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NewsDecember 8 2010

Nigeria takes action to absorb bad loans

Nigeria's 'bad bank' aims to issue bonds to the value to N2200bn ($15bn) as the country's central bank tries to recapitalise rescued banks and restore lending.
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Nigeria takes action to absorb bad loansMore control: Central bank Governor Lamido Sanusi

The recently formed state asset management company, AMCON, plans to issue zero-coupon bonds in five tranches through Nigeria's debt management office, to absorb bad loans from the $4bn bailout of nine domestic banks last year.

The move follows new banking rules introduced by the Central Bank of Nigeria that will see the implementation of a new banking model aimed at reducing operational risks in the Nigerian banking sector, as well as restructuring banking operations.

Previous universal banking guidelines, which have been in existence since 2000, have been repealed, as they were considered to be partially responsible for exposing banks to higher-risk non-banking businesses. Only commercial, merchant and specialised banks, which include non-interest banks, microfinance banks, development banks and mortgage banks, will be permitted to carry out banking activities in Nigeria.

The new rules allow central bank governor Lamido Sanusi greater control over the country's banking industry as he attempts to tighten regulation and improve liquidity. The new banking landscape is already starting to take shape; two of the country's rescued banks are in talks with foreign investors about recapitalisation. Bank PHB is in discussions with Pakistan-based Habib Bank about increasing its shareholding, while Union Bank is in talks with a consortium of private equity investors, including local firm African Capital Alliance.

Four other rescued banks - Afribank, Oceanic Bank, Intercontinental Bank and FinBank - are in talks with local rivals about possible mergers. Wema Bank raised N9bn in a share placement in September and is restructuring to become a regional bank. Only two of the smaller rescued banks, Spring Bank and Equitorial Trust Bank, have yet to find potential suitors.

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