Nigeria sets deadline for rescued bank deals

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Nigeria’s rescued banks have until the end of September to reach recapitalisation deals with new investors or face liquidation if they refuse to accept funds from state bad bank AMCON, said the central bank.

 

Nigeria in 2009 injected $4 billion into nine lenders deemed by auditors to have become so weakly capitalised that they posed a risk to the entire banking system in sub-Saharan Africa’s second-biggest economy.

The AMCON asset management company was set up to restore them to zero shareholders’ funds, while new investors have been sought to bring them up to minimum capital adequacy, Reuters reports.

Where lenders fail to reach merger agreements, the central bank has said AMCON could inject funds, effectively nationalising them, but there has been resistance to this from some bank directors and shareholders.

“We can’t keep the process open indefinitely,” Central Bank Governor Lamido Sanusi told Reuters on Tuesday.

“If there is no agreement (with new investors), clearly option B is AMCON recapitalisation and option C liquidation.”

Four of the banks — Afribank, Finbank, Intercontinental Bank and Union Bank — have already signed merger deals.

Two more — Bank PHB and Oceanic Bank — have held talks with potential suitors but have so far been unable to agree commercial terms.

“September 30 is a very firm deadline for the consummation of all mergers and acquisitions,” Kingsley Moghalu, deputy central bank governor in charge of financial system stability, told a news conference in Abuja.

“Where this is not met, the central bank will be free to exercise the option of liquidation,” he said.

COMMITMENT TO REFORM

Sanusi’s bailout of the banks sent shockwaves through the corporate elite in Nigeria, particularly after he sacked bank chiefs deemed to have been responsible for mismanagement, a move which had the backing of late President Umaru Yar’Adua.

Some analysts have questioned whether the reforms — which met with fierce opposition from ousted bank chiefs — will enjoy the same level of support from the new administration of President Goodluck Jonathan, who was sworn in on Sunday.

The regulator’s latest comments gave grounds for optimism.

“The central bank is taking much more of a hardline approach on the banking system cleanup,” said Razia Khan, head of Africa research at Standard Chartered.

“It does show strong resolve on the part of the regulator to see this through, which presumably they could only be doing with Jonathan’s backing. So it’s a good early sign of the commitment to reform under the new administration,” she said.

Sanusi said earlier this month he did not expect any of the systemically important rescued banks to fail to reach deals and that AMCON could potentially capitalise Bank PHB or Oceanic and get them ready for sale in a few years’ time.

Two of the other rescued banks — Spring Bank and Equitorial Trust Bank, which accounts for less than 1 percent of the total banking sector in Nigeria — are seen as systemically unimportant.



The ninth rescued lender, Wema Bank, is restructuring into a regional bank, which has a significantly lower minimum capital requirement than national banks. It has already raised capital to ensure its survival.