A government company that will buy Nigerian banks’ bad debts, which total about $6.6 billion, will provide a boost to the West African country’s stock exchange, Financial Derivatives Co. Ltd. said.
The Asset Management Corp., which was approved by Nigeria’s lower House of Representatives on June 3, will buy the debt and inject funds into troubled lenders. The company will start with a minimum of 20 billion naira ($132.4 million).
The company’s approval “bodes well for the sustainability and stability of the market,” Bismarck Rewane, chief executive officer of the Lagos-based brokerage, said in a telephone interview June 3.
A debt crisis in 2009 left the banks with toxic assets of about $10 billion, New York-based Eurasia Group estimated a year ago. The Central Bank of Nigeria fired the top managers of eight of the country’s 24 lenders and gave the industry an injection of 620 billion naira to stem the industry’s decline.
The bad assets are now “over 1 trillion naira” or more than $6.6 billion, central bank spokesman Mohammed Abdullahi said by phone from the capital, Abuja, on June 4. The current figure is “not more than” the amount of bad debt banks had before the bailout, Abdullahi said, declining to provide a figure.
Buying the bad debts will “make a difference to the level of non-performing loans, freeing up bank balance sheets so they can extend credit again,” said Razia Khan, London-based Africa analyst with Standard Chartered Plc.
The amount of toxic loans means the initial capital of the company “will not do much,” said Raheem Mohammed, general manager of Lagos-based Kundila Finance Ltd.
“If we are expecting the market to recover, then government has to sell more bonds,” he said by phone from the commercial capital June 3. The new company will be partially funded through the sale of 10-year bonds that will be guaranteed by the Finance Ministry, central bank Governor Lamido Sanusi said in May.
The Nigerian Stock Exchange’s All Share Index has risen 27 percent since the start of the year, outpacing growth of 1 percent on the MSCI Frontier Market Index. The Nigerian measure plunged 80 percent from the end of 2007 to last year.
Wema Bank Plc, one of the lenders bailed out by the central bank, is “close in achieving” the recovery of 10 billion naira in bad loans, it said on May 25.