Distressed banks in Nigeria can now convert what they owe creditors to equity, thus giving their benefactors a stake in the banks, Central Bank of Nigeria (CBN), said yesterday in Abuja.
CBN Governor, Godwin Emefiele, who spoke at the Judges workshop on recent reforms of the banking and financial services sector in Nigeria – BOFIA 2020 in focus said the Banks and Other Financial Institution Act 2020 (BOFIA 2020) provides enhanced recovery and resolution tools for failing banks, specialised banks and other financial institutions to prevent systemic crisis, maintain financial system stability and sustain depositor confidence.
Represented by the Deputy Governor Financial System Stability Aisha Ahmad, he said one of such tools is the ‘Bail-ins’ “which allows for the recapitalisation of the failing institution through the write-down of debt owed by bank to creditors or the conversion of such debt to equity”.
Another new tool authorised by the BOFIA 2020 is the ‘Termination of Rights’, which imposes “temporary stays on a debt provider’s right to exercise early termination, close out or netting rights in relation to a failing bank”.
There is also the ‘Asset Separation’ tool which enables the isolation of ‘bad’ assets of a failing bank in an asset management vehicle for orderly wind down.
BOFIA 2020 Emefiele said provides enhanced recovery and resolution tools for failing banks, specialised banks and other financial institutions in order to prevent systemic crisis, maintain financial system stability and sustain depositor confidence.
The BOFIA 2020, he added, “contains elaborate provisions on the effective management of unclaimed funds or abandoned property in dormant accounts maintained with banks, specialised banks and other financial institutions, to ensure efficient administration of such accounts for the ultimate benefit of the owners of the funds and/or their beneficiaries”.
With regards to corporate governance, the BOFIA, 2020 makes compliance a mandatory requirement as opposed to being merely persuasive. This, the CBN Governor said, “will go a long way in strengthening the financial system”.
These new options for recovering and resolving banking system crisis, Emefiele said, would “reduce the recourse to taxpayer’s funds for the bailout of failing institutions”.
Speaking on the Special Tribunal for the Enforcement and Recovery of Eligible Loans the CBN Governor said the tribunal was introduced “to accelerate credit recovery processes and enforcement of collateral rights”.
According to him, “the Special Tribunal, together with the Bank’s Policy on Global Standing Instruction will address the incidence of non-performing loans that has posed a great threat to the Nigerian financial system”.
Bank supervisors, he said, have observed “that recalcitrant debtors have exploited the non-prioritization of credit recovery matters in the Nigerian judicial system to frustrate debt recovery efforts by financial institutions”.
The CBN, he noted, is informally engaging “key stakeholders in the judiciary to operationalize this provision”.
Emefiele urged judges to evolve and adopt digital transformations since the Nigerian financial services sector “continues to witness rapid technological and digital innovation in products and service delivery channels and as the legal/supervisory framework adjusts in response, the judiciary must keep abreast of these transformations”.
Emefiele noted that significant investments in capacity development, new technologies and digital assets will be required and “is strongly encouraged to enable the judiciary to play its role effectively”.
In his address, Justice Ibrahim Tanko Muhammad, the Chief Justice of Nigeria (CJN) and Chairman, Board of Governors, National Judicial Institute (NJI) stated that it is a well-known fact “that court-related litigation in Nigeria is characterized by three to four stages, commencing from the trial courts, then to Appellate Court and finally the Supreme Court”.
The journey to the Supreme Court in a commercial dispute he noted, could last for as long as eight to twenty years. As a result, “parties become discouraged and unwilling to engage in commercial disputes”.
However, he cautioned that “if the judiciary must play its role in financial stability in Nigeria, cases of delay must be aggressively and frontally addressed so that parties will get justice at the end and the resultant effect of this will raise public confidence in the judiciary”.
The CJN argued that “timely dispensation of justice by the judiciary is a critical factor that will enhance financial stability in Nigeria”.
According to him, “experience has shown that investors are more concerned about dispute resolution mechanism put in place to quickly resolve disputes that may arise in the course of business transactions between disputants”.
”The common parlance has always been that ‘time is money’; this to a large extent is apt, reason being that quick turnover is the ingredient of any successful business; thus, no investor will be happy to tie down his capital for an uncertain period of time, which may have been occasioned by commercial disputes bogged down in court” the Chief Justice of Nigeria said.