FG plans a bridge bank to support struggling banks

17 Nov FG plans a bridge bank to support struggling banks

Nigeria plans to start a fund that will operate a bridge bank to nurse struggling lenders back to health.

The Central Bank of Nigeria will inject N10bn, or an amount that still needs to be determined by its board, into the so-called resolution fund every year, according to contained in the Banks and Other Financial Institutions Act (BOFIA) 2020 that was signed last week by President Muhammadu Buhari, Bloomberg reports

Section 74 of the regulation states that without prejudice to the provisions of the Asset Management Corporation of Nigeria Act, the Resolution Fund shall be domiciled with the central bank and into which shall be paid all contributions and agreed levies.

According to the Act, the CBN Governor, Godwin Emefiele, with the approval of the board of the bank, is to determine the date of commencement of the fund.

The regulations also stipulate that with effect from the commencement date of the fund, each bank, specialised bank and other financial institutions in Nigeria under the regulation of the CBN, will pay an annual levy, in an amount equivalent to ten basis points or such basis points as may from time to time be determined by the central bank.

Each lender will make annual contributions equivalent to 10 basis points of their total assets, or a percentage that the CBN still has to finalise.

The new rule is separate from the Assets Management Corporation of Nigeria, which was created to buy bad debts following a banking crisis in 2009, according to the amended laws. AMCON is expected to wind down by 2023.

While Nigeria’s biggest lenders have built strong buffers since the global financial crisis, some small- and medium-sized banks have struggled to ward off shocks arising from a 2016 economic contraction and the coronavirus pandemic.