On taking office in June 2009, Lamido Sanusi, the central-bank governor, initiated an emergency audit of Nigeria’s 24 lenders. It is now more than a year since the clean-up of Nigeria’s banking system began, after a credit boom that went bad. It found that nine medium-sized banks, with at least 40% of the country’s deposits, were near to collapse. Mr Sanusi injected $3.9 billion into these lenders and fired executives at eight of them.
This response was intended to tempt the remaining healthy banks—or foreigners seeking a foothold in sub-Saharan Africa’s second-largest economy—into snapping up the rescued lenders. Fears of lingering bad debts put bidders off. To counter these concerns, a “bad bank” was created to take the worst loans. It was signed into law this July. Tilewa Adebajo, the new executive director of Equitorial Trust Bank, one of the troubled nine, is relieved: “[Buyers] who came to look at these banks saw how big the holes were. They realised that they really needed the bad bank before things could move.”
Mr Sanusi estimates that the scheme’s net cost will be just over $5 billion, as the bad bank will probably have to sell on the souring loans at a loss. Nigeria’s banks have agreed to contribute 0.3% of their assets each year to the bail-out costs.
A recent blitz on malpractice in the stockmarket may convince potential buyers that Nigeria’s finance industry is mending its ways. Central-bank officials hope the stricken banks will be sold by the end of the year. They say each has at least three suitors running the rule over it. South African banks are seen as possible buyers: FirstRand and Nedbank have repeatedly expressed an interest in Nigeria. Local banks, such as First Bank, may also be keen. But one boss of a foreign lender says he is reluctant to buy an entire bank. He is worried that the stricken banks have lost customers, and struggled to cover costs, since the government took them over.
There is little time left before Nigeria’s presidential election, expected in January. “[Potential buyers] will be cautious until they know who is in power. They will worry that, after the election, there might be question-marks over the sale,” says David Cowan, an Africa economist at Citi, one of three international banks already in the country. Political risk, it seems, is the latest bar to a resolution of Nigeria’s banking crisis.