The Nigerian government through the Central Bank of Nigeria (CBN) is putting plans together to set up a bridge bank to revive the struggling lending market in the country.
A report by Bloomberg noted the CBN provides a 10 billion naira ($26 million), or an amount that still needs to be determined by its board, into a 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.
A bridge bank is a bank authorized to hold the assets and liabilities of another bank, specifically an insolvent bank. A bridge bank is charged with continuing the operations of the insolvent bank until the bank becomes solvent through acquisition by another entity or through liquidation.
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The new rule will be separate from 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.
The report also notes that although 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.
