NDIC seeks transition period for ‘Bridge Banks’ operations
The Nigeria Deposit Insurance Corporation (NDIC) is canvassing a transition period, defined by a specific timeline for the operations of bridge banks set up by regulators to absorb the assets and liabilities of failed banks to enable them to transit to full-fledge lenders.
According to NDIC board chairman, Ronke Sokefun, both the corporation and the Central Bank of Nigeria (CBN) should stipulate the timeline for such institutions to enable them get buyers and disengaged those appointed to run the affairs of the bridge banks.
Sokefun spoke at a virtual chat with the theme: “A Conversation on Deposit Insurance, Banking Supervision, Failure Resolution and Bank Liquidation in Nigeria,” noted that anything that doesn’t have a timeline, can’t be measured.
“More importantly, I think the CBN and NDIC must agree on a timeline for any bridge bank, because anything that doesn’t have a timeline, can’t be measured. So, there must be a timeline within which a bridge bank ceases to be a bridge so that it doesn’t become the norm.”
Regulators in Nigeria have in the past adopted the bridge bank approach to sustain the operations of failed banks as methods to ease the pain of liquidation of such institutions on both staff and depositors.
The CBN and the NDIC had jointly set up bridge banks such as Skyebank transforming to Polaris Bank, Afribank turning to Mainstreet Bank and Bank PHB becoming Keystone Bank.
Many of the financial institutions are still operating within the framework of bridge banks since their inception due to the inability of the regulator to get investors to take them over.
She said if operators have the feeling that a bridging process would always be created whenever they run into a crisis or mismanage their banks, it may engender laxity as well as hurt confidence in the system.
Sokefun stated that a bridge bank is a temporary arrangement and often set up for a specific duration.
“The bank is meant to acquire the assets and liabilities of a failed bank until a final resolution is achieved. It is to ensure stability in the financial system. If you allow a bank to go under, you may have a run on the entire banking system.
“It is also to ensure that the employees of such banks are not in the panic of being thrown into the unemployment market. Of course, we also preserve depositors in such institutions because they continue to have access to their deposits in such an institution. It also engenders confidence in the banking sector,” the NDIC chairman added.
According to her, Polaris Bank remains a bridge bank until the regulators find interested investors.
“The current management was put in place by the CBN. Of course, you have seen the results of their work. That intervention saved over 6,000 jobs. The bank had well over 200 branches and the deposit was in excess of N940 billion, which depositors still have unhindered, access to,” she added.