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IMF seeks action on bank failures in Nigeria

By Babajide Komolafe
THE International Monetary Fund (IMF)  has called for a framework to deal with bank failures in Nigeria, adding that a robust financial stability framework will be important for the sustained development of the financial sector.

It stated this in its assessment of the banking sector reforms contained  in the 2009 Article IV Consultation-Staff Report on Nigeria released yesterday.

The report stated, “Looking ahead, there is a pressing need to develop a financial stability framework to provide a solid foundation for the banking system.

“The recent experience has highlighted that there are legal and procedural questions in the current resolution arrangements.

“For example, it is not clear whether the Central Bank is permitted, under the

Central Bank Act, to take equity in a financial institution even as a transitory step in bank resolution.

“For the government to take the equity position, it  would require an appropriation bill approved by the National Assembly. Such an appropriation cannot be secured in a timely manner.

“While the Central Bank and Nigeria Deposit Insurance Corporation legislation provides the legal framework for resolving banks, the questioning by some bank executives (and other interested parties) of the legal basis for these actions gives rise to the possibility of lengthy court involvement that could undermine the timely resolution of banks by the regulator.

“Some elements of the financial stability framework are being introduced. The four main areas are:

“Macro prudential factors. Macro-economic developments, including asset prices,need to guide supervisory and regulatory policy. The central bank intends to establish a macro-prudential function in its supervision department.

“Prudential rules. The credibility of banks’ balance sheets will be enhanced by the new requirement that banks move to a common reporting period by the end of 2009 and adopt IFRS accounting standards from the beginning of 2010.


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