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With
the transfer of N1.036 trillion worth of nonperforming loans (NPL) to
the Asset Management Corporation of Nigeria (AMCON), there is optimism
that the banking industry will play a leading role in boosting economic
growth this year. Nigerian banks have been bogged down by huge NPLs
which have limited their ability to lend to the economy and led to
massive job cuts in the sector.

According
to analysts at FSDH Securities Limited, a financial services and
advisory firm, subject to having a successful general election and
smooth transmission of power in the country, the economy will do better
this year. “Looking at the reforms in the financial industry and the
policy initiatives of the Federal Government, we are inclined to
believe that the financial market and the economy will enter a phase of
real growth in 2011,” stated its weekly financial market report.

Following
the sack of nine banks’ chief executives in 2008 and the injection of
about N627 billion to save the institutions from collapse, the
financial sector has been wavering. This resulted in the near crash of
the capital market. However, with the asset company taking over the
banks debts, there is confidence that the economy will rebound.

Profitable and rewarding

AMCON
last Friday signed an asset purchase deal with 21 banks that saw the
transfer of the banks’ NPLs to AMCON, thus freeing the banks from the
burden of carrying such huge debts in their books. The banks were
issued with bond certificates covering the amount of NPLs in their
books. The bond was issued to the eligible financial institutions for
AMCON to acquire the eligible banks assets comprising almost all the
NPLs in the nine banks rescued in 2008 as well as margin related NPLs
from the non rescued banks.

The
initial bonds will be replaced with longer tenured bonds to bring the
sector back to minimum capital adequacy levels and bring net asset
values to zero before new acquirers will come in to inject sufficient
further capital to meet minimum capital requirements.

AMCON
executive director, finance and operations, Mofoluke Dosumu, said the
initial consideration bonds were the first instrument rolled out to
absorb the non performing loans in the banking system.

“Within
the first quarter of 2011, we will be swapping these with another set
of tradable bonds. We will be issuing more bonds as we buy up more non
performing loans, which is up to N3 trillion in total.” Interventionist
regulator

Analysts expect that funds will be directed to critical sectors of the
economy, in order to achieve growth. Razia Khan, Regional Head of
Research, Africa, at Standard Chartered Bank, UK said tighter
regulation will be required to prevent a repeat problem. “While few
policy changes are anticipated at the outset, this raises the
possibility of a more interventionist regulator, looking to boost
lending to strategic sectors such as power and industry, and to fulfil
broader financial inclusion aims,” Ms. Khan stated.