States’ bailout: Banks get CBN approve to fund salary arrears

The Central Bank of Nigeria (CBN) has approved the request by Deposit Money Banks (DMBs) to disburse funds set aside for liquidating the outstanding staff salaries owed by states and local governments.

This followed the request made by the National Executive Council (NEC) to the apex bank to consider ways of resolving the imbroglio. The banking watchdog stated that the conditions for accessing the loan facility include resolutions of the State Executive Council authorising the borrowing and State House of Assembly consenting to the loan package, as well as issuance of Irrevocable Standing Payment Order (ISPO) to ensure timely repayment.

In a statement yesterday, the CBN said: “Out of the 27 states involved, funds have been disbursed to two states namely Zamfara and Kwara states that met the requirements as agreed with their respec-tive banks.

Efforts will be made in the coming days to conclude disbursements to other states so that all outstanding salaries to civil servants can be cleared.” It would be recalled that the slide in oil prices from June last year, led to a significant reduction in the amount of funds shared monthly to states and local governments by the Federal Accounts Allocation Committee (FAAC).

Consequently, at the inception of the current administration of President Muhammadu Buhari, most states owed their workers several months’ salary arrears resulting in industrial action across the states.

With the affected states clamouring for a bailout from the Federal Government, the NEC, at its meeting of June 29, 2015, requested the CBN to collaborate with other stakeholders and consider ways of liquidating the outstanding staff salaries owed by state and local governments. After series of meetings, the Federal Government, last week, gave approval to Debt Management Office (DMO) to raise bonds for 11 states to offset their loans to commercial banks. The DMO’s bond has between 15 and 20 years tenor. Fourteen banks are involved in the phase one of the state’s debt restructuring exercise involving 11 states.

The first 11 states that got their debts to commercial banks restructured are Osun – N88.6 billion; Delta – N69.8 billion; Ogun – N55.4 billion; Imo – N37.1 billion; Ekiti – N18.8 billion and Kwara N15.6 billion. Edo had N11.9 billion; Benue – N10.9 billion; Oyo – N9.1 billion; Bauchi – N6.5 billion and Kogi – N0.81 billion.

All these debts amounted to N322.78 billion Speaking on Monday in Abuja, Director-General of DMO, Dr. Abraham Nwankwo, said that the 11 states that had their commercial debts restructured would pay 14.83 per cent of the value of their domestic bonds, which their debts to commercial banks were converted into.

He said the debt restructuring “is good not only for the states, but also for the banking system because banks’ balance sheets will improve, as weak subnational loan, which threatened banks’ assets and balance sheets will be replaced with high quality sovereign assets.”

He noted that the FGNBonds enjoy enhanced liquidity as they are traded in the strong secondary market and banks would have improved space to lend to other sectors of the economy as they are free to convert their FGNBond holdings into cash in the secondary market whenever they desire.”