nerPostTitle">'ASSET COMPANY ALONE CANNOT SOLVE ALL BANK PROBLEMS' Written by furtune Business http://www.nigerianbestforum.com/blog/?author=25 http://www.nigerianbestforum.com/blog/?cat=13 Mar 2, 2010

'Asset company alone cannot solve all bank problems'

By Oluwaseyi Bangudu
March 2, 2010 01:20AM
http://www.nigerianbestforum.com/blog/wp-content/uploads/2010/03/dt.common.streams.StreamServer8.jpeg Sanusi Lamido Sanusi, CBN Governor says banks have three months to pay back bailout funds.

The Central Bank of Nigeria has said it expects the rescued banks to have been making progress on their respective recapitalisation process, as the proposed asset management company alone cannot address all their liquidity challenges.

Mohammed Abdullahi, the spokesperson for the Central Bank said the banks are expected to have been actively negotiating for their recapitalisation, because they are expected to refund the amount used in bailing them out between April and June.

'Yes, we are expecting them to refund that (the money) because we are expecting that by the end of that time, they would have finished discussing the issue of recapitalisation. When we gave them the money, we said that all the banks should recapitalise after which they would refund the money back. Now, we are aware that they have investors showing interest. If it goes well, then they should be able to pay us by that time,' Mr. Abdullahi said in a telephone interview.

He noted that the asset management company being proposed by the Central Bank to mop up the bad debts of the banks cannot solve their entire problems. 'It would only solve part of the problems,' he said. 'By the time they are recapitalised, they will have money to pay us and then the AMC will just complement that (their efforts).'

Mr. Abdullahi added that the Asset Management Company's bill is being reviewed by the legislature and is expected to be passed into law within the next six weeks.

It is uncertain how this expectation will be fulfilled, as the bill has only gone through the second reading at the House of Representatives.

Central Bank's bailout notes
It is not yet clear at what point, the Central Bank decided to fix a refund timeline, as Sanusi Lamido Sanusi, was quoted by a news agency as expecting the banks to pay back the money between April and May.

The Central Bank governor had said, when he announced the initial injection of about N400 billion into the first five banks last year, that the sum will 'be repaid from proceeds of capitalisation in the near future,' without specifying a period.

Mr. Sanusi had also said, 'The injection of fresh capital by CBN is a temporary measure as government does not intend to hold the shares for long and shall divest its holdings as soon as new investors recapitalise these banks.' Only two banks, Wema Bank and Unity Bank were given up to June 30, to complete their recapitalisation processes.

Payback period
But finance analysts are sceptical about Nigerian banks repaying the Central Bank of Nigeria's bailout funds within the given time frame.

Victor Ndukauba, a research and finance analyst at Afrinvest, a research firm, said in view of the prevailing financial circumstances, the payback period may not be feasible for a cash payback.

'For the eight banks, this is not feasible, unless you are going to fund that refund. It is not likely that they will be able to repay by May or June. In the first place, the reason why the Central Bank gave out the money was for the banks to be able to meet their depositors' demands. Asking them to return this money now will have some implications,' he said.

'In the event that they even have the money and can return it, their liquidity position would be challenged, and if they do not have this, it then means they would have to borrow from their peers and this means bank rates could possibly shoot up again.'

For Mr. Ndukauba, 'a more factual solution is the effective running of the Asset management Company. Which means the liability state of the banks would change hands, technically. The access of the 620 billion inserted into the banks may not necessarily leave in form of cash.'

Banks keep quiet
So far, the affected banks are reluctant to speak officially on the issue.

A source at Bank PHB said that the banks would be happy to pay back the Central Bank's money as soon as it is possible. 'We are also hoping to do that by May or June. There would be available funds to pay back but this is really dependent on when the Asset Management really comes up. By then, I believe that either the banks would have been sold to new investors or their liabilities would have been taken over by the Asset Management Company,' he said.

Another source, at Oceanic Bank, insisted it was strictly an 'executive management decision,' while a staff of Spring Bank, expressed shock at the payback timeline, saying he heard about it through the media.