The Banks and Other Financial Institutions Act (BOFIA) 2020 has made provisions for the Federal Government to operate a bridge bank fund to strengthen struggling lenders back to health.
Part of the BOFIA says the Central Bank of Nigeria (CBN) will inject N10 billion ($26 million), or an amount that still needs to be determined by its board, into the so-called resolution fund every year, according to amended banking laws signed by President Muhammadu Buhari.
Each lender will make annual contribution equivalent to 10 basis points of their total assets, or a percentage that the Abuja-based regulator still has to approve.
The new rule is separate to the Assets Management Corporation of Nigeria (AMCON), which was created to buy bad debts following a banking crisis in 2009, according to the amended laws. AMCON is expected to wind down by 2023.
While Nigeria’s biggest lenders have built strong buffers since the global financial crisis, some small- and medium-sized banks have struggled to ward off shocks arising from a 2016 economic contraction and the coronavirus pandemic.