Rescued banks: CBN to clear toxic debts by year end – Sanusi


By Sunday Ojeme with agency report Friday, 2 Jul 2010 


The Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi, has said that the CBN plans to clear the toxic debts from the banking system by the end of the year as it tries to revive lending and boost growth.He also said that it would cost roughly N750bn to purchase the bad debts hanging around the rescued banks.


Sanusi, in an interview with Bloomberg News in London on Thursday, said the debt purchases would cost the bank ”roughly” $5bn as commercial banks did not have collateral to cover the bad loans.He said with the focus on cleaning up banks‘ balance sheets, the CBN was unlikely to change interest rates.


Sanusi fired the chief executive officers of eight banks last year and pumped N620bn to recapitalise the banks after a debt crisis that almost crippled the industry.According to him, ”We have stopped the hemorrhaging. The hole is not getting any deeper and there is no compelling reason to change rates.”


CBN left the benchmark rate at six per cent on May 11. It also does not see any need to alter the exchange rate policy, which has kept the naira at about N150 to the dollar since February 2009.“It would be wise not to disrupt the balance,” the CBN governor said.Bank lending has been slow to recover after last year‘s bail-out of the system.


“It will take a little while,” Sanusi said in an interview with Bloomberg TV. ”The general macroeconomic environment has to improve and a lot of that is about soft issues. It is about confidence, it is about belief, it is about faith,” he said.Credit to private industry fell in January, February and March, before gaining 0.3 per cent in April, according to the CBN website.


Economic growth will probably recover this year, accelerating to 4.4 per cent from three per cent in 2009, according to the African Development Bank. The economy is expected to maintain a growth of 5.5 per cent in 2010.Sanusi said, “The vulnerability of Nigeria is easily addressed with the right policies.


“We need to have structural transformation. We have Gross Domestic Product growth that is driven by domestic demand. It is just a question of improving productivity in our culture, improving critical infrastructure and creating a better business environment.”The CBN is waiting for presidential approval for a law that will create the Asset Management Corporation of Nigeria, a government entity that will buy the bad debts, using funds raised through government-guaranteed bond issuance. The bonds will be issued on a deal by deal basis.


Nigeria also had room to borrow more on international capital markets, Sanusi said, as the country prepares to sell a $500m bond later this year.“Total gross national debt of Nigeria is less than 12 per cent of GDP,” he said, adding that ”in taking long-term foreign debt, as long as we hedge the foreign exchange and interest rate risk, that is probably better than taking more domestic debt at this time.”






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