Nigerian Bank Nigeria Central Bank Of Nigeria – Nigerias White Elephant Banks Need $14 Billion

Source BusinessWeek: Renee Bonorchis, 25 March 2010

Nigeria’s distressed banks may need $14 billion to meet the capital-adequacy ratio required by regulators and to pay back the country’s central bank, Renaissance Capital said.

With $8 billion of negative equity, the distressed banks “are the white elephants of the Nigerian banking system” and will need to raise $10 billion of capital to bring their collective capital-adequacy ratio to 10 percent, Kato Mukuru, a Lagos-based analyst at Renaissance Capital, said in a note today. The lenders will need to find another $4 billion to pay the central bank back for the 620 billion naira ($4.1 billion) it provided in emergency liquidity support last year, he said.

Ten of Nigeria’s 24 deposit-taking banks failed an audit by the regulator in August 2009 and required government support to survive. The central bank fired the heads of eight of the distressed lenders and began a program to sell stakes to local and foreign companies.

These sales rely on the Nigerian government passing a bill creating an asset-management company to absorb the bad debts that threatened to topple the nation’s banking industry in 2009. The bill was approved by the lower house of parliament yesterday and Nigeria’s Senate still has to vote on it before both chambers hold a joint session to produce a final document. Bad loans to stock speculators caused toxic assets to soar as much as $10 billion, according to estimates by Eurasia Group, a New York-based research company.

After hunting for value “among this herd of white elephants,” Mukuru said he rated both Oceanic Bank International Plc and Union Bank of Nigeria as “sell”. Of the 14 healthy banks, he said he favored First Bank of Nigeria Plc and United Bank for Africa Plc, placing a “buy” recommendation on both.

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