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As a complimentary measure to sustain public confidence under the bank consolidation programme, the Federal government, through the Central Bank of Nigeria (CBN), provided full coverage to private sector depositors of those banks that were closed in January, 2006 due to their insolvency. Given the guarantee of full coverage to the private sector depositors, the NDIC adopted the Purchase and Assumption (P&A) failure resolution mechanism. The P&A entailed inviting the healthy banks to bid for the purchase of the assets and assumption of the deposit liabilities of the failed banks.

The choice of the P&A was based on some public policy considerations which, among others, included the following:

·         Giving depositors easy access to their funds without conditions;

·         Facilitating continuity of banking services in the same premises used by the failed banks;

·         Encouraging depositors to establish banker-customer relationship with the acquiring banks; and

·         Promoting banking culture which is critical to savings mobilization for economic development.

As at 31^st December 2009, P&A arrangements had been concluded for all the eleven (11) banks closed in 2006 for which NDIC had obtained winding-up orders from the court. The private sector deposits were assumed and some assets of the closed banks were acquired by various healthy banks as shown in the table below.

Table

It is noteworthy that Zenith Bank Plc acquired both private and public sector deposits of the defunct Eagle Bank Limited. Therefore, the transaction did not involve invoking the guarantee provided by the CBN to private sector depositors.

In the course of facilitating the P&A transactions, NDIC was confronted with many challenges. Some of the challenges encountered included the following:

Ø  Legal challenges by erstwhile bank owners and directors;

Ø  Failure by acquiring banks to purchase risk assets;

Ø  Escalation in bank liquidation and related costs; and

Ø  Breakdown of some servers containing databases of the closed banks which constrained access to vital information.

The NDIC could not arrange P&A for the remaining two (2) banks whose winding-up orders had not been obtained. The court actions prevented the NDIC from discharging its role as deposit insurer and liquidator.

Generally, acquiring banks also showed little interest in the loan assets of the banks-in-liquidation but were more interested in the physical assets especially business offices. The NDIC, as liquidator, was therefore saddled with the recovery of the non-performing loans of the banks for which P&A transactions were concluded just as in the banks-in-liquidation through pay-out mechanism. The delay in obtaining winding-up orders and the challenges in court had also resulted in increased bank liquidation and related costs. Some of the costs included the salaries of banks’ and auxiliary staff particularly security personnel as well as rent for over-staying in leased premises.

List of Assuming Banks