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Nigeria ‘bad bank’ plan poised for launch

By John Chiahemen
25 May 2010

Nigeria’s proposed ‘bad bank’ to buy back toxic assets from troubled lenders is expected to start operating in two weeks, central bank governor Lamido Sanusi told Emerging Markets

Nigeria’s proposed ‘bad bank’ to buy back toxic assets from troubled lenders is expected to start operating in two weeks, central bank governor Lamido Sanusi has said.

Sanusi told Emerging Markets in an interview that the government’s planned Asset Management Company (AMC), that will buy back bank loans openly and transparently, would be put in place as soon as President Goodluck Jonathan signs it into law. Then credit can start moving through the system again.

The premium to be placed on the price of the assets will be determined in advance to ensure transparency. The central bank will depend on its advisers for the valuation, but it must be at a level that will not incur losses for the AMC in future, Sanusi said.

The AMC bill has gone through a third reading in both houses of Nigeria’s National Assembly and a committee has been set up to harmonise differences between them.

“We expect that that will happen next week,” Sanusi said. Once the harmonized bill has been passed into law “we should be ready to get the president to sign it into law sometime in the following week or two.”

Sanusi, a risk management expert and former CEO of one of Nigeria’s leading commercial banks, has shaken up the Nigerian banking system since he was appointed central bank governor by late president Umaru Yar’Adua last year.

He fired the heads of eight leading banks that failed the central bank’s audit, and injected more than 600 billion naira (about $10 billion) to bail them out. The AMC will buy back their non-performing loans.

Nigerian banks have almost stopped lending to the productive sector, plunging Africa’s second biggest economy into probably its biggest credit crunch.

“The way the AMC is structured is that the price we pay for the loan today is tied to our estimation of the net book value of the assets over time,” Sanusi said. “Whatever premium we pay today must be such that in our estimation will not impose losses on the AMC in the future.”

In essence, the bank will have to give shares to the AMC, for any extra amount paid over and above what is determined as the bid price, Sanusi said. “So the AMC will play the role of both toxic asset buyback and a recapitalization vehicle,” he added.

Sanusi said he was not really worried about the level of Nigeria’s foreign reserves which appeared under sudden pressure last month. They shrunk by 0.96% in the last two weeks of April after rising 1.6% in the first two weeks.

He attributed the fall mainly to payments of backlogs in Nigeria’s share of operating costs, or cash calls to its oil joint venture partners. But he said the outlook looked favourable because of buoyant prices for Nigeria’s mainstay oil exports.

“There is no pressure (on reserves) in the sense that we do not envisage a massive reduction in oil prices or in output in the short to medium term and we do have 17 months of imports,” he said.

By John Chiahemen
25 May 2010