The Nigerian government is looking to establish a fund for the running of a bridge bank that is mandated to keep insolvent lenders from going under until they regain a sound financial footing to continue their own operations or get acquired.
Bloomberg reported on Monday every bank would provide the equivalent of 10 basis points of their assets, or a percentage yet to be decided by the Central Bank of Nigeria (CBN), to the pool.
The apex bank is to contribute N10 billion ($26 million), or a figure its board will fix, to the fund which is a component of the Banks and Other Financial Institutions Act 2020, signed into law by President Muhammadu Buhari on Friday.
It is proposed as an entity different from the Assets Management Corporation of Nigeria (AMCON), set up in the heat of the 2009 financial meltdown to buy bad debts from the books of lenders. AMCON is to cease operating in 2023.
Much as banks in Africa’s biggest economy have been building bulwarks against shocks following the last global financial crisis, a couple of banks of small and medium sizes have strived to keep at bay headwinds from a recession four years ago as well as the pandemic outbreak.
Skye Bank Plc crashed in 2018 giving way to Polaris Bank – a bridge bank created by the CBN – to take over its assets and liabilities.
The regulator warned two weeks ago Nigerian lenders were at risk of sliding below minimum capital buffers required by authorities if the economy shrank further before the end of this year.
A contraction of 3.5% or more in the Gross Domestic Product (GDP) in the third quarter could plunge banks’ capital adequacy ratio from a 15% average to 11.2%, it said.
Nigeria’s third quarter GDP is due from the statistics office any moment soon and a slowdown will usher the country into a recession, having recorded a tightening in economic growth in the preceding quarter.
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