the stability of depositors’ money in financial institutions in the country.
On its website, the NDIC stated that the Deposit Insurance Scheme (DIS) is one of its major activities designed as a risk minimizer.
This guarantees the payment of deposits up to the maximum limit in accordance with its statute in the event of failure of an insured financial institution.
“The Corporation supervises banks to protect depositors; foster monetary stability; promote an effective and efficient payment system; and promote competition and innovation in the banking system.
“Banking supervision is an essential element of the Nigeria deposit insurance scheme as it seeks to reduce the potential risk of failure and ensures the unsafe and unsound banking practices do not go unchecked.”
In its 2006 Act and the 2023 revised Act, the NDIC is charged with providing insurance for all deposit liabilities of licensed banks and such other financial institutions operating in Nigeria within the meaning of Sections 16 and 20 of its Act.
This is with a view to engendering confidence in the Nigerian banking system.
It is also to assist insured institutions in the interest of depositors, in case of imminent or actual financial difficulties of banks particularly where suspension of payments is threatened, and avoiding damage to public confidence in the banking system.
Similarly, the NDIC is to guarantee payments to depositors, in case of imminent or actual suspension of payments by insured institutions up to the maximum as provided for in section 20 of its Act.
Mr Mukhial Abiru, Chairman, Senate Committee on Banking, Insurance and other Financial Institutions recently underscored the relevance of NDIC in solidifying depositors’ confidence in the banking industry.
“To that extent, the role of the NDIC is very important’’, Abiru said at a retreat recently.
The event drew participants from lawmakers and officials of NDIC and aimed at strengthening the legislative framework for deposit insurance and ensuring the continued stability of the Nigerian banking system.
NDIC is aware of the enormity of the assignment, which includes recapitalisation, as acknowledged by its deputy director, Communications and Public Affairs Department, Hajiya Hawwa’u Gambo at the 45th edition of the Kaduna International Trade Fair.
“Indeed, our priority at NDIC is the protection of Nigerian depositors.
“We are dedicated to safeguarding depositors’ funds from the adverse effects of bank failure and complementing the Central Bank of Nigeria (CBN) in effectively supervising insured deposit-taking financial institutions and formulating sound banking policies’’, she said.
According to the European Central Bank, the benefits of recapitalisation “are related to an increase in bank resilience to adverse shocks.
“Higher capitalisation allows banks to withstand negative shocks and moderates the reduction of credit to the real economy that ensues in adverse circumstances”.
According to Quantitative, a Strategy Execution Platform, recapitalisation involves the partial sale of a company to private equity firms or venture capitalists.
The business sale could be of a minority stake or even a massive 70 to 80 per cent stake, depending on the purpose behind it.
“Usually, business owners aim for a successful exit, a smooth business transition from one generation to another, or a comfortable retirement.
‘’Recapitalisation helps business owners get to the next level in their journey with the company.”
In light of the above, it is expedient to apply the right dose of information on President Bola Tinubu-led administration’s efforts to improve the efficiency and effectiveness of the banking system.
Such an information toolkit should also involve how banking reforms would affect ordinary customers, and to allay their fears.
In the case of the Heritage Bank liquidation, the NDIC has said that it will repay customers from the yearly premium paid by the bank.
For deposits beyond the ₦5 million threshold the corporation said it would assess the bank’s assets and sell whatever it can, as well as recover the bank loans and sell whatever investments the bank has.
Effective communication in times of change will ensure that everyone is well-informed about the upcoming changes.
The communication should also be strategic and bespoke; tailored to each specific audience, addressing their concerns, and providing a clear understanding of why the change is happening.
The CBN and NDIC need to up their game in the area of information on the impact of recent calls for bank recapitalisation in the country.
The citizens face daunting challenges in their daily lives, which can be resolved through proper sensitisation of government policies and programmes by relevant stakeholders charged with such responsibilities.
Like the Hausa would say ‘’Kwanchiyar hankali yafi zama dan Sarki’’ (Having peace of mind is better than being a Prince).
ABDULAZIZ is of the News Agency of Nigeria (NAN)
