corporate governance in financial institutions

Report
CORPORATE GOVERNANCE IN
FINANCIAL INSTITUTIONS:
NDIC PERSPECTIVE
BY
Umaru Ibrahim, mni
Ag. Managing Director/CEO
Nigeria Deposit Insurance Corporation
Presented at the CBN/FITC 2010 Edition of the
Continuous Education Programme for Directors
of Financial Institutions. Held at Federal Palace
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Hotel, Lagos on November 2 – 3, 2010.
PRESENTATION OUTLINE
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Introduction
NDIC – Who We Are and What We Do
DIS Governance Framework
Pre-requisite For Effective Governance
Corporate Governance: NDIC Experience
Challenges
Way Forward
Conclusion
2
1.0 Introduction
 Governance basically refers to the
process, structure and information in
directing
and
overseeing
the
management of an organisation.
 For a deposit insurance system (DIS), it
also covers relationships between the
deposit insurance agency and the
authority that confers its mandate or to
which it is accountable, as well as
between
the
agency
and
other
stakeholders.
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2.0 NDIC –Who We Are
And What We Do
 NDIC is an independent agency of the
Federal
Government
of
Nigeria,
established by Decree 22 of 1988 which
was repealed and replaced with NDIC Act
16 of 2006.
 The purpose of the DIS is to protect
depositors and guarantee the settlement
of insured funds when a deposit-taking
financial institution can no longer repay its
deposits, thereby helping to maintain
financial system stability.
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2.0 NDIC –Who We Are
And What We Do
 NDIC’s Vision is to become one of the
leading deposit insurers in the world.
 NDIC’s Mission is to protect depositors and
contribute to the stability of the financial
system through effective supervision of
insured institutions, provision of financial
and technical assistance to eligible insured
institutions,
prompt
payment
of
guaranteed sums and orderly resolution of
failed insured institutions
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3.0 DIS Governance
Framework
 Four key elements:
 Operational Independence - This
refers to ability to exercise assigned
powers without undue influence from
external parties (e.g., political or
industry influence)
 Accountability - This requires the
agency, board or management to be
responsible for their actions and
achieving set objectives
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3.0 DIS Governance
Framework (Cont’d)
 Integrity - Involves pursuit of
organisational objectives without
compromising them through selfinterest.
 Transparency and Disclosure - This
involves communicating the basis for
decisions and clarifying actions taken to
stakeholders as well as disclosure of
information to enable stakeholders
assess organisational performance
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4.0 Pre-requisites For
Effective Governance
 Appointment of board members to be
based on skill, experience and competence.
 Board members, management and
employees should be subject to codes on
conflict of interest and ethical behaviour.
 Board should have a charter or policy that
spells out its responsibilities.
 Board, management and employees must
have legal protection for decisions or
actions taken in good faith.
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5.0 Corporate Governance:
NDIC’s Experience
 NDIC GOVERNANCE - The governing
body of the NDIC is the Board of
Directors which is responsible for policy
formulation and oversight of its affairs.
 Appointment of Board Members The Board are appointed by the
President, Commander-in-Chief of the
Armed Forces of Nigeria, subject to the
confirmation of the Senate.
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5.0 Corporate Governance:
NDIC’s Experience
 Board Composition – 12-Member
Board created by NDIC Act 2006.
 NDIC Management Team - Presently,
a provision for a team of 3 (Managing
Director/CE plus 2 Executive Directors
(EDs)) who are responsible for day-today affairs of the NDIC.
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5.0 Corporate Governance:
NDIC’s Experience
 Operational Independence  Appointment of Board members subject to
Senate confirmation (although no safe guard
against abrupt dissolution).
 Prohibition from serving on the board of
insured
institution
seek
to
promote
independence and conflict of interest.
 Requirement to declare shareholding or
significant interest in insured institutions also
seek to promote independence and conflict of
interest..
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5.0 Corporate Governance:
NDIC’s Experience
 Disclosure, Accountability and
Transparency  NDIC had consistently complied with the provisions
of relevant Acts of the Federal Government of
Nigeria with regard to information disclosure of its
operations to its stakeholders and the general
public.
 Published NDIC Annual Report and Statement of
Accounts
are
made
available
to
NDIC’s
shareholders, the Public Accounts Committee of the
Senate, the CBN and Federal Ministry of Finance as
well as the banking public.
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5.0 Corporate Governance:
NDIC’s Experience
 Board and Management Role
 The Board continued to set strategic directions
for the NDIC with input from Management
 There is effective communication between
Board and Management
 Board and Management dichotomy deemphasized in NDIC pursuant of organisational
goals
 Provision for Ministerial Intervention on
irrevocable differences between Board and
Management.
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5.0 Corporate Governance:
NDIC’s Experience
 Legal Protection – Legal protection for
decisions and actions taken in good faith in
discharging DIS Mandate.
 Board Committees - 6 Committees of the
Board (Corporate Strategy; Establishment;
Audit; Debt Recovery; Finance & General
Purpose; and Information Technology (IT)
Strategy) – Created (with terms of reference
and distinct responsibilities), to assist Board in
the discharge its responsibilities. NDIC Board
Chairman not a member of any Committee.
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5.0 Corporate Governance:
NDIC’s Experience
 Governance Policy/Charter NDIC has adopted a Code of Corporate Governance
for its Board which is hinged on sound governance
structures, enhanced relations and protection of the
rights of stakeholders, sound risk management and
internal audit, greater disclosure and business
sustainability.
 NDIC Board also comply fully with the Code of
Corporate Governance put together for all
regulators under the auspices of the Financial
Services Regulation Coordinating Committee (FRSCC)
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5.0 Corporate Governance:
NDIC’s Experience
 Governance Policy/Charter (cont’d) NDIC has also put in place a Code of Conduct
for its Bank Examiners to ensure that they act
in a manner that would promote the integrity,
image and reputation of the NDIC
 Board Training/Skills development On an on-going basis, the NDIC consistently
reviews and determines what training is
needed for its Board Members to ensure skills
development and their effective performance.
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5.0 Corporate Governance:
NDIC’s Experience
 Board Training/Skills development
(Cont’d)  As part of the on-going efforts to reposition
NDIC in the light of the on-going reforms in the
banking system, members of the NDIC Board
had undertaken study visits to key deposit
insurance agencies in other jurisdictions that
had undergone financial system reforms.
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6.0 Corporate Governance
Challenges In NDIC
 Uncertainty of Board Tenure under NDIC
Act 2006.
 Restriction to Operational Independence
by Public service Rules
 Threat of Political or Industry Capture.
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7.0 Way Forward To
Strengthen Governance In
NDIC
 Management Team of 5 (MD/CE plus 4 EDs)
recommended in the proposed amendment to NDIC
Act 2006 before the National Assembly in view of
the expanding nature of the activities of the NDIC
(for example, the increasing number of banks-inliquidation and the advent of the MFBs and PMIs)
 Representative of CBN not below the rank of a
Deputy Governor, and Permanent Secretary of
Federal Ministry of Finance as members to replace
existing structure which provides for Directors as
representatives of both institutions on NDIC Board
in the proposed amendment of NDIC Act.
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7.0 Way Forward To Strengthen
Governance In NDIC
 Tenure of Members– Proposed
amendment provides that part-time NDIC
Board members should hold office for 4 years
which is renewable for another 4 years to give
room for continuity in the board so as to
enhance policy matters.
 Qualifications of Members – Members
required to possess relevant skills and
qualification in insurance, finance, accounting,
law, banking and management.
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7.0 Way Forward To
Strengthen Governance In
NDIC
 Requirement of declaration of
interest in insured institutions – To
formalise its commitment to transparency,
accountability and probity, Board members and
all employees are required to exhibit high level
of professionalism and ethical conduct. For
example, no Board Member is expected to act
as a representative of any insured institution or
receive direction in respect of duties performed
under the NDIC Act.
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Conclusion
 Sound corporate governance has become
a matter of major concern not only to
business enterprises, but also to
regulatory/supervisory
agencies
and
governments worldwide.
 Within the limit of its enabling Act, the
NDIC Board has over the years in
conjunction
with
the
Senior
Management, provided value-based and
purpose-driven leadership in directing
the affairs of NDIC.
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