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It will take at
least two years for Nigeria’s banking industry to return to investment
grade rating as it recovers from the impact of last year’s $4 billion
bailout, the country’s oldest ratings agency said on Tuesday.

In a report
published this month, Agusto & Co assigned a Bb moderate risk
rating with positive outlook to the banking sector, citing weak
capitalisation and a sharp deterioration in credit quality, but said it
expected profitability to improve.

Yinka Adelekan,
Agusto’s head of financial institutions, told Reuters a re-rating to
investment grade was possible in 2 – 4 years, once banks bailed out
last year are recapitalised.

“We see a recovery in the medium term,” Ms. Adelekan said in an interview in her office in Lagos.

Global ratings
agency, Standard & Poor’s, which rates Nigerian banks in the single
B category, said in June the sector continued to be “high risk.” In
March, Fitch said it expected Nigerian bank earnings to remain under
pressure throughout 2010.

Adelekan said the
industry’s average return on equity (ROE) was expected to climb back to
17-18 percent in two years, from a negative 56 percent currently as
lending resumes and bad loans are re-financed with the assistance of
the central bank.

The central bank
said in May it would make available 500 billion naira ($3.3 billion) to
stimulate credit to the country’s troubled airline, power, and
manufacturing sectors to help firms indebted to banks to refinance
loans over a 10-15 year period.

Nigeria is also in
the process of setting up an asset management company (AMCON) which
will buy non-performing loans from banks in exchange for government
bonds and help restore credit flows in sub-Saharan Africa’s
second-biggest economy.

AMCON also aims to make the nine lenders rescued in last year’s bailout more attractive to new investors.

The central bank
said two weeks ago it had received bids for four of the nine rescued
lenders and expected bids for the remaining banks to be ready by the
end of August.

Adelekan said she
did not expect deals to recapitalise the rescued banks before 2012, by
which time the troubled lenders would be publishing full-year results
reflecting AMCON’s purchase of non-performing loans.

“I think investors
will wait to see things properly by December 2011 before they say we
are coming in,” she said, adding that many investors had burned their
fingers in the stock market crash and would be shy of returning too
soon.

Nigeria went
through a first round of banking sector consolidation in 2005, which
reduced the number of lenders to 25 from 89. Analysts have said they
expect the country to have 15 banks at the end of current reforms.

Adelekan said the experience of 2005 showed the process of consolidation would take several years to settle.

“From the
experience we had when M&A took place in the past, some banks took
three years to fully wrap up a transaction and become fully operational
to be able to post profits,” she said.