By Ademola Alawiye

Wednesday, 5 Jan 2011

Following the signing of debt-purchase agreements between the Asset Management Corporation of Nigeria and 21 Deposit Money Banks, financial analysts have said that lending by the banks will not be instantaneous.

The analysts, who spoke with our correspondent on Monday, said that the credit crunch would still persist.

The Managing Director, Financial Derivatives Company Limited, Mr. Bismark Rewane, said that the loan agreement signed by AMCON would not increase lending immediately.

Rewane said, ”Although the banks are going to have more money in their care, they will still be cautious. It is when the environment is a bit risk-free that you will expect an improvement. Nigerians should not expect things to change overnight. Even in the United States, the banks just started lending given the different stimulus packages by their government.”

He added, ”The year 2009 was a year of intervention, while 2010 was the sanitisation year. This year will be the consolidation year and 2012 will be the year of growth.”

Speaking in the same vein, the Managing Director and Chief Executive Officer, Mutual Alliance Investment and Securities Limited, Dr. Olakunle Ologun, said that lending by the banks would still take some time.

Ologun said, ”It will take some time before lending resumes in the banking sector. The banks are still going to be cautious and careful, considering their experience with the Central Bank of Nigeria. Besides, they will be reasonable this time around, because they won‘t want their fingers to be burnt again.”

AMCON signed debt-purchase agreements with 21 banks in the country last week.

The Managing Director of the corporation, Mr. Mustafa Chike-Obi, told our correspondent that AMCON had sealed deals with 21 banks.

He noted that AMCON would sell N1tn ($6.5bn) of consideration bonds and use the proceeds to buy debts arising from the banks‘ non-performing loans.

He said, ”Our estimate of the amount of loans we will be buying in this first phase is in the neighbourhood of between N800bn and N1tn. And we are pleased to say that, from the submissions we have received, we are in that range. It is important to note that the amount we are paying for these loans is different from the face value of the loans. The aggregate face value of those loans is about N2.2tn. We are buying them at an appropriate price of between N800bn and N1tn.

”The end process is that we take delivery of the non-performing loans, and the banks, instead of being stuck with illiquid, non-performing assets, have bonds that they will cash as they make new loans, and use the proceeds to fund the new loans. They can create new portfolio of loans in line with CBN‘s prudential guidelines. And as they make loans, they will be able to fund them.”

 

Source:     Punch