People & Money

BOFIA Act 2020: CBN Gets Enhanced Power to Sell Failing Banks

BOFIA Act 2020: The Nigerian government has enacted a law that will establish a fund to back insolvent lenders and will require commercial banks to contribute to it.

President Muhammadu Buhari assented to the Banks and Other Financial Institutions (BOFIA) Act 2020 on Friday as a measure taken to address key issues in the financial sector of Africa’s biggest economy which have remained a concern over the last two decades.

The Central Bank of Nigeria (CBN) is to provide N10 billion ($26.3 million) to the reserve while the Nigerian Deposit Insurance Commission (NDIC) will contribute N4 billion.

Also Read: Despite CBN Interventionist Strategies, Naira Exchanges for N462

Every year, banks will transfer 10 basis points of their total assets into the fund. They will be forbidden from dividend payments should they refuse to make contributions to the fund. The regulator will fix the date the new fund will take off.

Government in 2010 established the Asset Management Company of Nigeria (AMCON) to restore solvency and stability to the banking industry following a $4 billion lifeline given to eight bankers in 2009.

Distressed lenders were left to collapse, until that time, while NDIC intervened to recover deposits.

Also Read: CBN Slashes Monetary Policy Rate to 11.5%

AMCON, whose operation will end in 2023, has bought bad debts estimated at N3.7 trillion from 22 banks and has recovered over a trillion naira. It is indebted to its guarantor the CBN to the tune of N4 trillion.

The new regulation bestows more powers to the apex bank in handling solvency crisis. CBN is authorised to intervene in instances in which a bank is incapable of meeting  its obligations or is on the verge of going bust. It can transfer the assets of a failing bank to new buyers.

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