Nigeria to Buy $14.6 Billion of Toxic Debt, More Than Previously Forecast

Nigeria will buy 2.2 trillion naira ($14.6 billion) of bad debts from commercial banks by the end of the year, the central bank said, raising its previous forecast.

The state-owned Asset Management Corp. of Nigeria, or Amcon, will value loans backed by shares in listed companies at about 60 percent of the 60-day average price to Nov. 15, the Abuja-based Central Bank of Nigeria said in an e-mailed statement. Unsecured loans will be valued at 5 percent of the principal value.

“It is expected that Amcon will reach agreements with the selling institutions regarding pricing of non-performing loans by Nov. 15 and aims to settle these transactions on or before Dec. 30,” the company’s board said.

Central bank Governor Lamido Sanusi said on July 1 that Amcom would clear about $10 billion of toxic debts by year-end at a cost of “roughly” $5 billion. Much of the bad debt stems from loans to speculators in the local stock market and operators in the oil and gas industry. The purchases aim to revive lending by the banking industry.

Nigeria, Africa’s most populous country and biggest oil producer, last year fired the chief executive officers of eight lenders and bailed out the industry with $4.1 billion to avoid a collapse of the industry. The Senate approved the appointment of board members for Amcom on Nov. 3.

Methodology

For non-performing loans backed by collateral other than shares, Amcon will accept the most current estimate of the loan value supplied by the lender, according to today’s statement.

The announcement is a “simple top-down positive for the Nigerian banking sector,” David Nangle, an analyst at Renaissance Capital, said in an e-mailed statement today. “The process does seem generous in parts and effectively a state subsidy.”

Lenders that failed the central bank’s audit include Afribank Nigeria Plc, Finbank Plc, Union Bank of Nigeria Plc, Bank PHB Plc, Oceanic Bank International Plc, whose shares have surged 74 percent this year, Unity Bank Plc, Spring Bank Plc, Intercontinental Bank Plc, Equitorial Trust Bank Plc, and Wema Bank Plc, which has gained 63 percent over 2010.

“Failed banks which have rallied hard of late should benefit especially from the clarity in the overall process,” Nangle said. “With this process finally behind us we can start once again to welcome credit growth, an improvement in non- performing loan ratios and provisioning charges and the return of the mergers and acquisitions trade.”

The Nigerian Stock Exchange Banking Index, which tracks the performance of the 10 biggest commercial banks, climbed 3.8 percent, the most since Oct. 13, to 381.63 by the 1 p.m. close in Lagos, Nigeria’s commercial capital.

To contact the reporters on this story: Paul Okolo in Abuja at pokolo@bloomberg.net; Ana Monteiro in Johannesburg at amonteiro4@bloomberg.net.

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net.

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