CBN, Banks to Establish Fresh N30bn Special Fund

• To finance Agriculture, SME

• NDIC considers private sector driven alternative to AMCON

By Obinna Chima

The Bankers’ Committee has resolved that the Central Bank of Nigeria (CBN) as well as deposit money banks would jointly establish an Agriculture/SME Fund (AGSME Fund) from the contributions of a portion of their profit after tax (PAT) to finance the two critical sectors of the economy.

According to the CBN Governor Godwin Emefiele, the modality for the fund, which will operate as an Equity Fund, will be worked on by the Bankers’ Committee and be communicated to the public in due course.

The initiative, expected to take off from January 1, 2017, coincides with moves by the Nigeria Deposit Insurance Corporation (NDIC) working closely with the CBN to set up another resolution mechanism for cleaning up banks’ non-performing loans (NPLs) when the terminal life of the Asset Management Corporation of Nigeria (AMCON) expires by 2023.

The Managing Director of NDIC, Alhaji Umaru Ibrahim, disclosed this during an oversight visit by members of the House of Representatives Committee on Insurance and Actuarial Matters to the corporation’s office in Lagos.

Emefiele unfolded the new initiative on funding for agriculture and SMEs when he read the communique at the end of a two-day Bankers’ Committee retreat titled: “Economic Recovery: The Role of the Banking Sector,” in Lagos at the weekend.

Emefiele said the Sub-committee on Economic Development and Sustainability of the Bankers’ Committee would coordinate the execution of the programme and provide feedback to the central bank and the Bankers’ Committee.

According to him, based on the feedback, the CBN would release the operational guidelines for the AGSME fund.

“By our estimation, take-off is January 1, but those projects would not be available until around March or April next year, after the banks’ audited accounts have been presented to the public. Our initial experience is that you don’t need more than N30 billion to start with,” Emefiele said.

He said the Bankers’ Committee recognises the potential impact of agriculture, manufacturing and SMEs as catalysts for rapid growth, job creation and poverty reduction to drive inclusive growth and development of the economy.

He said the committee fully supports President Muhammadu Buhari’s economic goals.

However, responding to a question on why the need for a fresh initiative for SMEs’ funding when there was the Small and Medium Industries Equity Investment Scheme (SMEIS), which used to be a voluntary initiative of the bankers’ committee that required banks to set aside 10 per cent of their profit before tax (PBT) for equity investment and wasn’t successful, the CBN governor explained: “You know in the past, we had the SMEIS fund where the banks contributed a portion of their profit, but that scheme was abandoned. So, we thought that this time that there is need to really stimulate growth and because we also know that having equity funds by investors, particularly local investors, has always been a thing in achieving the objective of agriculture and SMEs, we decided that the banks and the CBN would commit certain percentage of their funds to support this endeavour.

“The SMEIS fund was left in banks’ provision accounts. But this time, once the profit of the banks, like in this case, their 2016 results, which would be out latest April 2017, they would provide the percentage we would agree from their PAT and the fund would be warehoused at the CBN. Hopefully, before or about that time, some of the projects that we contemplate would go under this fund would have been identified.”

Furthermore, Emefiele clarified that previous intervention funds by the central bank had been effectively deployed to critical sectors of the economy, just as he dismissed the insinuation that the level of assessing the funds were low.

He said: “I will not say the level of assessment is low. It is important for us to understand that in the process of granting a loan, there has to be various forms of assessments to determine the viability of the project and to determine whether that project can pay up. So, we have the Commercial Agriculture Credit Scheme (CACS), the Power and Aviation Intervention Fund (PAIF) and others and they have been fully disbursed.

“The one that you may be talking about is the micro, small and medium scale enterprises development fund (MSMEDF), where we have about N220 billion under that scheme, but so far close to N90 billion of the monies have been disbursed. But if you recall that these are loans to MSMEs, I can assure you that so many small businesses and farmers have accessed these funds. But we are ramping up and we would continue as usual to provide enlightenment for people to know they can access this scheme.

“That would also be the basis for which the AGSME Fund would be launched. In the next couple of days, we would release the guidelines for people to know how they can access this facility. But it is important for us to know that we are going to build a strong governance framework around the fund. The CBN would continue to provide intervention funds at single digit interest rates as usual.”

According to the CBN governor, over the next few days, the Bankers’ Committee would finalise the strategy, governance, framework, action plan and assign responsibilities for the implementation of its programme for 2017.

NDIC, CBN Mull Another ‘Bad Bank’ Resolution Vehicle after AMCON

Meanwhile, NDIC has said it is working closely with the CBN towards setting up another resolution mechanism for cleaning up banks’ non-performing loans (NPLs) when the terminal life of AMCON expires in 2023.

Its Managing Director, Ibrahim, disclosed this during an oversight visit by the House of Representatives Committee on Insurance and Actuarial Matters to the corporation’s office in Lagos.

Ibrahim, who said a joint NDIC and CBN committee has been established to work on the fresh initiative, added that the new institution would pave the way for the gradual folding up of AMCON.

According to the NDIC boss, the new ‘bad bank’ to be established would be purely driven by the private sector. This, he said, became necessary as there had been complaints against using taxpayers’ monies to bail out institutions.

“We are studying the need to establish what you may call AMCON Two; that is the second round of AMCON, which would be driven by the private sector. This is very important because we know what has happened. There are concerns about using taxpayers’ money to bail out institutions.

“So, it is in line of the global best practice that we go back to the drawing board because our initial concept of AMCON in the early 90s was that it was going to be a joint venture between the private and public sectors’ investors, so as to minimise the risk of using taxpayers’ money to resolve the problem of buying and selling of bad loans.

“So, we have established a joint committee that would look into this and we hope that in the long run, we should be able to establish a second AMCON that would be private sector driven. Here, other investors can invest in it and the CBN, NDIC or the Finance Ministry can invest, so that going forward, buying and selling of bad loans would be under the control of that entity. That would pave the way for the gradual transition or folding up of the present AMCON.” the NDIC boss explained.

In a related development, the Director General of the West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, speaking in a telephone interview with THISDAY on the matter, advised the NDIC and central bank that instead of establishing “AMCON Two,” they should allow the existing AMCON to metamorphose into the private sector-driven resolution vehicle.

“They should amend the existing AMCON Act instead of spending resources to establish another institution. That would also amount to wasting taxpayers’ resources. We have learnt a lot from this AMCON. But what we need now is a private sector-driven AMCON that they said they are proposing, but this current AMCON should be allowed to be transformed into that. Also, if it is going to be private sector, let only those who have experience be appointed into the board and not by patronage,” the WAIFEM boss stated.

Continuing, Ibrahim assured the lawmakers that the corporation would continue to work with the CBN, to ensure that banks as well as depositors are well protected.

Furthermore, he said the regulators in the banking industry were doing all within their reach to support the federal government in steering the economy out of recession.

He said: “We would continue to do our very best to discharge our mandate. It has really been a trying period for us all. We know what is happening globally. Recession is almost everywhere and countries are doing all they can to take themselves out of recession.

“As you are aware, the federal government is doing all it can to ensure that policies and programmes are implemented so that we can really get out of recession as soon as possible.

“On our part, we would continue to supervise banks so that they continue to remain safe and sound. Without a safe banking system and indeed the financial services system, the economy cannot grow.

“As you pointed out, NPLs are on the rise, banks are weary and those who are taking loans are not willing to do so and we are more or less in a vicious cycle. During our recent quarterly meeting of the CBN and NDIC, we decided it is time for us to critically study the emergence of some unconventional products that have become prevalent globally in the financial landscape which would radically affect the banking system. Here I am talking about digital banking.”

In addition, Ibrahim said the emergence of Bitcoins was also an emerging risk that the regulators are also reviewing.

Earlier, the Chairman of the House Committee, Mr. Femi Fakeye, urged the NDIC and other regulators to continue to live up to their responsibilities.