Author Topic: BANKS, CBN AND THE SINKING FUND  (Read 4629 times)

Offline Prince

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BANKS, CBN AND THE SINKING FUND
« on: January 24, 2011, 11:04:29 AM »
Banks, CBN and the sinking fund
Monday, January 24, 2011

Since the appointment of Mr. Sanusi Lamido Sanusi as Governor of the Central Bank of Nigeria (CBN) in 2009, there has been no shortage of reforms fashioned by the apex bank to sanitise the nation's beleaguered banking sector.

Following an audit report that year that some of the banks in the country were insolvent and had accumulated hefty Non-performing Loans in excess of N2 trillion, the CBN intervened swiftly, sacking some of the bank chiefs. Consequently, the CBN set up the Assets Management Company of Nigeria (AMCON) to inherit all the toxic assets of the 24 licensed banks in the country, especially those in deep distress.

This was considered a step in the right direction. With banks' equities constituting over 60 percent of the total stocks in the capital market, it implies that any turbulence in the sector will inevitably affect, not just the banks, but also the economy in general.

Whatever genuine reform is introduced to save the banking sector is, therefore, heartily welcome. But it has become a matter of intense debate whether some of the measures introduced by the CBN were well thought through before they were administered on the sector.

The establishment of AMCON attracted hot debates on whether it could, indeed, achieve the desired objective with the limited funds at its disposal. The new plan for a Banking Sector Resolution Cost Sinking Fund, announced by the CBN last week, is a tacit acknowledgement that AMCON may, indeed, prove inadequate to address the systemic rot in the sector and bring the much desired stability and confidence. CBN Deputy Governor, Financial System Stability, Dr. Kingsley Moghalu, underscored the need for the new Fund while signing a Memorandum of Understanding (MoU) between the apex bank and the 24 licensed banks in the country.

He said the idea basically is to complement the pool of funds available to AMCON, which he said might not be sufficient to address all the risks inherited from the banks and restore financial stability. In that regard, Dr. Moghalu explained that CBN will contribute N50 billion annually to the new Fund. It is not yet clear how much each of the banks will contribute and the criteria to be used, but CBN insists it is in the “national interest” to set up the sinking fund.

All said, we endorse the establishment of the fund to serve as a consolidated stabilisation reserve to resort to in times of dire need. We had noted at the outset of AMCON that throwing huge public funds about during a serious banking crisis is not the ultimate solution. Neither is recapitalization the answer. They are necessary but can only complement decisive action. It is only a comprehensive solution targeted at tackling the problem from its root that can yield the desired result. Any meaningful solution to the current banking crisis must be more systemic than cosmetic.

The CBN, under the leadership of Sanusi, has tried to stem the tide. But it has not yet restored the essential ingredients of confidence and stability to the system. For the time being, there is optimism that stability might be restored if the regulatory authorities undertake a detailed, unbiased analysis of the crisis in the sector. Any adhoc measure can only last for a short time, and will not achieve much.

While we support any measure that will put the sector back on a sound footing, CBN should always guard against human elements that rubbish every effort to sanitise the sector. Banking should be professionally run and managed by competent people with unquestionable integrity. The lesson of the crisis in the sector is that our banks are yet to be run by truly professional and competent people. The supervisory and auditing aspects of the banks need to be strengthened. There are still many loopholes that permit fraud and insider abuse. These are some of the areas which should be carefully monitored.

All in all, we recommend a corporate roundtable that will include key stakeholders in the industry who will look at all the issues and chart a comprehensive new direction. A sinking fund needs a thinking cap and navigational compass to help the nation sail through financial turbulence. CBN should tighten all loose ends in its reform measures.

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BANKS, CBN AND THE SINKING FUND
« on: January 24, 2011, 11:04:29 AM »

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Offline Prince

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Re: BANKS, CBN AND THE SINKING FUND
« Reply #1 on: January 24, 2011, 11:04:58 AM »
They will find a solution as usual.

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Re: BANKS, CBN AND THE SINKING FUND
« Reply #2 on: January 28, 2011, 10:06:21 PM »
I wonder what kind of solution are you talking about.
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Offline adekabb

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Re: BANKS, CBN AND THE SINKING FUND
« Reply #3 on: January 29, 2011, 12:27:16 AM »
post of FINANCE MANAGER/ACCOUNT

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Re: BANKS, CBN AND THE SINKING FUND
« Reply #4 on: February 02, 2011, 11:50:50 AM »
me www .  Quickloanlinks .  info  gives low interest loans too

Offline proflynks1

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Re: BANKS, CBN AND THE SINKING FUND
« Reply #5 on: February 02, 2011, 12:08:29 PM »
lol

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Re: BANKS, CBN AND THE SINKING FUND
« Reply #6 on: February 04, 2011, 11:01:29 AM »
A fund in which a company sets aside money over time to retire preferred stock bonds or debentures.  A fund in which a company sets aside money over time to retire preferred stock bonds or debentures.  In the case of bonds, additional payments in the sinking fund can mitigate the financial impact on maturity.  Investors prefer bonds and notes backed by a sinking fund, because there is less risk of default.
merchant account

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Re: BANKS, CBN AND THE SINKING FUND
« Reply #6 on: February 04, 2011, 11:01:29 AM »

 

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