Mr. Godwin Emefiele, the Central Bank of Nigeria (CBN) has said, in line with international best practices and to avoid duplication of functions, the Apex Bank should retain exclusive right to license new banks and the revocate the license of banks in distress.
The CBN governor made the appeal at the Senate Committee on Banking, Insurance and other Financial Institutions public hearing on the Banks and other Financial Institutions Act (BOFIA), Cap B3 LFN 2004 (Repeal and Re-enactment) Bill, 2020 and the Electronic Transaction Bill 2020.
Emefiele was represented by Mr. Kofo Salam-Alada, the CBN’s Director, Legal Services, who noted that the proposed act would serve its purpose better if it recognized the critical roles the Apex Bank plays in regulating the banking and other players in the financial services sector.
According to him, “The global best practice is to have the banking legislation empower the financial services industry regulator to regulate banks, promote their soundness and stability; superintend issuance and revocation of operating license without recourse to any other institution; while the Deposit insurer is in charge of bank resolution activities after the revocation of an operating license.”
The CBN is thus seeking the establishment of what it called ‘a resolution fund’ which will pool together resources for managing banking sector distress. This of course will allow management of failing banks and systemic crises without recourse to the public treasury.
“The creation of a credit tribunal to strengthen credit recovery processes and enforcement of collateral rights; strengthening the framework for reporting for insider transactions as part of measures to boost credit administration processes in banks; enhancements to regulatory measures for single obligor limits, transfer of significant holdings, etc. and strengthening of the sanctions regime to make it more deterrent.” Were also among the recommendations of the CBN.
In addition, the CBN is also recommending the adoption of additional resolution tools such as:
- Bail-in -which ensures that losses are absorbed by shareholders and creditors;
- Sale of business – which allows the resolution authority to sell all or part of the failing bank to a private acquirer; and
- Asset separation – which entails isolating the “bad” assets of the bank is an asset management vehicle for an orderly wind-down if immediate liquidation is not justified in current market conditions.
- The review of provisions to recognize the unique business models of new entrants into the financial services sector (e.g. non-interest banks and payment system service providers);
- Effective management of dormant accounts to ensure efficient administration for the ultimate benefit of the owners of the funds and/or their beneficiaries;
- Enhanced requirements for payments, settlement, and clearing activities to address unfolding developments and standards for regulations and supervision of systemically important banks given the risk that their activities pose to the financial system.
“We noticed that the powers of the CBN to intervene in the process of managing a failing bank and Reinstatement of a bank in a grave situation and bring it back to sound financial health was omitted in the Bill.
“The omission erodes the powers of the CBN and creates a huge gap in the regulatory and resolution framework. Therefore, we propose that the extant provisions should be reinstated”, the Apex bank submitted.
The CBN is further seeking for powers in the impending amendment to the BOFIA to freeze accounts link to criminals, while also canvassing for the creation of a credit tribunal – a special court- that would help address the perennial problem of non-performing loans in the country.
Salam-Alada said fraud and finance crimes would be checked if the CBN Governor has powers to apply to the court for orders to freeze accounts which are deemed to be linked with criminal and other civil infractions. He lamented that this power was omitted in the Bill inadvertently in the current Act.