By Jeph Ajobaju, Chief Copy Editor
A sum of N10 billion is to be ring-fenced yearly by the Central Bank of Nigeria (CBN) to support distressed banks and ensure the safety of depositors’ funds, in conjunction with the Nigeria Deposit Insurance Corporation (NDIC).
Both the CBN and the NDIC are empowered to set up a Banking Sector Resolution Fund (BSRF) to safeguard depositors’ funds and operate as a bridge bank to strengthen struggling banks.
The CBN is mandated to inject N10 billion ($26 million) or any amount determined by its board into the BSRF every year, according to the Banks and Other Financial Institutions Act (BOFIA) 2020 newly signed by President Muhammadu Buhari.
Section 74 of BOFIA says: “Without prejudice to the provisions of the Asset Management Corporation of Nigeria (AMCON) 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, with the approval of the CBN board, is to determine the date of commencement of the fund.
Per reporting by THISDAY, this new arrangement is, however, separate from that of AMCON which buys bad debts following the banking crisis in 2009.
BOFIA 2020 mandates each bank to make annual contributions equivalent to 10 basis points of its total assets or a percentage approved by the CBN.
“This will be based on the financial institutions’ total assets as at the date of their audited financial statements for the immediately preceding financial year published pursuant to this Act, and which shall be payable on the commencement date, and on or before the 30th day of April in each subsequent calendar year following the commencement date.”
Purpose of BSRF
The fund is to be used to offset the operating costs of a bridge bank, pay the costs of transferring the whole or any part of the business of a bank, specialised bank or other financial institutions pursuant to a resolution measure.
BOFIA 2020 also states that “the Resolution Fund shall not be subject to tax and accordingly, all monies accruing to, payments made from, and instruments and transactions relating to the Resolution Fund shall be exempt from all forms of taxes, levies, duties, charges, or imposition howsoever described.
“Any annual levy paid by a bank, specialised bank or other financial institution in pursuance of this Act, shall be deductible for the purposes of the companies’ income tax of the paying bank, specialised bank or other financial institution under the Companies Income Tax Act.
“A bank, specialised bank or other financial institution that is in default of payment of the levy imposed under this Act or any part thereof, shall be prohibited from paying dividends or other purpose of the Resolution Fund.”
BOFIA aims to provide relief to small or medium-sized banks which struggle during global financial crisis, like the one in 2016, or the one in Nigeria in 2009 which led to the collapse of some financial institutions.
It also has several other new provisions to enhance the effectiveness of the financial system, strengthen regulatory and supervisory framework for the financial industry as well as tools for managing systemic distress to preserve financial stability.