Nigerian Bank Nigeria Afribank Plc – Nigeria Interbank Rate At 2% From 26% Shows Recovery

Source Business Week: Vincent Nwanma, 3 March 2010

The plunge in Nigeria’s interbank rate to 2.2 percent from 26 percent a year ago shows lenders are recovering from the crisis in which 10 of the biggest 24 lenders failed, Renaissance Capital said.

The Nigeria Interbank Offered Rate for overnight loans, the benchmark for interest payments between financial institutions, has dropped to the lowest in at least two years after the central bank provided a 620 billion-naira ($4.1 billion) bailout for the lenders that failed an audit last August and fired their chief executive officers.

Nigerian banks are likely to increase lending by between 20 percent and 25 percent this year, Akintola Akinbamidele, a Lagos-based analyst with Rencap, said in a telephone interview. “At the moment, the banks are keeping a lot of cash,” said Akinbamidele. “For the banks to start making profit, they have to lend.”

Bank stocks led a 34 percent plunge in Nigeria’s All-Share Index last year, the world’s second-worst performer after Ghana’s gauge. Nigeria’s index, which is 40 percent comprised by banks, has risen 10 percent in 2010, Africa’s second-biggest gainer after Kenya.

Stocks will “rally in the next few weeks” in response to bank results, Akinbamidele said. Among the lenders due to report are Wema Bank Plc, whose share price has climbed 31 percent this year following a 93 percent drop in 2009, and Skye Bank Plc, which is 30 percent higher this year, paring its 36 percent decline last year.

Debt Recovery

The economy of Nigeria, Africa’s biggest oil producer, is set to grow 4.8 percent this year after expanding 4.3 percent in 2009, according to the World Bank. That compares with the Washington-based lender’s forecast for 2.7 percent growth in the global economy. Oil has jumped to $79 a barrel from about $35 in December 2008.

Government’s plan to boost spending on health, education and road upgrades will spur bank lending, Akimbamidele said. Acting President Goodluck Jonathan said last week approved $2 billion of spending from the government’s Excess Crude Account, a fund set aside for an emergency and when oil prices are high .

With fewer loans provided so far this year, problem debt is likely to shrink, he said.

Recover of bad debts has picked up. Bank PHB Plc, one of the rescued lenders, in January announced plans to recover 61 billion naira of non-performing loans, and wants to recover the amount by the second quarter. The lenders shares have surged 45 percent this year.

Afribank Plc repaid half its debt to the central bank and recovered 42 billion naira of non-performing loans, it said in December. Oceanic Bank International Plc said it had recovered 41 billion naira by December. “We expect a lot of write- backs,” Akinbamidele said.

The seven-day Nigeria Interbank Offered Rate, or Nibor, declined to 4.4 percent, its lowest level in at least two years, from a peak of 26 percent on March 17, 2009, Rencap data show.

Nigerian Bank Nigeria Afribank Plc, Bank PHB Plc, Oceanic Bank International Plc, Skye Bank Plc, Wema Bank Plc