Nigeria plans to start a fund that will operate a bridge bank to nurse struggling lenders back to health.
The central bank will inject 10 billion naira (US$26M), 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 contributions equivalent to 10 basis points of their total assets, or a percentage that the Abuja-based regulator still has to finalize.
The new rule is separate to the Assets Management Corp. of Nigeria, or 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. In 2018, Skye Bank Plc collapsed and the central bank established Polaris Bank, a bridge bank to take over its assets and liabilities.