Nigeria will inject US$2.55 billion into five troubled banks, the country’s banking chief announced Friday, in Africa’s first major bank rescue program since the global credit crunch began.
Central bank chief Sanusi Lamido Sanusi also guaranteed creditors and depositors, but fired top executives at five of the country’s 24 banks because of poor decisions that had led one of the five into “technical insolvency” and to undercapitalization in the other four.
“We will not allow any bank to fail,” he said. “However, we will also ensure that officers of banks and debtors who contribute to bank failures are brought to book to the full extent of the law.”
Analysts welcomed the move, saying it was likely to increase transparency and better risk management. The banking sector had been overstretched by too many bad loans and over-investment in the capital market and the oil and gas sectors when commodity prices were high.
“This will strengthen investor confidence and force the rest of the banks to take risk management very seriously,” said Mike Ogunbiyi, a director of CBO Capital Partners, a financial, risk and project advisory firm.
He said Nigeria’s bailout differed from that in the U.S. because the Nigeria Central Bank had made it clear that it wanted the troubled banks to recapitalize quickly, possibly through mergers with other Nigerian or foreign banks, and return the loaned capital to the central bank.
The five banks affected are Afribank, Finbank, Intercontinental, Oceanic and Union Bank. More than 1 in 20 Nigerians do business with them. Five other banks were found to be on more solid footing and audits on the rest are due in coming weeks.
Nigeria is Africa’s most populous country, one of the continent’s biggest oil producers and is considered West Africa’s banking epicenter.
Copyright 2009 The Associated Press.