Nigeria’s central bank, whose mandate is to ensure financial system stability, is planning to establish a N10 billion bridge bank fund to strengthen struggling lenders.
The regulator will inject the stated amount, or an amount that still needs to be determined by its board, into the so-called resolution fund every year, according to amended banking laws signed by President Muhammadu Buhari.
Each lender will make annual contributions equivalent to 10 basis points of their total assets, or a percentage that the Abuja-based regulator still has to finalize, Bloomberg reports.
The implication of this, according to Ayodeji Ebo, senior economist/head, research & strategy, Greenwich Merchant Bank, is that banks will have to suffer additional cost aside the AMCON levy they are obligated to. Apart from that, it would also be added to the cost of lending.
The new rule is separate to the Assets Management Corp. of Nigeria, or Amcon, 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.
Olalekan Aworinde, senior lecturer, Department of Economics, Pan-Atlantic University, Lagos, said it is just a duplication, in terms of the CBN regulating the activities of the deposit money banks.
This, he said, is just another opportunity for the CBN to cripple the activities of the DMBs.
“10 percent of the DMBs’ total asset as annual contribution? It is huge,” Aworinde said.
“We should also be reminded of the required reserve which DMBs have to keep with the banks! All of this will affect DMBs’ overall activities of doing business. I think what the government should be addressing is how to reduce interest rate so that SMEs can have access to loanable funds,” he said.
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. In 2018, Skye Bank Plc collapsed and the central bank established Polaris Bank, a bridge bank to take over its assets and liabilities.
According to Kabir Katata, deputy director, research department, Nigeria Deposit Insurance Corporation (NDIC), the banking industry’s financial conditions showed an impressive resilience in the first half of 2020, despite negative impacts of the COVID-19 pandemic on the economy. Though the financial performance indicators declined in Q1 2020, most rebounded in Q2 2020, demonstrating inherent resilience and responsiveness to regulatory policies.
Total Industry Assets significantly increased from N40.40 trillion in Q4 2019 to N44.24 trillion in Q1 2020 and N47.61 trillion in Q2 2020. The Average CAR of the Banking Industry consistently improved, albeit slightly. It increased from 14.54 percent in Q4 2019 to 14.88 percent in Q1 and and 14.96 percent in Q2 of 2020,
O. O. Babatolu, director, bank examination department, NDIC, said the Nigerian banking system is not under threat of systemic crisis.
He said the prompt and decisive interventions by the regulatory authorities have provided counter-cyclical buffers for the economy and the financial system.
“We all have critical roles to play in fostering financial system stability,” he said.
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