Crisis: Banks Set Up N105bn Sinking Fund

The 24 deposit money banks (DMBs) operating in the country yesterday agreed to set aside not less than N105 billion into a sinking fund to cover the cost of cleaning up the system after the 2008-2009 banking sector crisis and further consolidate on the system’s post-crisis stability gains achieved in the industry over the last three years.

The Central Bank of Nigeria (CBN) and the banks signed an industry Resolution Cost Trust Fund Deed to which the DMBs are expected to contribute 0.5 per cent of total assets and  0.5 per cent of 33 per cent of their off-balance sheet assets to the sinking fund.

Going by the DMBs’ total assets which stand at N21 trillion, the sum to be set aside would amount to about N105 billion from the banks to help cover the cost of the banking crisis of two or three years ago.

This disclosure was made by the CBN director, banking supervision, Mrs Agnes Tokunbo Martins, at the end of the Bankers’ Committee meeting in Abuja yesterday.

Martins explained that what had hitherto existed to mitigate the devastating effects of the crisis in the sector was a memorandum of understanding between the CBN and the DMBs on how to clean up toxic loans from their balance sheets, adding that with the signing of the deed, they have now formally agreed on the percentage and other ratios to be used in contributing to the sinking fund.

She said: “One major event that took place today was the signing of the Resolution Cost Trust Fund Deed. This deed is between the banks and, basically, the intention is to cover the cost of the banking crisis that we had about two or three years ago.

“Initially what we had in place was a memorandum of understanding where the banks on their own agreed to contribute 0.3 per cent of their total assets to clean up the banking system at that time.

“But today the deed has been signed and what is in the deed is that the banks have agreed on their own to contribute 0.5 per cent of total assets and 0.5 per cent of 33 per cent of their off-balance sheet assets to the sinking fund.

“The whole intention that is to ensure that going forward the banking system is safe and there is no incidence whereby we have to fall back on tax payers’ money.”

On the latest CRR policy decision which required the DMBs to deposit 50 per cent of public sector deposits with the CBN and how the banks intended to deal with its implications for lending and other business, the managing director, Zenith Bank Plc, Godwin Emefiele, said the committee agreed that the banks would need to rev up their deposit drives and other marketing initiatives that would help them to sustain their financial roles in the economy.

He explained that the banks were not only well-informed about the reasons that necessitated the apex bank to adopt the policy measure but also determined to ensure that the overall objectives are achieved in the interest of the economy.

The banks, he said, will have to develop strategies to encourage the private sector to bring their cash into the banking system “and for that reason we are all aware of the cashless policy that was introduced to ensure that they are encouraged, the cost of keeping those costs in the banks are being reduced or the banks are bearing those costs themselves, and we think this will actually help the banks to mop up deposits.”

The immediate effects of the withdrawal of 50 per cent public sector funds, he explained, “is that deposit rates will go up and to that extent we expect that lending rates will go up. We believe that at some point there will a dampening effect on these and the banks will eventually bring down the lending rates just as we expect that deposit rates will come down over time.”

The deposit rates, he said, “will go up to the extent that those who are saving money in banks will earn more but unfortunately lending rates too will go up, but we do expect that as banks continue to focus on mobilizing deposits from private sectors as well as some informal sectors in the economy -- we are aware of the fact that many who have not still effectively adopted the formal banking arrangement, as we do this and encourage them to channel their funds into the bank sector -- deposit rates will come down. As this comes down, lending rates will come down which will be for the benefit of the economy.”

The managing director of Fidelity Bank, Mr Reginald Ihejiahi, on his part, said the banking system was doing its best to lend to agriculture and that lending to the sector had increased from 1 per cent to around 4 per cent and there was the possibility that lending to the sector will still increase.