In Nigeria we have a slang phrase; Sureguy. The meaning is simple. Separate the two words that make up the phrase and you have “sure” and “guy”. When someone refers to you as their Sureguy, what that means is that in their time of deepest need, they’re sure that you would have their back. In English parlance, you are their Man Friday. When we relate this to the financial market, the depositor’s Sureguy is the deposit insurer which in Nigeria is the Nigeria Deposit Insurance Corporation, NDIC. Still not clear? Let me explain.
There is an urban legend about a man who watched with alarm as customers made withdrawals from his bank’s ATM machine. The man quickly decided to join the queue and withdrew every kobo that was in his account. He proceeded to take it into the bank and complained that as too many people were withdrawing money from the bank’s ATM, he feared that his money was not safe anymore. His concern was that one of the customers withdrawing money from the ATMs might also withdraw his money. This was the reason he withdrew all of his money to bring back into the bank for safe-keeping.
Though the story appears to have been made up, the moral is not lost on us. The story explains, albeit in a comical way, how a majority of customers perceive the banking system as a place where their money is safe. Although once in a while global financial markets fall into crisis and the perception of banks as safe and secure havens is shaken, it doesn’t take long before things return to normal and the positive perception of banks is restored.
However, the real reason – which many are oblivious of – that makes banks safe for depositors, is due to the activities of the NDIC. First of all, the NDIC insures bank deposits; which means that no matter what happens to the bank, NDIC pays back insured deposits to customers thereby safe guarding their money. Secondly, NDIC also supervises the banks to make sure they are not engaging in unscrupulous behaviour that could affect depositors funds. In the event that NDIC discovers certain challenges in any bank, it offers financial and technical assistance to help get it back on track. If a bank fails, NDIC works to swiftly resolve the situation so that it can begin paying depositors as quickly as possible and liquidates the remaining assets of the bank so it can pay liquidation dividends in a timely manner.
Perhaps because its objective is to “protect depositors and guarantee payment of insured funds in the event of failure of insured institutions”, the NDIC works tirelessly examining banks’ records, continually reviewing the insured amounts upwards and keeping up to date with new trends such as Non-Interest Banking and Mobile Money.
Remember the 2009 banking sector crisis that rocked Nigeria? You don’t? Ok, let’s look at a more recent event; the restructuring of the Skye Bank Board. In this instance, when news broke that the Central Bank of Nigeria (CBN) had “sacked” the board, depositors’ initial knee-jerk reaction was to begin closing their accounts for fear of losing their money. As a result, Skye Bank lost half its share value within 11 days after the CBN made the announcement. According to online newspaper The Cable, the bank “lost about 48 percent of its share value bringing its annual loss to 71.29 percent”.
If more people understood the mandate and activities of the NDIC, the panic that resulted in huge losses for Skye Bank need not have happened. Your money is safe not just because you have kept it in a bank, but because it’s insured by the NDIC.
So when next you hear that the CBN has taken over the bank where you’ve kept your money for ‘safe-keeping’ or that a certain bank is distressed, don’t panic or rush to close your account. Just remember, the NDIC is there to ensure that your insured Kobos and Nairas in the bank, whether in 2009, in 2016 or in the distant future are safe and secure because the NDIC is your Sureguy.