Nigeria Aims to Clear $10 Billion of Toxic Debts From Banks by End of Year
July 1 (Bloomberg) -- Lamido Sanusi, governor of the central bank of Nigeria, talks about the country's decision to set up a so-called bad bank to buy toxic debts from lenders. Sanusi also discusses the Nigerian exit from the World Cup in South Africa. He speaks with Francine Lacqua on Bloomberg Television's "Countdown." (Source: Bloomberg)
Nigeria’s central bank plans to clear about $10 billion of toxic debts from the banking system by the end of the year as it tries to revive lending and boost growth, Governor Lamido Sanusi said.
The debt purchases will cost the bank “roughly” $5 billion as commercial banks don’t have collateral to cover the bad loans, Sanusi said in an interview in London today.
With the focus on cleaning up banks’ balance sheets, the central bank is unlikely to change interest rates, Sanusi said. The bank governor fired the chief executive officers of eight of the country’s 24 banks last year and pumped 620 billion naira ($4.1 billion) to recapitalize the lenders after a debt crisis almost crippled the industry.
“We have stopped the hemorrhaging,” Sanusi said. “The hole is not getting any deeper,” and while the central bank consolidates the financial industry there is “no compelling reason to change rates.”
The bank left the benchmark rate at 6 percent on May 11. Neither does it see any need to alter its exchange rate policy, which has kept the naira at about 150 to the dollar since February, 2009, and helped maintain inflation between 10.4 percent and 13 percent since June, Sanusi said.
“It would be wise not to disrupt the balance,” he said.
Sanusi, who was previously chief executive officer of First Bank Plc, was appointed central bank governor in June last year, replacing Chukwuma Soludo.
Credit Growth
Nigeria, Africa’s most populous nation with 150 million people, vies with Angola as the continent’s biggest oil producer. The West African nation also has the second-biggest economy on the continent after South Africa.
Bank lending has been slow to recover after last year’s bailout of the system.
“It will take a little while,” the governor said in an interview with Bloomberg TV. “The general macroeconomic environment has to improve and a lot of that is about soft issues. It’s about confidence, it’s about belief, it’s about faith.”
Credit to private industry fell in January, February and March, before gaining 0.3 percent in April, according to the central bank website.
Economic growth will probably recover this year, accelerating to 4.4 percent from 3 percent in 2009, according to the African Development Bank. Nigeria’s government expects growth of 5.5 percent in 2010.
‘Structural Transformation’
“The vulnerability of Nigeria is easily addressed with the right policies,” Sanusi said. “We need to have structural transformation. We have GDP growth that’s driven by domestic demand. It’s just a question of improving productivity in our culture, improving critical infrastructure and creating a better business environment.”
The central bank is waiting for presidential approval for a law that will create the Asset Management Corp. of Nigeria, a government entity that will buy the bad debts, using funds raised through government-guaranteed bond issuance. The bonds will be issued on a deal by deal basis.
Nigeria also has room to borrow more on international capital markets, Sanusi said, as the country prepares to sell a $500 million bond later this year.
“Total gross national debt of Nigeria is less than 12 percent of GDP,” the governor said. “In taking long-term foreign debt, as long as we hedge the foreign exchange and interest rate risk, that is probably better than taking more domestic debt at this time.”
To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net; Francine Lacqua in London at flacqua@bloomberg.net.
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