By Babajide Komolafe
The Central Bank of Nigeria (CBN) and the twenty-four banks have signed a memorandum of understanding for the establishment of a fund to rescue distressed banks in the future.

Meanwhile, the CBN said that AMCON can take up equity investment in any of the banks.
The Fund known as Banking Sector Resolution Cost Sinking Fund  is to ensure financial stability and the soundness of the banking system, said Kingsley Moghalu, CBN Deputy Governor, Financial Sector Surveillance.

The Fund is to be jointly financed by the CBN and the banks over a period of ten years. While the CBN would contribute N50 billion annually, each bank will contribute 30 basis points or 0.3 per cent  of its asset base annually.

The fund is to supplement the resources of the Asset Management Company of Nigeria (AMCON), set up to purchase bad debt of banks.

“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. Therefore, they resolved, in 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.”, Moghalu said.

Speaking further, he said, “The establishment of the Asset Management Corporation of Nigeria (AMCON) was to assist in the resolution of the high level non-performing loans in the banking industry and help banks in cleaning up their balance sheets as part of the reform programmes initiated by the Central Bank of Nigeria.

“The AMCON Act was signed into law on July 19, 2010 by the President, His Excellency, Dr. Goodluck Jonathan. The objective is to empower the corporation to buy toxic assets from banks thereby freeing their balance sheets and expectedly, help in addressing the various weaknesses in the system; safeguarding the interest of depositors, creditors and other stakeholders; providing liquidity to banks; recapitalising the intervened banks; providing access to refinancing; and generally increase confidence in the Nigerian banking system and ensure stability in Nigeria’s economy.

“In line with its functions as provided by the AMCON Act 2010, on December 31, 2010, AMCON acquired some of the eligible bank assets of 21 banks in consideration of a bond issue. This is the first phase of the acquisition of toxic assets of banks by AMCON. This is a giant stride towards stabilizing the banking system.”

On the equity participation of AMCON in the banks, he said that while the company is yet to take up equity investment in the banks, it is one of the things it can do.

Fielding questions from journalists at the signing ceremony in Lagos, he said that, “AMCON is also a recapitalisation vehicle and can help the banks recapitalise by injecting fresh  fund into them in exchange for shares. It has not done this but it is one of the things it can do”.