## _cr13143

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---

### Overview and scope
- Elaborates on FSAP recommendations for Nigeria in contingency planning, crisis management and bank resolution.
- Summarizes findings of the FSAP mission undertaken during September 4–19, 2012 based on legal/policy analysis and discussions with authorities and private sector representatives.

### The 2008–2009 Nigerian banking crisis: facts and macro-financial impact
- Structural importance:
  - Banking system accounted for over 80 percent of financial sector assets and represented about 53.6 percent of GDP.
- Post-consolidation (by end–2011):
  - 20 commercial banks, with ₦18.2 trillion assets and ₦12.5 trillion in deposits (about US$81 billion), and one Islamic (non-interest) bank.
  - Three foreign-owned banks (Stanbic, Standard Chartered, and Citibank) held about 14 percent of assets.
  - Three publically owned banks (Enterprise, Keystone, and Mainstreet) held about 5 percent of industry assets.
- Dynamics and severity:
  - NPLs rose from 6 percent to 28 percent of total loans in December 2009.
  - Ten banks (about a third of system assets) were insolvent or undercapitalized (special examination finalized August 2009).
  - Special examination: system NPLs over 26 percent (special exam basis); system ratio of liquid assets to total assets 17.9 percent by September 2009.
  - For the 10 problem banks: weighted capital to assets was negative 24 percent and NPLs were 65 percent of loans.
  - Three banks showed moderate insolvency down to negative 3.5 percent capital to assets; seven showed severe insolvency down to negative 18 percent (Oceanic) and negative 69 percent (FinBank).
  - Off-balance-sheet instruments, governance failures, connected lending, insider abuse were widespread.
- Crisis response and outcomes:
  - CBN injected ₦620 billion (about US$4.1 billion) of liquidity in unsecured and subordinated debt.
  - CBN guaranteed all interbank lending (expired end-December 2011), foreign credit lines, and pension deposits.
  - AMCON established in 2010 to purchase NPLs and recapitalize banks using tradable three-year zero coupon bonds guaranteed by the federal government.
  - By September 2011 AMCON had purchased all NPLs of intervened banks and recapitalization was completed.
  - By end–December 2011: industry average CAR was 17.9 percent, with lowest CAR at 10 percent and highest at 31 percent; industry NPLs to total loans declined to 5 percent.

### Institutional framework and coordination: findings and recommendations
- Lead role:
  - CBN played the primary role in crisis management and remains the lead agency for financial stability matters.
- FSRCC: current status and recommended enhancements
  - FSRCC established April 1994; chaired by CBN Governor; membership includes NDIC MD, SEC DG, Commissioner for Insurance, Registrar-General of CAC, representative of MoF; Director-General of PENCOM admitted but CBN Act needs amendment to formalize membership.
  - Finding: FSRCC had limited role during crisis; did not meet for two years during crisis and lacks an express statutory mandate for financial stability.
  - Recommendations:
    - Expand FSRCC mandate to include systemic risk monitoring and crisis preparedness/management (FSRCC, CBN). Timeframe: 1-2 years.
    - Establish explicit statutory mandate for systemic risk monitoring and crisis preparedness for the FSRCC and strengthen analytic framework (FSRCC, CBN). Timeframe: 1-2 years.
    - Revive regular meetings of CBN-NDIC Technical and Executive Committees. Timeframe: 6-12 months.
    - Amend CBN Act to formalize PENCOM’s membership in FSRCC. Timeframe: 1-2 years.
    - Enhance and extend cross-border cooperation agreements for supervision to cover resolution issues (CBN, FSRCC).

### Supervisory early intervention and PCA alignment
- Progress:
  - Post-crisis enforcement enhanced; Supervisory Intervention Framework (SIF) of 2011 including a Prompt Corrective Action (PCA) regime issued.
- Findings on legal alignment:
  - PCA in SIF is not fully supported by BOFIA; BOFIA only expressly provides for action when CAR is between 2 percent and 5 percent.
  - BOFIA lacks explicit PCA framework based on liquidity, asset quality, earnings triggers.
  - Proposed BOFIA amendments to allow CBN to acquire shares in failing banks create conflicts with CBN supervisory role.
- Recommendations:
  - Align PCA powers in BOFIA and SIF so PCA has statutory footing (CBN, NDIC). Timeframe: 1-2 years.
  - Delete proposal for CBN to acquire shares in failing banks; solvency support should be a MoF responsibility.
  - Implement recovery and resolution planning (RRP) for SIFIs (CBN).

- Selected elements of PCA framework (from SIF table):
  - Undercapitalized bank: 5%<CAR<10% — restrict investments, fixed assets, dividends.
  - If 5%<CAR<10% for at least three months — plus special examination and Watch List placement.
  - Significantly undercapitalized: 2%<CAR<5% — plus restrict new lending, request business plan, CBN review within two weeks, CBN final capital call within four months, possible takeover within two months of final capital call, CBN may appoint NDIC.
  - Critically undercapitalized: 0%<CAR<2% — CBN to take over management immediately and/or inject funds and demand shareholders capitalize within six months or sell bank.
  - Insolvent banks: CAR<0% — revocation of license.

### Official financial support and Emergency Liquidity Assistance (ELA)
- Principles and findings:
  - Central bank role should be limited to emergency liquidity for illiquid but solvent banks, typically at penal interest and against good collateral.
  - CBN statutory powers allow temporary advances (Sections 29(1)(c) and 42(2) of the CBN Act); current facilities include overnight standing lending facility, repurchase facility (up to 90 days, roll-over option) and rediscount facility.
  - No current longer-term ELA beyond 90 days; repurchase facility can be rolled over but no longer-term ELA facility.
  - NDIC statutory provision allows liquidity support up to 90 days with renewals (subject to renewals of not more than seven times) — an unorthodox role exposing deposit insurance fund to losses.
- Recommendations:
  - Develop comprehensive ELA framework for CBN up to 180 days with solvency test, eligibility, penal rates, acceptable collateral and enhanced supervision (CBN).
  - Amend NDIC Act to remove NDIC liquidity support possibility; limit NDIC financial assistance to resolution measures and cap it to payout of insured deposits. Timeframe: 1-2 years.
  - For solvency support, MoF should provide urgent financial support for banks facing solvency problems (MoF, CBN). Timeframe: 1-2 years.
  - Unwind blanket guarantee introduced during crisis with appropriate communication (CBN). Timeframe: 6-12 months.
  - If CBN provides solvency support, require express indemnity from the MoF to CBN.

### Crisis management tools and resolution framework: findings and recommended legal changes
- Tools used during crisis: M&A, bridge banks, AMCON purchases of NPLs and recapitalizations.
- Findings on legal and procedural constraints:
  - Company law (CAMA) 21-day notice and court sanction requirements prolonged measures; legal challenges impeded director removal and recapitalization.
  - Need for a special resolution regime that can dis-apply certain company law or insolvency provisions to account for contagion and financial stability objectives.
- Recommendations to strengthen toolkit:
  - Amend BOFIA and NDIC Act to ensure PCA has statutory footing and strengthen resolution powers: override shareholders’ rights, prevent suspension/reversal of resolution proceedings on challenge, expand toolkit, harmonize and expand resolution triggers (CBN, NDIC). Timeframe: 1-2 years.
  - Provide mandatory recapitalization powers, power to write-down capital, and statutory bail-in.
  - Withdraw Part 4 of the SIF relating to systemic crisis management (which creates expectations of public bail-outs). Timeframe: 6-12 months.
  - Reinstate CBN’s authority to appoint NDIC as liquidator immediately upon revocation of license and exempt banks from Company Winding Up Rules (CBN). Timeframe: 1-2 years.
  - Amend framework so challenges to resolution actions do not suspend proceedings and redress is monetary compensation rather than reversal.

### Bail-in within resolution (Box summary)
- Definition and objective:
  - Bail-in: power to write down equity and unsecured and uninsured creditor claims, convert claims into equity, and convert or write-down contingent capital instruments.
  - Objective: return institution to compliance with prudential requirements and restore viability.
- Triggers and hierarchy:
  - Trigger when institution is no longer viable or likely to become non-viable, before balance-sheet insolvency and before equity fully wiped out.
  - Loss absorption hierarchy: equity first; then subordinated debt; then senior unsecured debt.
  - Creditors entitled to compensation if they receive less than in liquidation.
- Scope, legal form and liquidity interaction:
  - Excludes secured creditor claims and insured deposits; may exclude other strategic liabilities.
  - Preferable as administrative action with ex-post judicial review.
  - May require official liquidity to address funding issues post-bail-in.

### AMCON: role, constraints and recommended reforms
- Role and timeline:
  - AMCON central to crisis response; purchased NPLs and recapitalized banks; initial purchases funded by tradable three-year zero-coupon bonds guaranteed by the federal government.
  - AMCON acquired in total more than twelve thousand problem loans; some four hundred and sixty problem loans represent 80 percent of the total portfolio.
- Portfolio composition:
  - 22 percent unsecured; 22 percent backed by shares; 20 percent by mortgages; 15 percent by debentures; 13 percent by combination of assets; 4 percent by shares and mortgages; 6 percent “others”.
  - Sectoral: oil and gas 27 percent; general commerce 18.5 percent; margin shares 18 percent.
- Recoveries and targets:
  - Delinquencies on newly restructured loans about 10 percent.
  - AMCON targets a recovery ratio of 70 percent.
  - International comparators: Indonesia recoveries 33 percent; Malaysia 59 percent.
- Funding and maturities:
  - AMCON issued ₦4.5 trillion in three year zero-coupon bonds, falling due in 2013–2014.
  - AMCON Act stipulates all AMCON bonds underwritten by federal government; MoF has formally signed off on ₦1.7 trillion so far.
  - Resolution Cost Fund (RCF): some ₦154 billion amassed; proposed contributions include CBN annual ₦50 billion and banks pay 30 basis points of total assets; CBN contribution capped at ₦500 billion.
  - Projection assumptions: with 20 percent year-on-year growth in bank assets, RCF contributions projected to account for more than 60 percent of total cash flows; recoveries expected to contribute 20 percent (based on 70 percent average recovery ratio); reinvestment income 8 percent; disposals 5 percent and 3 percent.
  - Significant redemptions due in 2013-2014 that will exceed funds from recoveries, disposals and contributions; AMCON exploring rollovers, foreign currency issuance, or seven-year bonds depending on government guarantees.
- Restructuring practices:
  - Typical restructuring: down payment 10 to 20 percent within thirty days, often debt-for-equity swaps; restructuring has created governance and incentive challenges.
  - AMCON has restructured and recapitalized intervened banks and divestiture remains challenging due to weak financial statements and muted investor interest.
- Recommendations and exit strategy:
  - AMCON should be temporary; discontinue acquisition of new NPLs immediately.
  - Establish a formal sunset provision ensuring AMCON winds down within around ten years; set a firm end-2017 closing date and specific disposal targets/time path for assets (MoF, CBN, AMCON). Timeframe for certain actions: 6-12 months.
  - Earmark AMCON cash flows for buying back bonds; prepare rollover strategy; formalize RCF contributions through legislation.
  - Divest ownership in the three “AMCON banks” and appoint advisors for disposition; frontload disposals in first three to five years.
  - Reinforce disclosure: publish audited financial statements within six months of fiscal year-end; AMCON to disclose 2011 statements as soon as possible.

### Deposit insurance framework (NDIC): findings and recommendations
- Structure and coverage:
  - NDIC administers deposit insurance, supervises banks, is resolution authority and bank liquidator.
  - Coverage limits: ₦500,000 per accountholder for banks; ₦200,000 for other deposit-taking entities on a netted basis.
  - As of end-June 2012: total deposits ₦12.759 trillion; insured amount ₦1.784 trillion (around 14 percent); coverage by number of depositors fully covering around 85 percent of depositors.
- Funding, premiums and investments:
  - DIF balance around ₦416 billion, corresponding to some 3 percent of total deposits.
  - Premiums: base rate 0.4 percent of insured deposits; risk premium 0 to 0.68 percent depending on risk profile; migration to hybrid scheme led to average reduction by 35 percent of annual contribution for banking sector.
  - Eligible investments: Government securities only; 40 percent in T-bills and 60 percent in Federal Bonds.
- Fiscal constraints and payout timing:
  - Fiscal Responsibility Act requires NDIC channel back 80 percent of operating surplus to federal government, stalling fund accumulation.
  - Current statutory payout period ninety days; NDIC plans to reduce to thirty days but international movement is toward fifteen days or less.
  - NDIC has a credit line to the CBN; recommendation to change NDIC credit line to the MoF and divest CBN’s shareholding in NDIC (MoF, CBN). Timeframe: 1-2 years.
- Operational and legal issues:
  - Legal challenges and injunctions can stall payouts for years; shareholders can obtain court orders reversing liquidations.
  - Recommendation: shorten payout period to 15 days and change to gross payout. Timeframe: 1-2 years.
  - Recommendation: exempt NDIC from Fiscal Responsibility Act to build DIF (MoF). Timeframe: 6-12 months.
  - Recommendation: limit NDIC financial support to assisting resolution measures and subject such support to a cap equal to amount of payout of insured deposits (NDIC). Timeframe: 1-2 years.
  - Netting practice: recommend applying set-off only to delinquent loans.

### Legal protection for officials and staff
- Finding: authorities and staff faced numerous legal challenges during and after crisis; litigation delays are frequent.
- Current protections:
  - Section 52 CBN Act and section 53 BOFIA provide protections for CBN and officers; Section 55 NDIC Act provides similar protections; Section 43(3) AMCON Act protects AMCON and its officers for acts in good faith.
  - No express statutory indemnity for legal defense costs for directors or staff.
- Recommendations:
  - Reverse burden of proof so claimant must show bad faith.
  - Raise threshold for commencing legal action to gross negligence or willful misconduct.
  - Expand legal protection for AMCON staff.
  - Provide express indemnity for directors and staff for defending legal action if they acted in good faith.

### Cross-border cooperation and resolution planning
- Findings:
  - Nigerian banks expanded regionally; cross-border operations often account for around 20 percent of group assets in cases like United Bank of Africa.
  - Bilateral MoUs exist but generally do not cover crisis management and resolution.
  - CBN Circular of May 18, 2012 restricts recapitalization of foreign subsidiaries by Nigerian parent banks and requires exit strategies by June 30, 2012; characterized as a blanket prohibition risking home-host cooperation.
- Recommendations:
  - Immediate removal of the CBN Circular banning recapitalization of foreign subsidiaries; consider recapitalization case-by-case.
  - Expand cross-border MoUs to include crisis management and burden sharing; establish Colleges of Supervisors and Crisis Management Groups for banks with material foreign presence.
  - Develop mechanisms for mutual recognition of foreign insolvency/reorganization decisions, subject to non-discrimination and reciprocity.

### Structural sequencing and selected next steps (selected items)
- Introduce explicit statutory mandate for systemic risk monitoring and crisis preparedness for FSRCC and strengthen analytical framework (FSRCC, CBN). Timeframe: 1-2 years.
- Amend BOFIA and NDIC Act to ensure PCA framework has statutory footing (CBN, NDIC). Timeframe: 1-2 years.
- Discontinue AMCON acquisition of problem assets and establish firm end-2017 closing date; earmark cash flows for bond repayment (MoF, CBN, AMCON). Timeframe: 6-12 months.
- Withdraw Part 4 of SIF relating to systemic crisis management (CBN). Timeframe: 6-12 months.
- Shorten statutory payout period for insured deposits to 15 days and change to gross payout. Timeframe: 1-2 years.

### Key statistical and operational figures (selected)
- Banking sector share of financial assets: over 80 percent.
- Banking sector share of GDP: about 53.6 percent.
- Banks (end–2011): Number 20; assets ₦18.2 trillion; deposits ₦12.5 trillion (about US$81 billion).
- CBN liquidity injection during crisis: ₦620 billion (about US$4.1 billion).
- AMCON bonds issued: ₦4.5 trillion in three year zero-coupon bonds (falling due in 2013–2014).
- AMCON MoF sign-off on bonds: ₦1.7 trillion formally signed off by MoF.
- Resolution Cost Fund (RCF) accumulated: some ₦154 billion; proposed CBN annual contribution ₦50 billion.
- DIF balance: around ₦416 billion (some 3 percent of total deposits).
- Total deposits (end-June 2012): ₦12.759 trillion; insured amount ₦1.784 trillion (around 14 percent).
- Deposit insurance coverage limits: ₦500,000 per bank accountholder; ₦200,000 for other deposit-taking entities.
- Minimum liquidity ratio met by all banks: 30 percent at end-December 2011.
- Banking industry cash reserve ratio: 8 percent.
- Outstanding interbank guarantees at end–December 2011: ₦275.2 billion.
- Industry average CAR by end–December 2011: 17.9 percent; lowest CAR 10 percent; highest CAR 31 percent.
- NPLs: rose to 28 percent of total loans in December 2009; industry NPLs to total loans declined to 5 percent by end–December 2011.
- NDIC staff and budget: staff more than a thousand; annual operation budget over ₦13 billion.
- Annex 1 selected figures (2011):
  - Total financial system assets: 23,477 (₦billion).
  - Commercial banks assets: 18,477 (₦billion) (78.7 percent of total assets).
  - Pension funds assets: 2,835 (₦billion) (12.1 percent).

*Italic: Executive Summary and selected chapters from IMF staff report, FSAP mission undertaken during September 4–19, 2012 (content unit _cr13143).*

### Executive Summary ......................................................................................................

### Executive Summary

### Overview and scope
- This note elaborates on the recommendations made in the Financial Sector Assessment Program (FSAP) for Nigeria in the areas of contingency planning, crisis management and bank resolution.
- It summarizes the findings of the FSAP mission undertaken during September 4–19, 2012 and is based upon analysis of the relevant legal and policy documents and extensive discussions with the authorities and private sector representatives.

### The 2008–2009 Nigerian banking crisis: facts and macro-financial impact
- Banking system accounted for over 80 percent of financial sector assets and represented about 53.6 percent of GDP.
- After consolidation, by end–2011 there were 20 commercial banks, with ₦18.2 trillion assets and ₦12.5 trillion in deposits (about US$81 billion), and one Islamic (non-interest) bank.
- Three foreign-owned banks (Stanbic, Standard Chartered, and Citibank) held about 14 percent of assets; three publically owned banks (Enterprise, Keystone, and Mainstreet) held about 5 percent of industry assets.
- Origins and dynamics:
  - Consolidation in 2005-2006 was not accompanied by sufficient supervision of merged institutions’ capital adequacy.
  - Rapid credit growth financed equity purchases; when the equity bubble burst, NPLs rose from 6 percent to 28 percent of total loans in December 2009.
  - Ten banks, accounting for about a third of the banking system assets, were either insolvent or undercapitalized (special examination finalized August 2009).
  - Special examination findings: system NPLs over 26 percent (special exam basis); system ratio of liquid assets to total assets 17.9 percent by September 2009.
  - For the 10 problem banks: weighted capital to assets was negative 24 percent and NPLs were 65 percent of loans.
  - Three banks reported moderate insolvency with negative 3.5 percent capital to assets or less; seven banks showed severe insolvency with negative 18 percent (Oceanic) and 69 percent (FinBank).
  - Off-balance-sheet instruments concealed NPLs; governance failures, connected lending, insider abuse and other malpractices were widespread.
- Crisis response facts:
  - The CBN injected ₦620 billion (about US$4.1 billion) of liquidity into the banking sector in the form of unsecured and subordinated debt.
  - The CBN provided a guarantee of all interbank lending transactions (expired end-December 2011), foreign credit lines, and pension deposits.
  - Authorities made a public commitment to protect depositors and creditors and that no bank would be allowed to fail.
  - AMCON (Asset Management Corporation of Nigeria) was established in 2010 to purchase NPLs and recapitalize banks; NPLs were purchased in exchange for tradable three-year zero coupon bonds issued by AMCON and guaranteed by the federal government.
  - By September 2011 AMCON had purchased all the NPLs of the intervened banks and recapitalization was completed.
  - By end–December 2011: industry average CAR was 17.9 percent, with the lowest CAR at 10 percent and highest at 31 percent; industry NPLs to total loans declined to 5 percent.

### Institutional framework and coordination: findings and recommendations
- Finding: The CBN played the primary role in managing the crisis and remains the lead agency for financial stability matters.
- Recommendation highlights:
  - Expand the Financial Services Regulation Coordinating Committee’s (FSRCC) mandate to include financial stability and crisis preparedness/management to promote interagency policy dialogue (FSRCC, CBN).
  - Enhance and extend cross-border cooperation agreements for supervision to cover resolution issues (CBN, FSRCC).
  - Establish explicit statutory mandate for systemic risk monitoring and crisis preparedness for the FSRCC and strengthen the analytical framework for financial stability monitoring (FSRCC, CBN). Timeframe: 1-2 years.
  - Revive regular meetings of the Technical and Executive Committees of the CBN-NDIC. Timeframe: 6-12 months.
  - Amend CBN Act to formalize PENCOM’s membership in FSRCC. Timeframe: 1-2 years.
  - Withdraw the CBN circular restricting recapitalization of foreign subsidiaries by Nigerian parent banks. Timeframe: 6-12 months.
  - Expand cross-border and domestic MoUs to cover crisis management and resolution aspects. Timeframe: 1-2 years.
  - Establish Colleges of Supervisors for Nigerian banks and Crisis Management Groups and implement recovery and resolution planning. Timeframe: 2-3 years.

### Supervisory early intervention
- Progress: Post-crisis enforcement was enhanced and a Supervisory Intervention Framework of 2011 (SIF) including a prompt corrective action (PCA) regime was issued.
- Recommendation highlights:
  - Align early intervention powers in the Bank and Other Financial Institutions Act (BOFIA) and the SIF so that the PCA framework has a sound statutory footing (CBN, NDIC). Timeframe: 1-2 years.
  - Implement recovery and resolution planning for systemically important financial institutions (SIFI) in Nigeria (CBN).

### Official financial support and emergency liquidity
- Principle: Limit CBN role to an emergency lending facility for banks facing liquidity problems, with a comprehensive ELA framework to be developed.
- Recommendation highlights:
  - For banks facing solvency problems, the Federal Ministry of Finance (MoF) should provide financial support on an urgent basis (MoF, CBN). Timeframe: 1-2 years.
  - Amend NDIC Act to remove possible NDIC liquidity support to banks and cap any financial assistance for resolution measures to amount of payout of insured deposits (NDIC). Timeframe: 1-2 years.
  - Unwind the blanket guarantee introduced during the crisis with appropriate communication (CBN). Timeframe: 6-12 months.
  - Develop an ELA framework for the CBN and take measures to ensure MoF can provide solvency support on an urgent basis (MoF, CBN). Timeframe: 1-2 years.

### Crisis management tools and resolution framework
- Tools used in the crisis: mergers and acquisitions (M&A), bridge banks, an asset management company (AMCON) to purchase NPLs and recapitalize banks.
- Recommendations to strengthen the resolution framework:
  - Amend BOFIA and NDIC Act to ensure PCA has statutory footing and to strengthen resolution powers: override shareholders’ rights, prevent suspension or reversal of resolution proceedings on challenge, expand resolution toolkit, harmonize and expand resolution triggers (CBN, NDIC). Timeframe: 1-2 years.
  - Enhance resolution tools by providing for mandatory recapitalization, power to write-down capital and statutory bail-in.
  - Withdraw Part 4 of the Supervisory Intervention Framework relating to systemic crisis management, which creates expectations of public bail-outs (CBN). Timeframe: 6-12 months.
  - Reinstate CBN’s authority to appoint NDIC as liquidator immediately upon revocation of license and exempt banks from Company Winding Up Rules (CBN). Timeframe: 1-2 years.

### AMCON: role, constraints and recommended reforms
- Role and timeline:
  - AMCON was central to the crisis response; it purchased NPLs to bring five of eight insolvent banks to zero equity.
  - AMCON’s NPL purchases were funded by tradable three-year zero coupon bonds guaranteed by the federal government.
- Recommendations:
  - AMCON should be temporary; continuation once normal banking business is restored becomes counterproductive.
  - Establish a formal sunset provision ensuring AMCON winds down its activities within around ten years or earlier; set a firm end-2017 closing date and specific disposal targets and time path for assets (MoF, CBN, AMCON). Timeframe for certain actions: 6-12 months.
  - Discontinue AMCON’s acquisition of problem assets and remove relevant prudential requirements.
  - Divest ownership in the three “AMCON banks” and appoint advisors for future disposition; early restructuring/divestiture or resolution encouraged.
  - Strengthen AMCON funding arrangements: approve bill establishing the Resolution Cost Fund and earmark proceeds for repayment of outstanding bonds; devise a rollover strategy in light of sizeable redemptions in 2013-2014.

### Deposit insurance framework
- Structure and functions:
  - The deposit insurance scheme is structured as a risk-minimizer; NDIC has broad supervisory and resolution responsibilities.
  - The deposit insurance coverage is broadly adequate and the scheme is ex-ante funded.
- Recommendations:
  - Exempt the NDIC from the Fiscal Responsibility Act of 2007 so as to build up the fund (MoF). Timeframe: 6-12 months.
  - Change the NDIC credit line from the CBN to the MoF and divest CBN’s shareholding in NDIC (MoF, CBN). Timeframe: 1-2 years.
  - Shorten statutory payout period for insured deposits to 15 days and change to gross payout. Timeframe: 1-2 years.
  - Limit NDIC financial support to assisting resolution measures and subject such support to a cap (NDIC). Timeframe: 1-2 years.

### Legal protection for officials and staff
- Finding: Authorities and staff faced numerous legal challenges during and after the crisis.
- Recommendations:
  - Enhance legal protection for the CBN, NDIC, AMCON and their staff by reversing the burden of proof in actions against them, elevating the threshold for commencing action, and providing for an express indemnity for legal costs for staff.

### Structural sequencing and next steps (selected items from Table 1)
- Introduce an explicit statutory mandate for systemic risk monitoring and crisis preparedness for the FSRCC and strengthen the analytical framework for financial stability monitoring (FSRCC, CBN). Timeframe: 1-2 years.
- Amend BOFIA and NDIC Act to ensure that the PCA framework has a statutory footing (CBN, NDIC). Timeframe: 1-2 years.
- Discontinue AMCON’s acquisition of problem assets and establish a firm end-2017 closing date; earmark cash flows for repayment of bonds (MoF, CBN, AMCON). Timeframe: 6-12 months.
- Withdraw Part 4 of the SIF relating to systemic crisis management (CBN). Timeframe: 6-12 months.
- Shorten statutory payout period for insured deposits to 15 days and change to gross payout. Timeframe: 1-2 years.

*Source: Executive Summary, FSAP mission undertaken during September 4–19, 2012.*

### 15.5 percent at end December 2010. All banks met the minimum liquidity ratio of 30 percent

### _cr13143 - 15.5 percent at end December 2010. All banks met the minimum liquidity ratio of 30 percent

### Crisis response, liquidity and guarantees
- Banking industry liquidity and reserves:
  - "15.5 percent at end December 2010."
  - "All banks met the minimum liquidity ratio of 30 percent at end-December 2011."
  - "The banking industry’s cash reserve ratio was 8 percent."
- Removal and outstanding of CBN interbank guarantees:
  - "The authorities removed the CBN guarantees on all interbank liabilities at the end of 2011."
  - "Outstanding interbank guarantees at end–December 2011 were ₦275.2 billion."
  - "No official announcement has been made in relation to the public commitment to protect depositors and creditors against losses."
- Policy assessment:
  - Decisive crisis response "effectively stabilized the banking system."
  - Risk noted: maintaining support measures can carry significant costs in terms of public resources and moral hazard.
  - Recommendation summary: "as the financial system is strengthening; it is time to gradually unwind some of the support mechanisms introduced in the crisis."

### Timeline of Nigerian Banking Crisis (selected dated events from Box 1)
- August 14, 2009: "CBN releases audit reports on 10 banks. Intercontinental Bank Plc, Oceanic Bank Plc, Afribank Plc, Union Bank of Nigeria Plc and Finbank Plc (31 percent of banking system) fail the stress tests––the largest, Union had negative capital and the other four had weak capitalization and high levels of NPLs. CBN replaces senior management and injects ₦420 billion into five banks."
- August 18, 2009: "Enforcement Financial Crimes Commission arrests three ex-CEOs and nine others."
- August 19, 2009: "CBN publishes list of bank debtors."
- August 31, 2009: "Enforcement Financial Crimes Commission arraigns sacked bank CEOs."
- October 2, 2009: "CBN fires ETB, Spring Bank Plc and Bank PHB Plc CEOs and executive directors. Gives these three banks a ₦200 billion lifeline. Wema and Unity Banks get June 30, 2010 deadline to recapitalize."
- October 14, 2009: "CBN releases fresh debtors’ list."
- January 25, 2010: "CBN limits bank CEOs’ tenures."
- February 15, 2010: "CBN performs fresh audit of banks."
- June 30, 2010: "CBN extends recapitalization deadline for Wema and Unity Banks."
- July 19, 2010: "President signs the Asset Management Corporation of Nigeria Bill."
- August 16, 2010: "CBN unfolds plan to sell the eight rescued banks."
- January 1, 2011: "AMCON takes over ₦2 trillion of nonperforming loans from the rescued banks and other banks."
- May 12, 2011: "Shareholders lose bid to stop CBN from selling the eight rescued banks."
- June 2, 2011: "CBN gives rescued banks till September 30 to recapitalize or face liquidation."
- July 2011: "Finbank, Intercontinental and Union Banks sign binding Transaction Implementation Agreements with First City Monument Bank Plc, Access Bank Plc and African Capital Alliance for recapitalization."
- July 18, 2011: "CBN extends interbank credit guarantee for Finbank, Union and Intercontinental Banks to December 31, 2011."
- July 29, 2011: "Ecobank Transnational Incorporated, parent company of Ecobank Plc, signs a Transaction Implementation Agreement with Oceanic Bank."
- August 4, 2011: "CBN extends interbank credit guarantee for Oceanic Bank to December 31, 2011."
- August 5, 2011: "CBN and NDIC create three bridge banks to take over Bank PHB, Spring Bank Afribank. These banks were almost immediately recapitalized by AMCON."

### Institutional framework and mandates
- Key agencies and roles:
  - MoF: responsible for control and management of public finance of the Federation; functions include preparing annual estimates of revenue and expenditure, formulating policies on fiscal and monetary matters, maintaining internal and external value and stability of the Nigerian currency, supervising the insurance industry.
  - CBN: central bank, prudential regulator and supervisor for the banking sector; objectives set out in the Central Bank of Nigeria Act, 2007 (CBN Act); "ensure monetary and price stability and promoting a sound financial system in Nigeria." BOFIA empowers the CBN to supervise and regulate the activities of banks. CBN is consulted by the NDIC on resolution actions.
  - NDIC: "administers the deposit insurance scheme (DIS), supervises banks, and is the resolution authority as well as bank liquidator."
  - SEC: "corporate organization charged with the function of registering all securities proposed for subscription by the public or to be sold in the market" and maintaining surveillance over the securities market.
  - NAICOM: "responsible for administration, supervision, regulation and control of insurance business in Nigeria."
  - PENCOM: "regulates, supervises and ensures the effective administration of pension matters."
- Judiciary role:
  - "The Federal High Court hears the winding up petition of the NDIC, appoints the NDIC as the liquidator of the banks and adjudicates claims under the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act, 1994 (Failed Banks Act)."
- CBN financial stability architecture:
  - CBN is the only agency with an express mandate for financial stability (Section 2(d) of the CBN Act).
  - CBN has a Financial System Stability Directorate headed by a Deputy Governor with four departments including BSD and FPRD; a CBN Board Committee on financial stability receives input from a committee on financial stability made up of departmental directors.

### Financial Services Regulation Coordinating Committee (FSRCC)
- Background and membership:
  - Established April 1994; legal status in 1998; renamed FSRCC in May 1994. Chaired by the Governor of the CBN; comprises Managing Director of the NIDC, Director-General of the SEC, Commissioner for Insurance, Registrar-General of the CAC, and a representative of the MoF. Director-General of PENCOM admitted but CBN Act needs amendment to formalize membership.
- Objectives and functions (Article 4 of the Charter):
  - Coordinate supervision of financial institutions, reduce arbitrage opportunities, deliberate on problems experienced by members with any financial institution, eliminate information gaps, articulate strategies for safe, sound and efficient practices.
  - Explicit functions include identifying causes of distress, examining resolution options, recommending joint supervision and enforcement areas.
- Sub-committees:
  - Financial Sector Soundness (Chair: CBN)
  - Harmonization and Coordinating (Chair: NDIC)
  - Information sharing (Chair: NSEC)
  - Legal and enforcement (Chair: CAC)
  - Financial Market Development (Chair: NAICOM)
- Performance during crisis:
  - "Although the FSRCC existed during the banking crisis of 2008–2009, it did not play any role in managing the crisis. The FSRCC did not meet for two years during the crisis and the crisis was instead managed primarily by the CBN."
  - The FSRCC "does not have an express statutory mandate for financial stability" and currently functions mainly as a forum for information sharing and coordination of regulatory initiatives.
- Recommendations regarding the FSRCC:
  - "The objectives of the FSRCC could be expanded to include systemic risk monitoring and crisis preparedness/ crisis management."
  - "Periodic interagency discussion on the financial stability outlook should be centered on the CBN’s bi-annual Financial Stability Report (FSR)."

### Macroprudential supervision and analytical framework
- Scope and gaps:
  - Non-bank financial institutions account for "more than 20 percent of financial system assets," but coverage in the FSR is limited because other supervisory agencies are not involved in drafting.
  - Current FSR is "rather narrative and descriptive" and "does not provide conclusive guidance as to where the main sources of systemic risk in the financial system lie."
- Needs identified:
  - Develop "a conclusive methodology for assessing systemic risks" including time series dimension of systemic risk, broad range of financial soundness and real economy sector indicators, and methodologies for trigger points that denote building imbalances.
- SIFI identification:
  - CBN "is in the process of developing criteria for the identification of SIFIs."
  - Identification involves analysis of banks' size, interconnectedness and substitutability.
  - CBN indicated SIFI list overlaps with Nigerian parent banks with foreign subsidiaries that are required to keep additional capital buffers: "15 percent compared to 10 percent."
  - The exercise "only involves domestic indicators for systemic relevance and does not consider the systemic importance of banks in foreign jurisdictions."
- Capacity strengthening:
  - With external consultants, CBN is strengthening analytical underpinnings covering macroprudential analysis, crisis handling and resolution (Early Warning Systems, scenario analysis, contingency planning), microprudential framework, and legal underpinnings.
  - Current CBN headcount for the project: "twenty-six employees"; faces skill shortages in statistics and legal and intends to hire additional staff.
  - Adequacy of data (coverage, availability, timeliness and reliability) identified as a cross-cutting theme.

### CBN–NDIC coordination and recommended institutional arrangements
- Current coordination:
  - No MoU between CBN and NDIC, but "appropriate information sharing arrangements" exist via legislative provisions and operational arrangements.
  - CBN and NDIC conduct joint on-site supervisions and share a common electronic financial analysis surveillance system (eFASS).
  - "Section 53 of NDIC Act provides that the corporation shall have access to reports of examination of the CBN and shall make reports of its examination available to the CBN."
- Shortcomings:
  - Joint Executive and Technical Committees on Supervision "do not meet regularly and did not meet during the crisis."
- Proposed operational change:
  - CBN proposes to establish ad hoc Crisis Management Units (CMU) composed of CBN and NDIC staff to be constituted whenever there is a crisis; "This unit however does not include representation by the MoF."
- Mission recommendations:
  - "Instead of establishing ad-hoc CMUs whenever there is a crisis, the FSRCC should have an explicit statutory mandate for financial stability. It should carry out risk monitoring and be the forum for crisis preparedness/coordination."
  - "The meetings of the CBN-NDIC Executive and Technical Committees should be revived to enhance coordination between the CBN and the NDIC in their dual roles as bank supervisors and resolution authorities and provide a forum for information sharing at both the technical and highest levels within each institution."
  - "The CBN Act should be amended to formalize PENCOM’s membership in the FSRCC."

### Intra-group resolution and structural reform
- Narrow banking and divestiture:
  - "As part of the regulatory reform in response to the banking sector crisis, the CBN has repealed earlier universal banking guidelines."
  - With repeal in "November 2010, Nigeria reintroduced a narrow banking model. Nigerian banks will no longer be allowed to perform nonbanking activities."
  - Banks are required to submit plans for divestiture of nonbanking assets (insurance and securities activities), including possibility of reconstituting the bank into a holding company owning separate banking and nonbanking subsidiaries.
- Framework for holding companies:
  - Framework being developed in proposed amendments to the BOFIA.
  - Recommendation to align with Financial Stability Board Key Attributes of Effective Resolution Regimes for Financial Institutions, October 2011 (FSB KA): resolution regime should extend to "(i) holding companies of a firm; (ii) non-regulated operational entities within a financial group or conglomerate that are significant to the business of the group or conglomerate; and (iii) branches of foreign firms."

*Italic: IMF staff report content from the provided PDF content unit.*

### Box 3. Proposed FSRCC Sub-Committee for Systemic Risk Monitoring

### Box 3. Proposed FSRCC Sub-Committee for Systemic Risk Monitoring and Crisis Preparedness/Management

### Mandate and institutional design
- Systemic risk monitoring and crisis preparedness/management could be delegated to the Financial Sector Soundness Sub-Committee (FSRCC Sub-Committee), with a regular reporting and recommendation-making requirement to the main committee.
- The legal mandate of each member of the FSRCC should be able to support macroprudential and crisis preparedness and management policies by having the mandate to contribute to or to foster financial stability.

### Systemic risk monitoring: functions and requirements
- Meeting frequency and contingency planning
  - Meet regularly (e.g., quarterly or more frequently as needed) to monitor and assess systemic risks and to formulate plans and strategies to address them.
  - Contingency plan elements:
    - identify necessary human resources;
    - establish legal basis and lines of communication with other institutions;
    - define action plans for failure of a SIFI or a systemic crisis;
    - include formal communication channels with other supervisory agencies and foreign supervisors/regulatory authorities.
- Macroprudential framework
  - Develop a framework for macroprudential supervision, including significant strengthening of macroprudential surveillance to enable policymakers in the FSRCC to make informed choices.
  - Widen the scope of the FSR to include non-bank financial institutions.
  - Adopt a methodology that allows for a more conclusive assessment of systemic risk (i.e., financial soundness and real economy indicators and thresholds).
- Identification of systemic banks
  - Advance work on identification of systemic banks covering both domestic importance and relevance for jurisdictions abroad.

### Crisis preparedness and management: functions and requirements
- Road map and roles
  - Agree on a road map for crisis management, including clarity on individual roles and responsibilities for each agency, taking into account mandates vested upon each agency.
- Crisis planning, simulations, and stress testing
  - Make the FSRCC responsible for crisis planning and preparedness, including undertaking simulations to test authorities’ capacity.
  - Conduct stress tests on a regular basis and act on results.

### Information sharing, transparency and accountability
- Legal and operational information exchange
  - Ensure there are no legal and operational hurdles for information exchange among members.
  - Expand the current MoU of the FSRCC and the web database for sharing information to cover information exchange relating to systemic risk monitoring and crisis preparedness/management.
- Reporting
  - Produce an annual report to Parliament/ President on systemic risk monitoring and crisis preparedness activities.

### Related cross-border cooperation and coordination (contextual findings pulled from the same source)
- Regional banking expansion and cross-border oversight
  - Nigerian banks have expanded regionally; cross-border operations typically account for a relatively small share of group assets (e.g., around 20 percent in the case of United Bank of Africa).
  - CBN has created a unit in BSD and a Framework for the Supervision of Cross-Border Institutions (Cross-Border Framework) to guide supervision of Nigerian banks with offshore subsidiaries.
- MoUs and limitations
  - Bilateral MoUs exist with many jurisdictions; MoUs contain details on information sharing, on-site examinations, confidentiality and consolidated supervision but do not cover crisis management and resolution.
- Challenges in cross-border supervision
  - Obstacles: differences in quality of supervision, divergences in reporting requirements and off-site monitoring systems, language barriers (particularly with francophone Africa), weak supervisory/enforcement capacity in some jurisdictions, and problematic data reliability.
  - CBN responses: opened supervisory training to foreign inspectors and promoted harmonization via adoption of eFASS.
- Specific issues and recommendations
  - CBN Circular to banks of May 18, 2012 (BSD/DIR/GEN/RFS/05/024) restricts parent Nigerian banks from providing further capital outlays to foreign subsidiaries and requires exit strategies not later than June 30, 2012, where capital cannot be replaced; this circular is characterized as a blanket prohibition and risks undermining home-host cooperation and reputational risk for parents unable to assist distressed subsidiaries.
  - Home-host cooperation for crisis management has received limited attention; CBN’s Cross-Border Framework envisages binding legal instruments or an international treaty for burden sharing and contingency planning, which have yet to be translated into Nigerian law and require cooperation of foreign authorities.
- Mission recommendations to enhance cross-border coordination and information sharing:
  - Immediate removal of the CBN Circular banning recapitalization of foreign subsidiaries; instead, consider recapitalization needs on a case-by-case basis (existing prudential requirements already require CBN approval for outflows of capital).
  - Expand scope of cross-border MoUs to include crisis management; ideally, home and host authorities pre-agree on key aspects such as exchange of information, decision-making powers and procedures, with particular attention to interests of smaller host countries.
  - In its capacity as a home supervisor, the CBN should take the lead in initiating dialogue with host authorities.
  - Establish Colleges of Supervisors for specific banks, including authorities in host countries where the bank has a material presence; within such colleges, set up Crisis Management Groups to share relevant information and prepare recovery and resolution plans on a group-wide basis.
  - Create mechanisms for mutual recognition of decisions made in other jurisdictions in insolvency or reorganization proceedings, subject to conditions such as non-discriminatory treatment of foreign creditors and reciprocity.
  - Establish ex-ante burden sharing arrangements enabling home and host authorities to act quickly during a crisis, while not implicitly ceding sovereign rights or compromising domestic depositors and creditors.

### Cross-Border Crisis Resolution: Key attributes (summary of FSB KA principles)
- Statutory mandate: resolution authority mandate should empower and encourage cooperative solutions with foreign resolution authorities.
- No discrimination: laws/regulations should not discriminate against creditors by nationality, claim location, or jurisdiction where payable.
- Branches: host resolution authority should have resolution powers over local branches and capacity to support foreign home authority resolutions or, exceptionally, act locally.
- No automatic action: jurisdictions should avoid provisions triggering automatic action due to foreign intervention; resolution authorities may take discretionary national action if necessary.
- Recognition and effect: provide transparent and expedited processes to give effect to foreign resolution measures via mutual recognition or domestic measures consistent with foreign measures, conditional on equitable treatment of creditors.
- Information sharing: resolution authority should have legal capacity, subject to confidentiality protections, to share information with foreign authorities for recovery and resolution planning and coordinated resolution.
- Legal protection: provide protection for resolution authority and staff against liability for good faith actions or omissions domestically and in support of foreign resolution proceedings.

### Supervisory early intervention of problem banks (selected highlights and the Prompt Corrective Action framework)
- Background
  - Regulatory forbearance contributed to the banking crisis of 2008–2009; lack of prompt enforcement led to interventions in eight banks.
  - Since the crisis, authorities enhanced enforcement and issued the SIF with triggers for corrective actions and a PCA regime tied to prudential thresholds.
- Corrective powers and legal basis
  - CBN and NDIC corrective and remedial powers are generally adequate; BOFIA and NDIC Act provide corrective supervisory tools including special examinations, prohibiting credit extensions, removing directors/managers, revocation of license and liquidation.
  - Bank directors, managers and other officers can face criminal penalties under specified BOFIA sections.
- SIF actions
  - SIF categorizes supervisory tools into informal and formal actions, guided by factors including nature of situation, history of compliance, systemic impact, management attitude, and prospects.
  - Informal actions: taken when composite risk rating is low or moderate; not publicly disclosed and generally not legally enforceable.
  - Formal actions: legally enforceable, applied when composite risk rating is above average or high, informal actions unsuccessful, unsafe/unsound practices evident, and violations of laws/regulations; such actions are publicly disclosed.
- Table 2. Nigeria: Prompt Corrective Action Framework (Bank Classification, Trigger, CBN Supervisory Action)
  - Undercapitalized bank: 5%<CAR<10% for period in any one month
    - Restrict investment in other subsidiaries/related companies
    - Restrict investment in fixed assets
    - Restrict dividend payment
  - Undercapitalized bank: 5%<CAR<10% for period of at least three months
    - All of the above, plus
    - Conduct special examination
    - Place bank in CBN/NDIC Watch List and inform bank of placement
  - Significantly undercapitalized bank: 2%<CAR<5%
    - All of the above, plus
    - Restrict new lending to recoveries made
    - Request a business plan for fresh funds to be injected
    - CBN to review business plan within two weeks and communicate acceptability or otherwise
    - CBN to make the final capital call on the bank within four months from time of acceptance of business plan
    - Within two months of final capital call, CBN may take over management and control of the bank and hand to NDIC
    - CBN may appoint NDIC
  - Critically undercapitalized bank: 0%<CAR <2%
    - All of the above, plus
    - CBN to take over management immediately and/or
    - Inject funds to stabilize bank and demand that shareholders capitalize within six months or sell bank
  - Insolvent banks: CAR<0%
    - Revocation of license

*Source: Box 3. Proposed FSRCC Sub-Committee for Systemic Risk Monitoring and Crisis Preparedness/Management (extracted from the provided PDF content).*

### 45.      While the PCA framework appears to be fairly well structured, with

### _cr13143 - 45.      While the PCA framework appears to be fairly well structured, with

### PCA framework, BOFIA alignment, and statutory conflicts
- Finding: The PCA framework in the SIF is structured with increasingly intrusive actions as the CAR or other indicators fall, but it is not fully supported by the BOFIA.
- Finding: The BOFIA only expressly provides for the action that can be taken when the CAR falls between 2 percent and 5 percent, and the type of action envisaged under the SIF is not fully aligned with Section 37 of the BOFIA.
- Finding: The BOFIA does not provide for a PCA framework based on liquidity, asset quality, earnings triggers, etc.
- Finding: The introduction to the SIF acknowledges the lack of specific provisions in the BOFIA.
- Finding: Proposed amendments to the BOFIA that provide for the possibility of the CBN acquiring shares in a failing bank create conflict with the role of the CBN as the bank supervisor.
- Recommendation: Delete the proposal for the CBN to acquire shares in a failing bank; provision of solvency support to distressed banks is ultimately a responsibility of the MoF and should be a last resort when private sector solutions have been exhausted and when there is a demonstrable risk to financial stability.
- Recommendation (mission): The CBN review and align the PCA framework set out in the SIF with the BOFIA to avoid inconsistencies and ensure that the SIF framework has a sound statutory footing.
- Recommendation (mission): The CBN not proceed with the proposal for the CBN to acquire shares in a failing bank.

### Recovery and Resolution Planning (RRP) for SIFIs
- Finding: To enhance early intervention and resolution, the CBN should implement recovery and resolution planning (RRP) for banks that are SIFIs in Nigeria.
- Definition: Recovery planning will form part of the supervisory framework while resolution planning is part of the resolution framework.
- Purpose: RRPs aim to guide recovery of a distressed firm or, if recovery proves infeasible, facilitate an orderly wind-down while minimizing the need for public money.
- Roles: A recovery plan is developed by the firm’s senior management; a resolution plan is prepared by the resolution authorities, based on information provided by the firm, to facilitate effective use of resolution powers to protect systemically important functions without severe disruption or exposing taxpayers to loss.
- Recommendation (mission): The CBN should implement RRPs for SIFIs in Nigeria.

### Crisis management tools — Overview
- Finding: Tools for crisis management and bank resolution should include arrangements for official financial support (emergency liquidity assistance and solvency support); prompt intervention with robust resolution powers for banks as a going concern; a mechanism for orderly liquidation as a gone concern; and a well-designed deposit guarantee scheme.

### Official Financial Support — Emergency Liquidity Assistance (ELA)
- Finding: It is widely accepted that central banks should provide liquidity to individual banks and to the system when necessary; such support should be for banks facing temporary liquidity problems but are solvent, typically at a penalty interest rate and against good collateral, with intensified supervision.
- Finding: The CBN has broad statutory powers to provide liquidity assistance but there is no ELA facility beyond 90 days.
- Legal basis: Sections 29(1)(c) and 42(2) of the CBN Act provide that the CBN may grant temporary advances to banks at such rate of interest and under such terms as the CBN may determine to any bank having liquidity problems.
- Current facilities: The CBN currently has an overnight standing lending facility, a repurchase facility (up to 90 days, with an option to roll-over) and a rediscount facility.
- Finding: Although the repurchase facility can be rolled over, the CBN currently has no longer term ELA facility available to assist individual solvent banks facing liquidity problems; banks rely on the inter-bank market for longer term liquidity needs.
- Historical measure: An expanded discount window facility was temporarily provided from September 2008 to August 2009, with loans extending up to 360 days and an expanded range of eligible collateral; to enhance systemic liquidity the CBN granted a blanket guarantee on interbank claims and provided ₦620 billion in liquidity.
- NDIC statutory role: Under the NDIC Act, where an insured institution has difficulty meeting obligations, persistently suffers liquidity deficiency, or has accumulated losses which have nearly or completely eroded the shareholders fund, the NDIC may grant loans, provide guarantees for loans or accept an accommodation bill with interest for a period not exceeding 90 days maturity, subject to renewals of not more than seven times.
- Finding: The NDIC’s role in providing liquidity support is unorthodox; emergency liquidity is a central bank role, and NDIC provision of liquidity exposes the deposit insurance fund to losses and reduces funds available for deposit insurance payouts. The facility has not been used in the last 20 years and no operational framework is in place, yet it remains available under the NDIC Act.
- Recommendation (mission): The CBN develop a comprehensive framework for a longer term ELA facility, up to 180 days, including clear policies, guidelines, and procedures, a solvency test, eligibility requirements, applicable interest rates (typically penal) and acceptable collateral. Banks accessing such a facility should be subject to enhanced supervision by the CBN and NDIC.
- Recommendation (mission): The NDIC Act to be amended to remove the possibility of the NDIC providing liquidity support to banks. Financial support from the NDIC to banks should be limited to assisting resolution measures and should be subject to a cap and a least-cost test.
- Recommendation detail: Assistance can be provided when facilitating a purchase and assumption transaction (P&A) or a bridge bank transaction, and such assistance should be capped at the amount of insured depositors’ funds that would have been paid out by the NDIC if the bank had instead been liquidated.

### Official Financial Support — Solvency support
- Finding: Framework for conditional solvency support should allow the state (or an agency of the state) in a systemic crisis only (i) to enter in a legally robust manner into transactions that buttress the solvency of systemic banks (recapitalization, guarantees, etc.) and (ii) to execute those transactions rapidly.
- Finding: Providing solvency support in a systemic crisis is typically the role of the fiscal authorities, rather than the central bank.
- Finding: To minimize moral hazard, solvency support should be complemented by a robust early intervention and resolution framework; public financial support should be accompanied by attribution of losses first to existing shareholders and then to unsecured creditors, removal of Board and senior management, restrictions on compensation and dividends, plans to secure new capital from shareholders, and a clear exit strategy for official sector support.
- Finding: Ideally, central banks should not provide support to banks at the risk of insolvency; central bank role should be limited to liquidity assistance to illiquid but solvent banks to avoid substantial credit risks to the central bank.
- Finding: In the event the central bank provides solvency support, fiscal authorities need to underwrite the credit risks taken by the central bank.
- Crisis history: During the banking crisis, CBN’s support extended beyond liquidity: CBN provided solvency support through AMCON, guaranteed inter-bank claims, provided the blanket guarantee on deposits, contributed to capital for AMCON, and will contribute ₦50 billion annually to the Banking Sector Resolution Cost Fund from 2011 to 2020 (established for the purposes of paying the AMCON bonds). The MoF contributed initial capital for AMCON and guaranteed its bonds.
- Finding: The blanket guarantee on deposits has not been unwound; proposals to amend the BOFIA to provide for a statutory blanket guarantee undermine market discipline and fuel moral hazard.
- Finding: Proposed amendments to BOFIA envisage that upon revocation of a bank license, the CBN shall pay all private deposit liabilities not covered by deposit insurance and shall seek to recover such payment out of the liquidation estate; if there is a shortfall, the federal government will indemnify the CBN.
- Recommendation (mission): Provision of solvency support beyond liquidity assistance for illiquid but solvent banks is the role of the MoF, not the central bank. The MoF should take all necessary steps (e.g., standing budgetary authorization or standing legislation) to ensure that such support can be made available on an expedited basis. If the MoF is not able to do so and the CBN provides such support instead, there should be an express indemnity from the MoF to the CBN.
- Recommendation (mission): The blanket guarantee announced by the CBN during the 2008–2009 crisis should be officially unwound, with proper public communication, packaged with announcements showing decisive measures (strengthened supervision and enforcement and an off-loading of toxic assets).
- Recommendation (mission): Proposed amendments to BOFIA to provide a statutory blanket guarantee should be deleted.

### Orderly and Effective Resolution — Going concern resolution and toolkit
- Finding: Legal framework for bank resolution should include powers for intervention and resolution before actual insolvency (going concern powers) and powers to close and liquidate in an orderly fashion (gone concern powers). FSB KA sets out resolution powers including P&A, bridge bank and bail-in powers.
- Finding: The current legal framework under the BOFIA and NDIC Act empower the CBN and the NDIC with a range of powers to intervene in problem banks.
- Summary of resolution process and interactions:
  - CBN management and restructuring: Where a bank is likely to become unable to meet obligations, about to suspend payment, is insolvent or in a grave situation, the CBN may impose prohibitions, require actions, remove directors/managers/officers, and appoint advisors.
  - Turning over control to NDIC: Section 36 of BOFIA empowers the CBN to turn over control and management of the bank to the NDIC on terms and conditions as the CBN may stipulate.
  - NDIC management and restructuring: After assuming control, where the bank is significantly under-capitalized (CAR is between 2 and 5 percent), the NDIC can require a recapitalization plan, impose prohibitions, require actions, and with CBN approval remove directors/managers/officers and appoint a person as director. Where the bank cannot be rehabilitated, NDIC has a duty under section 39 of BOFIA to recommend to the CBN other resolution measures including revocation of the license, and in case of revocation the NDIC must apply to the Federal High Court for a winding up order.
  - Resolution tools available to NDIC in consultation with CBN: (i) take over management or direct specific changes; (ii) arrange an M&A; (iii) carry out a P&A with NDIC providing financial assistance; (iv) acquire, manage and dispose of impaired assets directly or through an asset management company; or (v) establish a bridge-bank.
- Empirical test: During the crisis, authorities used existing resolution powers to resolve eight banks.
  - August 2009 and October 2009: Replaced management in eight banks — Intercontinental Bank; Bank PHB; Spring Bank; Wema Bank; Oceanic Bank; Union Bank; FinBank; AfriBank.
  - September 2010: Recapitalization with shareholder’s vote — Wema Bank and Unity Bank.
  - January 2011: AMCON bought NPLs — Intervened banks and others.
  - July 2011: M&A with shareholder’s approval and court sanction — Intercontinental Bank (Access Bank); Oceanic Bank (EcoBank Transnational); FinBank (FCMB); Equatorial Trust Bank (Sterling Bank); Union Bank (African Capital Alliance).
  - August 2011: Bridge-banks and recap by AMCON — Keystone Bank (Bank PHB); Enterprise Bank (Spring Bank); Mainstreet Bank (AfriBank).
- Finding: Use of existing resolution powers faced legal and procedural challenges: CAMA company law requirements (21-day notice period for shareholders’ meeting) and requirement for court sanction added to duration; legal actions challenged removal of directors and recapitalization and bridge-bank measures.
- Finding: There is justification for creating a special resolution regime for banks that dis-applies certain provisions of general company law or insolvency law to account for contagion risks and public policy/financial stability objectives; reversal of resolution measures can be destabilizing, so there should be a mechanism preventing reversal by courts and allowing monetary compensation for wrongful actions.
- Mission recommendations for legal and toolkit enhancements:
  - Power to override shareholder’s rights: Relevant provisions of CAMA relating to shareholder’s rights should be dis-applied to permit resolution authorities to administratively (without involving the courts) (i) carry out a mandatory recapitalization without the pre-emptive rights of shareholders; (ii) carry out a P&A transaction involving transfer of any type of assets and liabilities without shareholder approval; and (iii) carry out an M&A transaction without a shareholder’s vote at a general meeting and court sanction.
  - No suspension or reversal of actions: Amend the legal framework so that (i) any challenge to resolution actions (going concern and liquidation) does not suspend resolution proceedings; and (ii) there is no possibility of reversal of measures taken by resolution authorities. Redress for wrongful measures should take the form of monetary compensation.
  - Expanded resolution toolkit: Enhance toolkit to include (i) mandatory recapitalization without pre-emptive rights of existing shareholders; (ii) power to write down capital; and (iii) bail-in powers.
  - Triggers: Harmonize statutory triggers under the BOFIA and the NDIC Act to include both quantitative triggers (tied to CAR, liquidity ratios etc.) and qualitative triggers (e.g., breaches of laws and regulations, carrying on business in a manner detrimental to the interests of depositors), granting the CBN/NDIC greater discretion in invoking resolution proceedings.

*Source: Excerpt from IMF staff report chapter on crisis management and bank resolution.*

### Box 5. Bail-in Within Resolution

### Box 5. Bail-in Within Resolution

### Definition and objective
- Bail-in: power to write down equity and unsecured and uninsured creditor claims to absorb losses, convert unsecured and uninsured creditor claims into equity, and convert or write-down any outstanding contingent capital instruments that have not already been triggered according to their terms.
- Objective: return the financial institution to compliance with prudential requirements and restore its viability.
- Unilateral debt restructuring directly imposes losses on the private stakeholders of the ailing bank, a key aspect of an effective resolution regime.
- For further discussion on bail-in, the box refers to IMF Staff Discussion Note, From Bail-out to Bail-in: Mandatory Debt Restructuring of Systemic Financial Institutions.

### Triggers and sequence
- Triggers should be consistent with those used for other resolution tools—for example, where a financial institution is no longer viable or is likely to be no longer viable and has no reasonable prospect of becoming so.
- This threshold should be before the institution is balance-sheet insolvent and before all equity has been wiped out.
- Bail-in must respect the hierarchy of claims in liquidation:
  - Equity should absorb losses first,
  - then subordinated debt (including all regulatory capital instruments),
  - and, finally, senior unsecured debt.
- Creditors should have the right to compensation where they do not receive at least the amount they would have received in a liquidation of the ailing financial institution.

### Scope and exclusions
- The FSB KA exclude secured creditor claims and insured deposits.
- The FSB KA leave open the possibility of excluding other liabilities that are of systemic or strategic importance (e.g., inter-bank deposits, payment and settlement obligations, and trade-finance obligations).

### Legal form and safeguards
- Preferable, subject to a country’s constitutional framework, that bail-in could be exercised as part of an administrative process (as opposed to judicial) that is subject to ex-post judicial review to ensure that the authorities act within the scope of their legal powers.
- Bail-in should be exercisable in conjunction with other resolution powers to ensure the restructured bank will be viable.

### Interaction with other tools and liquidity
- Authorities need to be able to exercise bail-in in conjunction with other resolution tools (e.g., removal of problem assets, replacement of management).
- As a practical matter, bail-in may need to be coupled with adequate official liquidity assistance to address funding issues until the bank is stabilized.

*Source: Box 5. Bail-in Within Resolution, _cr13143 - Box 5. Bail-in Within Resolution*

### 84.      While the initial round of problem loan acquisitions focused on the absorption of

### _cr13143 - 84.      While the initial round of problem loan acquisitions focused on the absorption of

### AMCON portfolio composition and scale
- AMCON’s bad loan portfolio has become increasingly diversified over time and currently involves a wide range of industries and types of collateral.
- Asset composition (latest publicly available information):
  - 22 percent of the assets is unsecured
  - 22 percent is backed by shares
  - 20 percent by mortgages
  - 15 percent by debentures
  - 13 percent by a combination of assets
  - 4 percent by shares and mortgages
  - 6 percent by “others”
- Sectoral composition:
  - oil and gas: 27 percent of the portfolio
  - general commerce: 18.5 percent
  - margin shares: 18 percent
- By now, AMCON has acquired a total of more than twelve thousand problem loans.
- Some four hundred and sixty problem loans acquired by AMCON represent 80 percent of the total portfolio.

### NPL cap, acquisitions, and eligibility
- Following the creation of AMCON, the CBN imposed a cap of the proportion of NPLs in banks’ loan portfolio at five percent, prompting banks to transfer the excess to AMCON.
- NPLs are defined as all loans in the substandard, doubtful or loss category as defined in the Prudential Guidelines issued by CBN.
- Although the last acquisitions date back to December 2011, AMCON is still available to purchase troubled assets from the banking sector.
- The AMCON Act and AMCON Guidelines section 6(a) govern aspects of operations and eligibility.

### Restructuring practices and recovery performance
- AMCON has concluded restructuring arrangements with some large corporate debtors; typical terms:
  - generous debt relief in NPV terms (enabled by discounted acquisition price)
  - an initial down payment in the order of 10 to 20 percent of the outstanding amount, due within thirty days upon restructuring
  - in a number of cases, a debt-for-equity swap
- AMCON aims to engage external debt collectors to contact all distressed debtors for the remaining problem loans by the third quarter of 2013.
- Delinquencies and recovery expectations:
  - Delinquencies on the newly restructured loans are in the order of 10 percent, according to AMCON.
  - AMCON targets a recovery ratio of 70 percent.
  - International comparisons: Indonesia realized recoveries of 33 percent and Malaysia 59 percent (see Table 5 on international comparisons).
- Risks and challenges with debt-for-equity swaps:
  - creates misalignment of incentives for AMCON as (co-)owner
  - technically challenging to establish an accurate conversion factor, complicated by absence of reliable financial data
  - difficult to develop in-house restructuring expertise across many sectors, including tightly regulated industries (e.g., aviation), where political pressures can impede drastic restructuring and liquidation may not be a credible threat
  - labor disputes have occurred at the three AMCON-owned banks, impeding enterprise restructuring

### Bank restructuring and recapitalization outcomes
- AMCON assistance to eight intervened banks:
  - Provided five intervened banks with fresh capital to bring them to zero net asset value; subsequent injection of additional capital to ensure regulatory compliance was left to private investors.
    - Intercontinental Bank → acquired by Access Bank
    - Oceanic Bank → acquired by Ecobank Transnational
    - FinBank → acquired by FCMB
    - Equatorial Trust Bank → acquired by Sterling Bank
    - Union Bank → acquired by African Capital Alliance
  - Shareholders’ interests were diluted but not written-off completely due to legal difficulties in overriding shareholders’ rights (a write-down requires a shareholder’s vote).
  - AMCON restructured and fully recapitalized three problem banks. The three remaining banks (Spring Bank Plc, Bank PHB Plc and Afribank Nigeria Plc) were assessed as not able to recapitalize before the deadline of September 2011; on August 5, 2011, the CBN revoked their licenses.
    - NDIC incorporated bridge banks: Enterprise Bank (for Spring); Keystone Bank (for Bank PHB); Mainstreet Bank (for Afribank) to assume deposit liabilities and certain other liabilities and assets of the closed banks.
    - AMCON purchased the equity of the bridge banks (terminating their bridge status) and injected capital up to the statutory minimum.
    - AMCON replaced the Boards in these three banks; banks report quarterly on fulfillment of targets; AMCON not involved in day-to-day operations.
- Divestment challenges:
  - AMCON considers ownership temporary and claims two banks brought back to profitability; the third is affected by a labor dispute.
  - External consultants appointed to explore divestment options: direct sale, listing on the stock exchange, or merger.
  - Divestment complicated by problematic reliability of financial statements and muted investor interest due to lack of proven performance track record.

### Funding, bonds, and Resolution Cost Fund (RCF)
- Initial capital provided by the MoF and the CBN.
- AMCON has issued ₦4.5 trillion in three year zero-coupon bonds, falling due in 2013–2014.
- The AMCON Act stipulates that all AMCON bonds are underwritten by the federal government. The MoF has so far only formally signed off on ₦1.7 trillion.
- Resolution Cost Fund (RCF):
  - Banks and the CBN signed an MoU to contribute to the RCF to reclaim part of AMCON’s operational cost to the banking sector.
  - Draft legislation creating statutory basis for the RCF has been prepared; may be superseded by a new bill revising some terms.
  - Proposed burden sharing:
    - CBN provides an annual contribution of ₦50 billion (= US$ 31.6 million)
    - Banks pay a flat premium of 30 basis points of their total assets, calculated at the date of its audited financial statements for the preceding year to the RCF
  - The banks and the CBN have made a first contribution; currently some ₦154 billion has been amassed.
  - Total contribution of the CBN is capped at ₦500 billion (i.e. 10 annual contributions); reportedly the cap mentioned in the earlier draft bill (₦1 trillion) for the commercial banks has been lifted.
  - All banks contribute, regardless of financial state and use of AMCON.
  - Accumulated funds are kept in an account at the CBN.
  - Investment policy for the RCF determined by an investment committee consisting of representatives from the banks, the CBN, the MoF and Debt Management Office.
- Projected income sources (assumptions stated in the source):
  - Under assumption of sustained rapid growth in banks’ assets (20 percent year-on-year), contributions to the RCF projected to account for more than 60 percent of total cash flows.
  - Recoveries on acquired assets expected to contribute another 20 percent (based on assumption of an average recovery ratio of 70 percent).
  - Remainder: reinvestment income (8 percent) and disposals (5 percent for the disposal of the three troubled banks, 3 percent for the eventual disposal of AMCON).
- Funding strategy and maturities:
  - Significant repayment obligations are coming up as the three year zero-coupon bonds are falling due; steep redemptions falling due in 2013-2014 will significantly exceed funds accumulated from recoveries, disposals, reinvestment income and contributions to the RCF.
  - AMCON is investigating financing options, considering issuing in foreign currency, and/or issuing longer term domestic bonds (seven-year).
  - Feasibility of rollover arrangements depends on availability of a government guarantee on AMCON bonds.
  - AMCON is in the process of setting up an investment policy and has constituted an inter-agency investment committee.

### Disclosure and reporting
- Disclosure practices are weak:
  - AMCON reports to the CBN and the MoF on a quarterly basis.
  - AMCON Act requires publication of audited financial statements within six months upon conclusion of the financial year, but AMCON has yet to produce its first audited financial statements.
  - AMCON indicated first deadline was missed due to complications in consolidating many equity participations; CBN provided a waiver and AMCON expects to release its final statements by end-September.
  - Expected that AMCON’s first financial statements will post a significant operating loss because it owes interest on outstanding bonds while interest on assets only starts once a restructuring arrangement has been concluded and the debtor starts repaying.

### Exit strategy, risks, and mission recommendations (short term)
- Overall recommendation: devise a credible exit strategy for AMCON consistent with one-off character of operations and disassemble as soon as circumstances permit.
- Short term policy measures recommended:
  - Earmark AMCON’s cash flows for buying back bonds. Accumulated funds should be clearly earmarked for payment of the outstanding bonds.
  - Immediate closing of the window for the acquisition of troubled loans and adjustment of relevant CBN prudential requirement. Discontinue acquisition of new loans with immediate effect.
  - Annual disposal targets: set annual targets for disposal of bad loans with emphasis on frontloading disposal in the first three to five years; explore feasibility of delegating part of portfolio to private AMCs.
  - Set a firm closing date for AMCON for end–2017 and arrange how residual assets will be dealt with; explore options to facilitate development of private distressed asset firms.
  - Formalize contributions to the RCF by putting the draft legislation through the legislative process.
  - Prepare a plan for rollover arrangement of the maturing debt; clarify whether AMCON will have access to government guarantees.
  - Act on plans for divesting interests in Enterprise, Mainstreet and Keystone once consultants finalize their analysis.
  - Reinforce disclosure practices: disclose financial statements within six months of the end of the fiscal year; statements for 2011 should be disclosed as soon as possible.

*Source: IMF country report text (sections 84–99) contained in the provided PDF content.*

### 101.     The current NDIC Act does not explicitly state public policy objectives, which it

### _cr13143 - 101.     The current NDIC Act does not explicitly state public policy objectives, which it

### Public policy objectives (proposed amendment bill)
- The amendment bill stipulates three public policy objectives:
  - (i) protecting small, uninformed and less financially sophisticated depositors by providing an orderly means of compensation in the event of failure of their insured financial institutions to make payment to depositors;
  - (ii) contributing to the financial system stability by making incidences of bank runs less likely; and
  - (iii) enhancing public confidence and systemic stability by providing a framework for the resolution and orderly exit mechanism for failing and failed insured institutions.

### Governance and structure of NDIC
- NDIC is administered by a Board of Directors. The Managing Director acts as the Chief Executive and is responsible for day-to-day management.
- Board composition: the Chairman, the Managing Director, two Executive Directors, representatives of the CBN and the MoF and six other members from each of the zones of the country.
- Directors restrictions: cannot own or control significant interests in, or be a director or employee of an insured institution.
- Staffing and budget: NDIC currently has a staff of more than a thousand and an annual operation budget of over ₦13 billion.
- Ownership: NDIC is owned jointly by the CBN (60 percent) and the MoF (40 percent).
- Legal references: Sections 5 and 6 NDIC Act.

### Membership, coverage, and exemptions
- Membership: mandatory for all deposit-taking institutions; covers all deposits with certain stated exceptions.
- Coverage limits: variable with limits of ₦500,000 per accountholder for banks and ₦200,000 for other deposit taking entities on a netted basis.
- Exemptions: Article 16 of the NDIC Act includes certain insider depositors (e.g., bank directors, officers and senior staff) and counter-claims from a person who maintains both a deposit and a loan account, where the former serves as collateral for the loan.

### Coverage statistics and context (as of end-June 2012)
- Total deposits: ₦12.759 trillion.
- Insured amount: ₦1.784 (around 14 percent) is insured.
- Coverage by number of depositors: fully covering around 85 percent of all depositors.
- Note: figures distorted by sizable government (oil-related) deposits; CBN publicly announced a blanket guarantee at the beginning of the 2008–2009 financial crisis with unclear current legal status.
- Comparative reference: The core principles for effective deposit insurance mention percentages of 80 percent (by number of accounts) and 20-30 percent (by value) as a rule of thumb.

### Premiums, fund size, and investments
- Premiums: transitioned to risk-adjusted insurance premia.
  - Base rate: 0.4 percent of insured deposits charged to all banks.
  - Risk premium: ranges from 0 to 0.68 percent depending on a bank’s prudential risk profile.
  - Impact: migration to the hybrid scheme led to an average reduction by 35 percent of the annual contribution for the banking sector.
- Depositor preference: NDIC, through rights of subrogation, enjoys depositor preference; BOFIA provides for priority of local deposit liabilities over all other liabilities and NDIC has rights of subrogation.
- DIF (Deposit Insurance Fund) balance: around ₦416 billion, corresponding to some 3 percent of total deposits.
- NDIC Act: does not prescribe a specific target fund ratio.
- Eligible investments: Government securities are the only eligible investment categories for the DIF.
- Investment practice: 40 percent held in the form of T-bills and 60 percent in Federal Bonds.
- Recovery options: in case of depletion of the DIF, it can raise insurance premia (up to 200 percent), and it has access to a credit line to the CBN.

### Fiscal constraints on fund accumulation
- Fiscal Responsibility Act effect: investment income on the DIF funds NDIC’s operating costs. Since enactment in 2007, NDIC is required to channel back 80 percent of its operating surplus (i.e., the investment income generated on the DIF minus NDIC’s expenses) to the federal government, stalling the accumulation of funds.

### Payout timelines and operational challenges
- Current payout term: ninety day pay out term; NDIC plans to reduce to thirty days.
- International context: thirty day pay out term still comparatively long; deposit insurers worldwide moving towards fifteen days or less.
- Legal and procedural impediments:
  - Lack of finality of bankruptcy proceedings: shareholders of failed banks can file injunctions before the court, stalling NDIC’s resolution actions and payouts.
  - Practical delays: delays of several years can occur; in a significant number of cases liquidations were overruled by the court.
- Netting and data issues:
  - NDIC has good access to depositor information via eFASS and quarterly updates; authority under Article 27 to prescribe depositor data format.
  - Netted claims against accelerated outstanding loans can be time-consuming and labor intensive.
  - Common practice elsewhere: apply set-off only to depositors that are delinquent on their outstanding loans (past due or nonperforming).
  - Filtering depositors with multiple accounts is laborious; lack of a unique national ID number complicates tasks.

### Microfinance deposit-taking sector specifics
- In 2011, one hundred and three microfinance deposit-taking banks had their licenses revoked.
- Verification challenges: inadequate IT infrastructure and administrative deficiencies hamper depositor claim verification.
- Public awareness: depositors often unaware that deposits are insured, especially in rural areas, leading to slow claims; NDIC has undertaken public awareness efforts through six zonal offices.

### Mission recommendations (NDIC and system)
- NDIC exemption and DIF target:
  - The NDIC should be exempted from the Fiscal Responsibility Act and a target size for the DIF should be adopted, taking into consideration the enhanced mandate which also encompasses the provision of financial assistance to facilitate bank resolution arrangements.
  - The provision of financial assistance should be limited to assisting in bridge bank and P&A arrangements, and not for liquidity support and subject to a cap of the amount of payout that would have been made if the bank had instead been liquidated.
- Ownership and credit line adjustments:
  - The CBN should divest its shareholding in the NDIC to the MoF and the NDIC’s credit line to the CBN should be replaced with a credit line to the MoF, as such support should come from the fiscal authorities rather than the monetary authorities.
- Payout period:
  - The statutory payout period should be significantly shortened. The proposal of thirty days is still comparatively long.
- Netting practice:
  - In line with practices elsewhere, netting should only be applied to delinquent loans.

### Legal protection for crisis management authorities
- Rationale: crisis management framework should protect agencies (CBN, NDIC, AMCON) and employees so they can exercise professional judgment without undue threat of lawsuits.
- Current protections:
  - Section 52 of the CBN Act and section 53 of BOFIA grant protection for the CBN and its officers in relation to acts or omissions done in good faith.
  - Similar protection provided to the NDIC and its employees (Section 55 NDIC Act).
  - AMCON, its shareholders, officers and directors are protected for acts done in good faith (Section 43(3) AMCON Act).
  - No express statutory provisions for directors or staff to be indemnified for the costs of defending proceedings, although in practice the CBN pays for costs where staff have been named as co-defendant.
- Judicial challenges and consequences:
  - Litigation load: CBN Annual Report 2011 noted many cases of litigation; twenty eight decided in favor of the CBN, two against and one settled out of court.
  - Examples: a libel action commenced in 2007 against the CBN and the then Deputy Director in the BSD remains pending.
  - Court delays: frivolous cases, numerous interim and interlocutory injunctions and stays, and frivolous appeals are used to delay proceedings; Nigeria’s overburdened court system and inadequate resources exacerbate delays and social costs.
- Mission recommendations (legal protection):
  - Enhance legal protection for the CBN, NDIC, AMCON, its directors and staff by:
    - (i) reversing the burden of proof such that it is the party alleging the wrongdoing that has to show bad faith rather than the relevant authority providing that the act or omission was done in good faith;
    - (ii) raising the threshold for commencing legal action to that of gross negligence or willful misconduct; and
    - (iii) expanding the legal protection for AMCON to include staff of AMCON.
  - Provide express provisions for directors and staff of the CBN, NDIC and AMCON to be indemnified for defending legal action commenced against them personally if they had taken the action in good faith.

### Annex 1 — Overview of the Nigerian Financial System, 2011 (selected figures)
- Total financial system assets: 23,477 (₦billion) in 2011 (100.0 percent of total).
- Commercial banks (2011): Number 20; Assets 18,477 (78.7 percent of total assets).
  - Private commercial banks (2011): Number 17; Assets 17,548 (74.7 percent).
    - Domestic (2011): Number 13; Assets 14,704 (62.6 percent).
    - Foreign (2011): Number 4; Assets 2,844 (12.1 percent).
  - State-owned (2011): Number 3; Assets 928 (4.0 percent).
- Institutional investors (2011): Number 91; Assets 3,457 (14.7 percent).
  - Insurance Companies (2011): Number 61; Assets 622 (2.6 percent).
  - Pension Funds (2011): Number 21; Assets 2,835 (12.1 percent).
- Other Non-Banks Financial Institutions (2011): Number 1,403; Assets 1,543 (6.6 percent).
- Microfinance Banks (2011): Number 876; Assets 191 (0.8 percent).
- Source of Annex data: CBN.

*Source: IMF staff report content provided in the content unit.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13143.pdf_