Bank suitors seek clarity on bad loans


WEDNESDAY, 04 AUGUST 2010 01:19


A number of potential investors in Nigeria’s rescued banks have completed due diligence but uncertainty over how the state’s “bad bank” will value non-performing loans could slow the sale process, banking sources have said.


The Central Bank of Nigeria (CBN) invited bids last November for nine weakly capitalised lenders rescued months earlier in a $4 billion bailout, and said it would set up an asset management company to take out bad loans and make the banks saleable. Asian and South African banks as well as U.S. private equity firms have shown interest in the financial institutions, banking sources said on Tuesday. CBN governor, Sanusi Lamido Sanusi had said he hoped to announce some deals in July or August.


However, the bad bank, Asset Management Company of Nigeria (AMCON), has taken longer than anticipated to form. It was signed into law only last month. Even though many potential investors have carried out due diligence, uncertainty remains over how AMCON will price the bad loans, banking industry sources said.


“The major worry in the market today is how AMCON will value these non-performing assets. Is it going to take the assets at mark to market, at a premium or a discount?” said Anthony Orororo, head of research at Future View Financial Services.“Any investor that wants to buy into these banks has to know what AMCON is going to do,” he said. The central bank determines the guidelines for the valuation and pricing of eligible assets but they must be loans secured by collateral and on the lender’s books at least 30 days before August 14, 2009, according to the new AMCON law.


Many of the rescued banks have non-performing loans that were not fully collateralised, raising questions about how they will be treated by AMCON, industry sources said. AMCON plans to exchange bad loans for seven-year government bonds within three months of designating a bank asset as eligible and then chase recovery of the non-performing loans while the bank concentrates on restoring lending. But the rescued banks wrote off N2.2 trillion in bad loans after the bailout and the central bank estimates their total negative share capital is N1.5 trillion.


Investors are concerned that AMCON may not be able to restore those negative shareholders’ funds to zero — and if that is the case, what it will do about the difference. Analysts say at least one or two of the rescued banks will have to raise up to $1 billion to comply with the minimum Tier 1 capital adequacy ratio of 10 percent.


“AMCON is a resolution vehicle … it must at least get the troubled banks squared to zero to make them attractive for any investor to recapitalise them to minimum capital adequacy,” said one banking executive involved in the due diligence process, who asked not to be named. He said each of the rescued banks had at least three or four interested parties that had conducted due diligence on them. Foreigners were looking at how they could restore them to profitability while locals were seeking synergies. “The focus is trying to understand the business streams, understand the customers, understand the loan book and the possibility of recovery pre- and post-AMCON,” he said.


The nine rescued banks are Afribank, Bank PHB, Equitorial Trust Bank, Finbank, Intercontinental Bank, Oceanic Bank, Spring Bank, Union Bank, and Wema Bank. Unity Bank was also judged to have insufficient capital but did not receive an emergency cash injection because it had a healthy liquidity position. The foreign banks that have openly expressed interest in investment opportunities in Nigeria include South Africa’s First Rand, Standard Bank and Nedbank.


Nigerian banks considering a bid for a rescued peer include First Bank, Fidelity Bank, Skye Bank and Diamond Bank. “We need more distribution, we need more contact points with our customers … The institutions we are interested in are institutions that have the retail network,” Fidelity Bank chief executive, Reginald Ihejiahi, told CNBC Africa television.But analysts have said the journey from due diligence to deal is likely to take months as AMCON has yet to begin operating.


AMCON is due to review and quantify non-performing loans in August and September, and purchase them in October. “There’s a possibility not everybody will get a bride. People being interested does not mean a deal would go through,” said another banking executive who asked not to be named.





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