By Ademola Alawiye

Monday, 17 Jan 2011

Financial experts have applauded the Central Bank of Nigeria and the 24 Nigerian Deposit Money Banks following the Memorandum of Understanding signed on the establishment of a banking sector sinking fund.

According to the experts, who spoke with our correspondent on Saturday, the sinking fund will ensure that the government does not bear the cost of financial crisis in the future.

They added that the move would strengthen and stabilise the banking industry.

The CBN and the DMBs, last Friday, signed an MoU to establish a sinking fund for banks in the banking sector.

The Deputy Governor, Financial System Stability, Dr. Kingsley Moghalu, said, at the event, that funds from the management and realisation of the eligible banks’ assets to be acquired by the Asset Management Corporation of Nigeria might turn out to be insufficient to meet the resolution cost of restoring financial stability.

The Managing Director, Sotice Investment Company Limited, Mr. Adedayo Toluwase, said, “It’s a good step in the right direction. This is happening for the first time in Africa, the CBN and the banks deserve commendation. With this, the era of taxpayers bearing the cost of financial crisis should be over.”

Speaking in the same vein, the General Manager, Strands Alliance Financial Company Limited, Mr. Joseph Adeshina, said that the agreement was an important milestone in the history of banking in Nigeria.

He said, “The banks should be commended for their corporation, most especially the banks that passed the stress test. It’s going to complement the efforts of AMCON in bringing stability to the banks.”

The establishment of the 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 CBN.

Moghalu had said that the CBN and the banks resolved in the 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.

According to Moghalu, the CBN will contribute N50bn annually to the fund, while each participating bank will contribute an amount equivalent to 30 basis points or 0.3 per cent of its total assets as at the date of its audited financial statements for the immediately preceding financial year.

He added that the apex bank and the participating banks would make contributions to the sinking fund over a period of ten years, starting from this year.

Source: Punch