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Nigeria May Nationalize Banks If Cash-Injection Target Ends

Central Bank of Nigeria Governor Lamido Sanusi
Lamido Sanusi, governor of the Central Bank of Nigeria, has led a restructuring of the banking industry since the 2009 debt crisis, which was sparked by a slump in equities and oil prices and resulted in $10 billion of toxic debts on banks’ books. Photographer: Chris Ratcliffe/Bloomberg

Nigeria may nationalize banks that don’t meet a Sept. 30 deadline to increase their equity, rather than forcing them to liquidate, the central bank’s Deputy Governor Kingsley Moghalu said.

The Asset Management Corp. of Nigeria, or Amcon, created by the central bank to buy the bad debts of lenders, may become a majority shareholder in rescued banks by plugging their equity shortfalls, Moghalu said in an interview in South Africa’s capital, Pretoria, on July 1.

The Central Bank of Nigeria bailed out eight of the country’s 24 lenders in 2009, pumping 620 billion naira ($4.1 billion) into the industry to prevent its collapse. The rescued banks have until the end of September to recapitalize or merge with new investors to avoid liquidation. Finbank Plc, Intercontinental Bank Plc and Union Bank of Nigeria Plc are the only lenders to agree on transactions so far.

“The deadline is a very serious one,” Moghalu said. “We have the responsibility as a systemic financial regulator to make sure the banking system is normalized by the end of the year.”

While nationalization is not the “favored option,” it is preferable to liquidation, Moghalu said. If Amcon takes a majority stake in a lender, it may manage the bank for a year or two before selling it, he said.

Stability Restored

Governor Lamido Sanusi has led a restructuring of the banking industry since the 2009 debt crisis, which was sparked by a slump in equities and oil prices and resulted in $10 billion of toxic debts on banks’ books. Intercontinental Bank and Union Bank are among failed lenders that have returned to profit.

“Stability in the short term has been achieved,” Moghalu said. “The banking system is functioning. We are working towards medium to long-term stability, but for that to happen, we must resolve the eight banks in which we’ve intervened.”

The Bloomberg NSE Banking Index, which comprises the 10 biggest Nigerian lenders, fell 0.5 percent to 363.24 at the close of trading in Lagos. Oceanic Bank International Plc, one of the lenders bailed out by the central bank, fell 1.4 percent to 1.44 naira, while Bank PHB Plc increased 1.2 percent to 83 kobo. The other rescued banks are Afribank Plc, Equitorial Trust Bank Ltd. and Spring Bank Plc.

“While the Central Bank of Nigeria appears to have soft-pedaled relative to its initial stance,” Moghalu’s comments indicate it is still determined to refinance the failed banks, Adesoji Solanke, a banking analyst at Renaissance Capital in Lagos, said in a note to clients today.

Stalling Tactics

Some shareholders and former bank executives have sought to stall the recapitalization process through court action. Erastus Akingbola, the previous managing director of Intercontinental Bank, and Finbank’s ex-Managing Director Okey Nwosu, had their applications to halt the process dismissed last month.

A lack of clarity on the positions of Nigeria’s failed banks has led to “uncertainty” for investors, Fitch Ratings said on June 15. If Nigeria is “less inclined” to support the banks, there may be negative implications for the ratings on Nigerian banks, Fitch said.

“There are a number of vested interests coming to scuttle the process,” Moghalu said. “I can assure you those vested interests won’t prevail. As the regulator, we have the policies and powers to make sure we restore full financial stability one way or another.”

At least three of the rescued banks are expected to sign agreements with investors in coming weeks, Moghalu said, declining to elaborate further. The central bank is also investigating options aside from nationalization and liquidation for lenders that fail to meet the Sept. 30 deadline, he said, without giving details.

“I want to downplay the option of liquidation,” Moghalu said. “We put out the threat, but it was to concentrate people’s minds. It doesn’t mean we will wake up and liquidate banks. If people want to play rough, we have to show them we can play rough.”

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