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Two of Nigeria’s
nine rescued banks are in talks with foreign investors about
recapitalisation, but most of the others are more likely to be taken
over by local rivals, banking sources said on Thursday.

Sub-Saharan
Africa’s second-biggest economy rescued nine lenders deemed to be
dangerously undercapitalised in a $4 billion bailout last year. The
Central Bank has been trying to find new investors to help recapitalise
them since then.

Nigeria has set up
a state-run Asset Management Company (AMCON) to help absorb up to 2.2
trillion naira of bad bank loans, but this will only bring the rescued
lenders back to zero shareholder funds.

“AMCON will do the
non-performing loan purchase, but after that, there will still be a
hole, and that hole will have to be filled through mergers,” one senior
banking source said.

Banking sources said two of the lenders – Bank PHB and Union Bank – were in talks with foreign investors.

Four more are
talking to local banks, one has raised funds and will scale down to
survive, while two others have yet to find potential suitors, the
sources said.

A banking source
familiar with the negotiations said Habib Bank Ltd – one of Pakistan’s
biggest lenders, which is majority owned by the Aga Khan Fund for
Economic Development – was in talks with Bank PHB about increasing its
shareholding. Bank PHB was created in 2005 out of a merger between
Habib’s local subsidiary and Nigeria’s then Platinum Bank, and Habib
still has an interest in the bank. Bank PHB declined to comment.

Union Bank is in
talks with a consortium of private equity investors including local
firm, African Capital Alliance, World Bank private sector lender, the
International Finance Corp (IFC), and U.S. trade promotion agency, the
Overseas Private Investment Corporation (OPIC), banking sources said.

The consortium also
includes Botswana-based ABC, the parent company for several sub-Saharan
African banks, Keffi Capital, run by a former Goldman Sachs executive,
and London-based Auctor Capital Partners, the sources said.

Union Bank has said it is in exclusive talks with a potential suitor, but has made no further comment.

Central Bank
governor, Lamido Sanusi, has said foreign private equity investors and
banks are among those interested in the rescued lenders, but has given
no details.

Local consolidation

Four more rescued
banks – Afribank, Finbank, Oceanic Bank, and Intercontinental Bank –
are in talks with healthy local rivals about recapitalisation, the
banking sources said.

Afribank is
considering a bid by Fidelity Bank – which said last year it was
interested in a potential acquisition – several sources said. Fidelity
confirmed it had bid for a rescued bank, but made no further comment.

First City Monument
Bank (FCMB) is the preferred bidder for Finbank, which is less than a
tenth its size at current market prices, sources have said. Finbank has
said it is in talks with a potential investor, but made no further
comment.

Oceanic Bank and
Intercontinental, among the biggest of the rescued banks, are also in
talks with local competitors, but these are at an early stage, sources
said.

Spring Bank and
Equitorial Trust Bank (ETB), among the smallest of the distressed
banks, were yet to find suitors. Neither of the banks could be reached
for comment.

The ninth bank,
Wema, is restructuring into a regional bank, which has a significantly
lower minimum capital requirement than national banks. It raised 9
billion naira in a share placement in September, and has won approval
to raise 7.5 billion naira more to ensure its survival.

A tenth bank, Unity
Bank, was judged to have insufficient capital last year, but was not
given a capital injection because it had a healthy liquidity position.

It has increased its capital base to the minimum requirement, after raising 17.34 billion naira in a rights issue this year.