BOFIA: CBN, NDIC Seek to Limit Litigation over Failed Banks’ Resolution

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By James Emejo

The Central Bank of Nigeria (CBN) is proposing the amendment of Sub-section 12 of the Banks and Other Financial Institutions Act, 2004 (BOFIA) to restrict remedy for successful action against revocation of license to monetary compensation in line with international best practice.

This is just as the Nigeria Deposit Insurance Corporation (NDIC), the Chartered Institute of Bankers of Nigeria (CIBN) and other stakeholders backed the CBN recommendations.

Speaking at a public hearing on the Banks and other Financial Institutions Act, 2004 (BOFIA) Repeal and Re-enactment Bill, 2020 which was organised by the Senate Committee on Banking, Insurance and other Financial Institutions, the CBN Director, Legal Services Department, Kofo Salam-Alada, said the proposed amendment would ensure prompt payment of insured depositors without added complexities from litigations.

He also recommended that compensation be aligned to the value of paid- up share capital of the bank to prevent cases of award of excessive monetary compensation to persons under whose corporate control the bank was run aground.

Specifically, Managing Director/Chief Executive, NDIC, Alhaji Umaru Ibrahim agreed to the need to review the BOFIA, adding that insider NPLs are major cause of bank failure and should be addressed.

He said while existing penalties for infractions were laughable, fines should be increased and recovery mechanism equally enhanced by going after culpable directors of failed banks.

He however, stressed the need for delineation of roles between the NDIC and CBN
He said a provision should be included in BOFIA to increase the commission’s involvement in banking certification in order to determine whether a financial institution is insurable before licensed is award going forward.

Nonetheless, the CBN called for provisions to enhance failed bank recovery and resolution tool kit to give more options for managing failing institutions and systemic crisis without recourse to public treasury.

The apex bank further urged the National Assembly to introduce a new sub-section that would invalidate any transaction which results in the transfer of significant ownership or control of a bank without the approval of the CBN as well as void any transfer of interest there under.

He said this may forestall any change in structure that may compromise corporate governance principles and endanger the interest of depositors.

The CBN further proposed the creation of a Credit Tribunal to strengthen credit recovery processes and enforcement of collateral rights

Alade explained that such tribunal would boost measures to address the problem of Non-preforming loans (NPLs) and create an efficient regime for the recovery of eligible loans of banks and other financial institutions (OFIs).

Among other recommendations to the commttee, chaired by Senator Uba Sani, Emefiele called for the strengthening of the framework for reporting for insider transactions as part of measures to boost credit administration processes in banks.

He also sought enhancements to regulatory measures for single obligor limits, transfer of significant holdings as well as strengthening the sanctions regime to make it more deterrent.

The CBN Director said there was need to review of provisions to recognise the unique business models of new entrants into the financial services sector including non-interest banks and payment system service providers.

The apex bank also called for amendment to allow for effective management of dormant accounts to ensure efficient administration for ultimate benefit of the owners of the funds and/or their beneficiaries as well as enhanced requirements for payments, settlement and clearing activities to address unfolding developments.

It further proposed provisions to empower the CBN governor to designate systemically important banks based on clear parameters and prescribe additional supervisory requirements given the risk that their activities pose to the financial system.

The CBN also sought for a provision in the bill to empower legal practitioners employed by the Bank to appear in court to prosecute and defend the bank in relations to matters under the BOFIA and other relevant laws without prejudice to the right of the CBN to engage external solicitors for the same purpose.