Nigerian banking sector may need rescue soon as exposure to power sector hits $1.6bn

There are strong indications that the Nigerian banking sector may soon be in need of rescue following the huge exposure of the banks to the Nigerian power sector, further to the privatisation of Nigeria’s power sector amounting to about $1.6 billion and the current challenges being faced by the investors in the power assets in servicing their loans. 
It will be recalled that the Central Bank of Nigeria (CBN) in a bid to ensure that the banks were able to meet their day-to-day liquidity requirements, prevent a bank run and avoid a collapse of the banking sector (since most of the banks involved had large retail networks), injected fresh capital into totalling ₦620 billion ($3.9 billion) as a stopgap. This capital was provided to the affected banks as Tier 2 capital in the form of unsecured subordinated convertible loans. In addition, the CBN provided a guarantee of all interbank lending transactions (expired end-December 2011), foreign credit lines, and pension deposits.
Although Assets Management Corporation of Nigeria (AMCON) is of the view that its job of acquiring NPLs of Nigerian banks is complete, there may be a requirement for the banks to find a way to clean the NPLs off their balance sheets by selling to AMCON or to other entities, said a special report on the Nigerian nanking system: The ripple effects Of Lehman – A tale of sin and redemption?
Officials of the AMCON during unofficial meeting last week said their job will be over in about seven years time. But from the glimpse of the banks involvement in the power sector, coupled with the fact that, so far, it has become increasingly difficult for the loans to be re-paid, AMCON may very well stay far more than the seven years it earlier thought.
The CBN, in a bid to avoid a repeat of the banking crisis, instituted tighter regulations and supervisory practices and encouraged healthier cooperation between the various regulators. 
In addition, the universal banking model was revoked and banks can only carry out the business of banking as envisaged under the Banks and Other Financial Institution Act (BOFIA). This led to a few banks transforming into bank holding companies and others divesting their interests in their non-banking subsidiaries.
A number of court actions were instituted to challenge the bridge bank process as well as the banking reform. AMCON has also faced significant challenges in the performance of its obligations as there has been significant resistance from debtors in relation to AMCON’s ability to realise the debts or transfer the underlying assets. A number of hurdles have been overcome by AMCON. In a bid to assist in paving a smoother path for AMCON to carry out its remaining tasks, a draft amendment bill is currently pending before the National Assembly to address some of the challenges being experienced and to make clearer the ambit of AMCON’s powers. 

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