Banks Agree on N105Bn Sinking Fund to Clean Up Banking Mess

Deposit Money Banks (DMBs) in the country have agreed to set aside some N105 billion for a sinking fund to cover the cost of cleaning up the system after the 2008-2009 banking sector crisis and further consolidate on the system’s post-crisis stability gains achieved in the industry over the last three years.

They consequently have signed the Resolution Cost Trust Fund Deed which requires them to contribute 0.5 per cent of their total assets and 33 per cent of their off-balance sheet items to the Asset Management Corporation of Nigeria’s (AMCON’s) sinking fund.

The Central Bank of Nigeria (CBN) and banks had in 2011 signed a memorandum of understanding (MoU) on the establishment of the sinking fund, having realised that funds under AMCON’s management and eligible bank assets might not be enough to meet the resolution cost of restoring financial stability.

Going by the DMBs’ total assets which stand at N21 trillion, the sum to be set aside would amount to about N105 billion from the banks to help cover the cost of the banking crisis of two or three years ago.

Mrs. Agnes Tokunbo Martins, CBN director, banking supervision, addressing journalists after the Bankers’ Committee meeting in Abuja yesterday, explained that what had hitherto existed to mitigate the devastating effects of the crisis in the sector was a memorandum of understanding between the CBN and the DMBs on how to clean up toxic loans from their balance sheets, adding that with the signing of the deed, they have now formally agreed on the percentage and other ratios to be used in contributing to the sinking fund.

She said: “One major event that took place today was the signing of the Resolution Cost Trust Fund Deed. This deed is between the banks and, basically, the intention is to cover the cost of the banking crisis that we had about two or three years ago.

“Initially what we had in place was a memorandum of understanding where the banks on their own agreed to contribute 0.3 per cent of their total assets to clean up the banking system at that time.

“But today the deed has been signed and what is in the deed is that the banks have agreed on their own to contribute 0.5 per cent of total assets and 0.5 per cent of 33 per cent of their off-balance sheet assets to the sinking fund.

“The whole intention that is to ensure that going forward the banking system is safe and there is no incidence whereby we have to fall back on tax payers’ money.”

Godwin Emefiele, group managing director, Zenith Bank Plc, Mr.  said the committee would monitor the policy and step up efforts to ameliorate the impact on the economy.

He said the committee was not unaware of the fact that the increase on the CRR would hike both lending and deposit rates but assured customers that the trend would be reversed through renewed deposit mobilisation by banks.

Emefiele said the financial institutions were left with no other option, than to mop up deposits from the private sector, particularly the yet-unbanked segment.

He argued the 50 percent hike on CRR on public funds became necessary to ensure stability in the foreign exchange market as well as avoid the depreciation of the naira.

Also speaking on the cashless policy, Mr. Philip Oduoza, group managing director/chief executive, United Bank for Africa (UBA), said the initiative was on course, adding the banks had continued to reduce the cost of doing business in the banking halls.

He said following the introduction of the cashless policy, electronic transactions had improved significantly to N13.6 billion as at July from about N8.3 billion when the policy commenced.