FG may buy banks’ bad debts in July – Sanusi
By Yemi Kolapo and Oluwole Josiah with agency report, Published: Thursday, 6 May 2010




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CBN Governor Lamido Sanusi, CBN Headquarters in Abuja (background).



The Federal Government will be able to start buying bad debts from the deposit money banks in July, paving the way for a pick-up in lending and economic growth, the Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi, has said.



Sanusi based his optimism on the likely passage of the Asset Management Company bill by the Senate. The bill was later passed on Wednesday.



Sanusi told Bloomberg in an interview in Bahrain on Wednesday that “in all likelihood, we will have a law in the month of May. Once that is in place, we can have transactions as early as July.”



Nigerian banks cut back on lending after a debt crisis last year left them with toxic assets estimated to be worth $10bn by Eurasia Group, a New York-based research company, in May. The central bank sacked the top managers of eight banks for their handling of the crisis and bailed out the industry with an injection of N620bn.



The banking crisis had damped lending and growth in the economy, which would probably expand by seven per cent this year, little changed from 2009, Sanusi said, adding that banks were unlikely to pick up lending before their balance sheets were repaired.



Credit to the private sector fell for the third consecutive month in March, dropping by 0.2 per cent from the month before, the apex bank said on Wednesday.



Sanusi said Nigeria‘s inflation rate might drop below 10 per cent by the end of the year and was ”not a big risk” at present. Inflation slowed to 11.8 per cent in March from 12.3 per cent the month before.



Government spending had not been ”aggressive” and much of the budget remained unspent, he also noted.



In line with the various options available for banks to pull through these turbulent times, one of our correspondents also gathered that the sector might begin to see mergers and acquisitions between players from July. It was learnt that talks were already ongoing on possible M&As.



With increased transactions, the banks will be able to reposition for optimal performance in the new banking regime.



The Senate approved the legislation to create the asset management company, which would help return the banking sector to a lending position, on Wednesday.



The Senate Committee on Banking, Insurance and other Financial Institutions, however, warned that the proposed Asset Management Company of Nigeria would not foreclose the failure of banks.



Chairman of the committee, Senator Nkechi Nwaogu, gave the warning, just as the Senate passed the bill on Wednesday to establish the company that would help banks dispose their toxic assets.



She said, “It does not totally obliterate or totally foreclose bank failures because there are banking institutions that, maybe the amount of remedy they will require will be economically unwise, when we begin to put every other thing into perspective.



“So, there will still be death. It is expected that if it had not been for the measures that were put in place, perhaps we might be talking about many more bank failures as we have today.”



The bill, which was sponsored by the Senate Leader, Senator Teslim Folarin, was earlier committed to three committees – banking, finance and capital market – for treatment.



While presenting the bill for a third reading, Nwaogu said that AMCON would have an authorised share capital not less than N20bn, which would be subscribed to by the Federal Government and held in trust by the CBN and the Ministry of Finance.



She said the Federal Government would guarantee the bonds or debt instruments notwithstanding the provisions of Section 47 of the Fiscal Responsibility Act.



According to Nwaogu, “The corporation shall have special powers to act as or appoint a receiver/manager for a debtor company, whose assets have been pledged as collateral for an eligible loan/debt acquired by it.



“The corporation will have the power to designate any class of bank assets as eligible bank assets and will not require borrowers’ consent for the purchase of eligible bank assets.”



There were, however, arguments on the powers of the President to appoint members of the board of directors because the bill had stipulated that the Ministry of Finance and the CBN would recommend for nomination, those to sit on the board.



http://www.punchng.com/Articl.aspx?theartic=Art201005060592426

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