World Bank’s package for acquisition of distressed banks excites analysts




It’s tacit support for our reforms, says CBN Disbursement of N45 billion to GTBank and First Bank by the World Bank to aid in the acquisition of distressed banks has been described as a good omen that will hasten resolution of the crisis in the industry, experts have said.


To them, it is an indication that the proposed establishment of Asset Management Corporation of Nigeria (AMCON) has engendered confidence in both local and foreign investors with the aim of freeing their balance sheet for lending to the real sector.


This, to them, will usher in the final part of the process of recapitalisation of the institutions with the attendant consequence of healthier and well regulated sector. Under the arrangement, IFC, the private sector arm of the World Bank, has disbursed N30 billion to Guarantee Trust Bank and N15 billion to First Bank Nig. Plc, as part of its strategic partnership with the banks. In fact, Central Bank of Nigeria (CBN) sees the development as endorsement of its reform programme and an indication that confidence in the sector is on the increase.


“It is a tacit support for CBN’s reforms and a confirmation of the rising confidence”, Abdullahi Muhammed, CBN spokesperson, told BusinessDay on Wednesday. Razia Khan, global head of Macro Economic Research, Standard Chartered Bank, said “the implications are mostly positive. A lot was resting on the formation of AMCON to ensure an effective resolution of the banking sector problems. With the expectation that balance sheets will be cleaned up, banks should be in a better position to start lending again. Recapitalisation will happen both through the activities of the AMCON, and through a new wave of mergers and acquisition (M&A) activity resulting in further consolidation in the sector. From this perspective, the availability of funding for the consolidation – with the IFC providing more than USD300 million is good news as it should instill confidence that the problems in the banking sector will be resolved.


“There is less uncertainty around the whole process which now looks closer to resolution. The immediate priority was making the banks safe, and that was done last August with the provision of liquidity support to the rescued banks. The next step will be cleaning up the balance sheets – which should finally get underway with the AMCON. The final part of the process will be recapitalisation of the institutions which should create a healthier, and one hopes, better-run and better regulated sector overall. With a restoration of sustainable credit growth, the economy should benefit. The restoration of credit growth should make the difference between unexciting GDP growth and out-performance. Of course, it’s only one of the ingredients that is needed, but an important one.”


Akinbamidele Akintola, research analyst, Africa, Renaissance Group, was of the opinion that resolution of the crisis through the establishment of AMCON has positive effect, while urging authorities that necessary structure be put in place for smooth take off.


“While we are not yet at the finishing line, today’s announcement is a significant step towards the end of the reform process started over one year ago. This is indeed a welcome development.” A stockbroker, who pleaded anonymity commended the World Bank for the initiative, but added that the development provides opportunity for CBN to be vigilant as he expects flurry of activities and inquiries in the coming months about the banks since their balance sheets are expected to witness improvement.


“All sources of funding coming into the country must have to be screened by CBN and other relevant agencies to avoid mistakes of the past. At least, for now, we are sure of the World Bank,” he said.






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