bank failure resolution in nigeria the bridge bank option l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
BANK FAILURE RESOLUTION IN NIGERIA: THE BRIDGE BANK OPTION PowerPoint Presentation
Download Presentation
BANK FAILURE RESOLUTION IN NIGERIA: THE BRIDGE BANK OPTION

Loading in 2 Seconds...

play fullscreen
1 / 15

BANK FAILURE RESOLUTION IN NIGERIA: THE BRIDGE BANK OPTION - PowerPoint PPT Presentation


  • 342 Views
  • Uploaded on

BANK FAILURE RESOLUTION IN NIGERIA: THE BRIDGE BANK OPTION. Being Paper Presented at the Workshop for Business Editors and Finance Correspondents Association of Nigeria (FICAN) at Manpower Development Institute, Dutse, Jigawa State Adeleke A. A. Director

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'BANK FAILURE RESOLUTION IN NIGERIA: THE BRIDGE BANK OPTION' - yanni


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
bank failure resolution in nigeria the bridge bank option
BANK FAILURE RESOLUTION IN NIGERIA: THE BRIDGE BANK OPTION

Being Paper Presented

at the

Workshop for Business Editors and Finance Correspondents Association of Nigeria (FICAN)

at

Manpower Development Institute, Dutse,

Jigawa State

Adeleke A. A.

Director

Asset Management Department, NDIC

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

outline
OUTLINE
  • Introduction
  • Applicable Failure Resolution Options:
    • Rehabilitation;
    • Deposits Pay-out;
    • Insured Deposits Transfer; and
    • Purchase and Assumption (P&A)
  • Bridge Bank Mechanism
  • Why Adopt Bridge Bank Mechanism?
  • Public Reaction / Challenges

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

introduction
INTRODUCTION
  • Effective resolution is a series of systematic action designed to end a bank’s distressed condition.
  • Focus of a good resolution option:
    • Maintains public confidence and stability in the banking system.
    • Ensures fairness, equity, transparency and accountability.
    • Instills market discipline while discouraging moral hazards.
    • Achieves minimum disruption to payment system.

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

introduction4
INTRODUCTION
    • Speedy payment to insured depositors and quick realization of assets for the benefits of uninsured depositors and creditors.
    • Minimize the likelihood of having to bail-out uninsured depositors and creditors.
  • A typology of problem banks
    • Illiquid but solvent
    • Insolvent but liquid
    • Illiquid and insolvent.

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

resolution options
RESOLUTION OPTIONS
  • Rehabilitation
    • Financial Assistance (Accommodation Facility).
    • Imposition of Holding Actions.
    • Change in Management.
    • Take-Over of Control & Management.
    • Acquisition & Sale of Banks.
  • Deposit Payout
  • Insured Deposits Transfer
  • Purchase and Assumption (P&A)

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

experience so far
EXPERIENCE SO FAR
  • REHABILITATION
    • Take-Over Of Control
      • 1 Bank in 1992
      • 5 Banks in 1993
      • 16 Banks in 1995
      • 1 Bank in 1996
      • 1 Bank in 1999
    • Sale of Banks
      • 7 banks sold to new investors.

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

experience so far bank failure and extent of failure in nigeria between 1994 and 2006
EXPERIENCE SO FAR - BANK FAILURE AND EXTENT OF FAILURE IN NIGERIA BETWEEN 1994 AND 2006

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

key statistics to consider
KEY STATISTICS TO CONSIDER
  • Significance of the Recent Banking Crisis
    • Total Deposits of Banks in the System – N11.371 trillion.
    • Eight (8) Intervened Banks Total Deposits – N2.984 trillion.
    • Three (3) Bridge Banks Total Deposits – N816.29 billion.
    • NDIC’s Risk Exposure N567.95 billion* as against DIF of N353.06 billion*.
    • Total Deposits of Forty-nine (49) Banks Closed prior to August, 2011 – N215.19 billion.

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

key key statistics to consider cont cont d
KEY KEY STATISTICS TO CONSIDER (Cont (Cont’d)
  • Total Assets of Banks in the System – N16.542 trillion.
  • Total Assets of the 8 intervened banks – N3.950 trillion.
  • Total Assets of the 3 Bridge Banks – N895 billion.
  • Total Recapitalization required by 8 intervened banks – N1.638 trillion.
  • All Figures as at 31st May, 2011.

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

bridge bank mechanism
BRIDGE BANK MECHANISM
    • A new bank created to acquire assets and assume liabilities of the failed bank. It is a variation of P&A.
    • New bank could be privately owned or the government could create it for the purpose.
    • If government owned, it could be operated for about 2 years after which it would be sold to fresh investors.
  • Merits
    • Avoid losing the failed bank thus protecting jobs and continuing banking services to the community.

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

bridge bank mechanism cont d
BRIDGE BANK MECHANISM (Cont’d)
    • All shareholders would lose their investments.
    • All depositors and creditors would be covered and that would engender public confidence in the banking system.
  • Demerits
    • Undermines market discipline as it encourages moral hazard.
    • It could be costly.
    • The bridge bank could fail thus postponing the “evil day” and aggravating the cost of resolution.

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

ia22 outcome of iadi s survey
IA22 OUTCOME OF IADI’s SURVEY
  • To maintain daily operations of a failed bank.
  • When number of failed institutions is very large and the failures occurred during a short period of time.
  • In cases where the Liquidator is reluctant to proceed with formal liquidation because either the failed bank is too large (so no adequate funds are available for reimbursement) or there is not enough time to market the bank’s assets to potential acquirers.
  • Bank with an attractive franchise is in danger of failing before acquirers can be found.

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

why ndic adopted bridge bank mechani mechanism
WHY NDIC ADOPTED BRIDGE BANK MECHANI MECHANISM
  • Provided for in Section 39(1) of NDIC Act, 2006.
  • The 3 affected banks had attractive franchise and deterioration in their assets would hamper their sale.
  • Depositors were protected thus promoting confidence in the system by ensuring continuity of banking services.
  • Outright liquidation would have had dire consequences on depositors & other stakeholders.
  • The most cost effective option considering the size of the 3 banks, volume of deposits and number of their employees.

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

p public reaction challenges
P PUBLIC REACTION / CHALLENGES
  • Minimal or no panic withdrawals by depositors.
  • Market acceptance of assurance by Regulatory Authorities that all deposits were protected.
  • Some stakeholders felt measure taken was preferable to outright liquidation.
  • Delicate process of incorporating shelf companies that became Bridge Banks.
  • Court action by erstwhile shareholders.
  • Cumbersome, slow and bureaucratic judicial process.

Bank Failure Resolution in Nigeria: The Bridge Bank Option.

wrap up
WRAP UP

THANK YOU FOR LISTENING!

Bank Failure Resolution in Nigeria: The Bridge Bank Option.