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CBN seeks additional powers to resolve failing banks, freeze accounts linked to criminals

The Central Bank of Nigeria (CBN) is seeking legal powers to enable it to expand options available to it in resolving failing banks and managing systemic crises without recourse to the public treasury.
To this end, and in line with international best practices, the CBN is seeking for the establishment of what it called ‘a resolution fund’ to pool together resources for managing banking sector distress.
CBN  made the appeal Wednesday to members of the Senate committee on banking, insurance, and other financial institutions at the Senate Committee public hearing on its Bill for an Act to repeal the Banks and Other Financial Institutions Act (BOFIA) 2004 and re-enact the Banks and Other Financial Institutions Act 2020.
The CBN also recommended “the adoption of additional resolution tools such as bail-in -which ensures that losses are absorbed by shareholders and creditors; sale of business – which allows the resolution authority to sell all or part of the failing bank to a private acquirer; and asset separation – which entails isolating the “bad” assets of the bank is an asset management vehicle for an orderly wind-down if immediate liquidation is not justified in current market conditions.
CBN Director Legal Services,  Kofo Salam-Alada made the submissions to the Senate at the public hearing.
“We noticed that the powers of the CBN to intervene in the process of managing a failing bank and Reinstatement of a bank in a grave situation and bring it back to sound financial health was omitted in the Bill.
“The omission erodes the powers of the CBN and creates a huge gap in the regulatory and resolution framework. Therefore, we propose that the extant provisions should be reinstated” , the bank submitted.
The CBN is further seeking for powers in the impending amendment to the BOFIA to freeze accounts link to criminals, while also canvassing for the creation of a credit tribunal – a special court- that would help address the perennial problem of non-performing loans in the country.
Salam-Alada said fraud and finance crimes would be checked if the CBN Governor has powers to apply to the court for orders to freeze accounts which are deemed to be linked with criminal and other civil infractions.
He lamented that this power was omitted in the Bill inadvertently in the current Act.
 “As part of measures to address the role of non-performing loans, we propose the creation of a Credit Tribunal. The Overarching objective is to create an efficient regime for the recovery of eligible loans of banks and Other Financial Institutions (OFls) and enforcement of rights over collateral securities.
The CBN further thinks it is important for the new BOFIA to allow the apex bank Governor to designate systemically important banks based on clear parameters and prescribe additional supervisory requirements for them considering their size, complexity, and the risk they pose to the entire banking system and the economy.
Salam-Alada said the amendment of BOFIA had become important considering that
Several new types of licensed institutions have entered the Nigerian financial services sector since the Act was enacted in 1991.
These include the non-interest banks, credit bureaux, payment system service providers, among others. “There is a compelling need to introduce new provisions in the Bill to address the unique peculiarities of these institutions”, he affirmed”.
The CBN commended the senate committee for proposing more stringent fines and penalties regime in the bill in comparison with the Extant Act but noted that the revised fines and penalties may not be sufficiently deterrent in some instances given current economic conditions.
For instance, the bill does not clearly differentiate between criminal and administrative sanctions, and the CBN view is that the bill should be made to empower it ti impose administrative sanctions or penalties.
“We suggest an upward review of all financial penalties stipulated in various sections of the bill to align with current realities. They should be stated as minimum amounts to allow for flexibility to impose higher penalties to address any future diminution in money values,” Salam-Alada noted.
The CBN however kicked against a provision of the proposed law which mandates it to pay all uninsured portion of private deposits of a bank upon revocation of its license, saying the provision would encourage moral hazard in the banking system and undermine the purpose of deposit insurance.
The CBN, moreover noted that the obligation to settle the private deposit liabilities of a bank whose license has been revoked lies with the Nigeria Deposit Insurance Corporation (NDIC), which is statutorily charged with the responsibility of administering deposit insurance scheme in the country.
At the public hearing, Managing Director, NDIC, Umaru Ibrahim said the repeal and re-enactment of BOFI Act were most appropriate considering the current challenges facing the economy.
“A lot has happened since 2004 to the banking sector. A lot has been put in place to make it efficient, a lot has taken place by a way of introducing new products, agent banking;  mobile banking. All these speak to the need to have a harder look at BOFIA”, he said.
Bellema Taribo, NDIC Director, legal department, in his presentation said there was a need for legislation to tackle insider abuse dealings in banks. The corporation is also seeking the re-enact BOFIA ACT, to recognize NDIC along with CBN as a co-regulator of banks.
He also canvassed against appointing another liquidator for banks since NDIC is already the sole liquidator of banks.
“NDIC is the sole liquidator of banks. The issue of appointing another liquidator never arises. We need to look at that in the re-enact BOFI Act”, he submitted.
Earlier in his opening remarks, the Senate President, Ahmed Lawan, who was represented by the Deputy Senate Leader, Robert Ajayi Boroffice described the banking sector and other financial institutions as strong pillars for the country’s growth and development.
He assured inputs will be incorporated into the new law.
Also speaking at the event, the Chairman, Senate Committee on Banking, Insurance and other Financial Institutions, Uba Sani said the bills were critical to the economic stabilization of the country and commended the committee members for their efforts thus far.
The co-sponsor of BOFIA, Betty Apiafi said the Bill aims to reshape the financial sector for greater efficiency and growth, as she was optimistic that when passed into law will
help reduce NPLs.
“It will also help watch list chronic defaulters who are responsible for the NPLs. It’s a big problem of the financial institutions”, she added.

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