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The Central Bank of
Nigeria (CBN) has signed a Memorandum of Understanding (MoU) with the
24 banks in the country on the establishment of the Banking Sector
Resolution Cost Sinking Fund.

At the signing
ceremony in Lagos at the weekend, deputy governor, financial system
stability, Kingsley Moghalu, said the fund is to cover the cost of the
bailout of the banking sector.

“The CBN and the 24
Nigerian banks (Participating Banks) realised that funds from the
management and realisation of the eligible bank assets to be acquired
by the Asset Management Corporation of Nigeria (AMCON) might turn out
to be insufficient to meet the resolution cost of restoring financial
stability.

“In furtherance of
this, the CBN shall contribute N50 billion annually to the fund, and
each participating bank shall contribute an amount equivalent to 30
basis points (0.3 per cent) of its total assets as at the date of its
audited financial statements for the immediately preceding financial
year,” Mr. Moghalu said.

N45 billion annual contribution Mr. Moghalu was silent on the total amount the CBN hopes to galvanise through this process.

“I don’t want to go
into specific figures because 0.3 per cent contribution from the banks
and banks have different asset level from each other. So that cannot be
calculated by me now,” he said.

But with the total
assets of Nigerian banks currently put at between N14 trillion to N16
trillion, it is estimated that the banks will make an annual
contribution of about N45 billion.

According to him,
the gesture is part of the support of the institutions involved in
stabilising the economy. This is in order to block any shortfall in the
funds that would be realised from the management of eligible bank
assets to be acquired by the Asset Management Corporation of Nigeria
(AMCON).

“Therefore, the
(banks) resolved, in the national interest, to establish a Banking
Sector Resolution Cost Fund to meet any shortfalls and to ensure
financial stability and the soundness of the banking system,” he said.

The fund would be managed by AMCON.

Ingenuity of government

He said the fund is
part of ingenuity of government to reduce the burden of the banks’
bailout on Nigerian tax payers. Through this fund, a substantial part
of the cost will be borne by banks. He said Nigerian banks deserve
commendation for agreeing to be part of the fund.

“This is because in
most jurisdictions, it is the national governments alone, through their
treasuries, that bear the cost of stabilising the banks and preventing
bank failures. In other words, the tax payers in those countries almost
exclusively bore these costs,” he said.

He said in
Nigeria’s case, the burden on the national treasury is significantly
reduced as it will be borne by the commercial banks themselves in
addition to the CBN and AMCON.