The Central Bank of Nigeria(CBN) says it plans to lobby Nigerian lawmakers to pass the Asset Management Company (AMC) Bill before the House, having failed to meet the December 31 2009 deadline, when it hoped the company will come into full operation.
Sanusi Lamido Sanusi, the CBN governor said in Lagos on Monday that the takeoff of the AMC will ensure that the bad debts occasioned by banks’ exposure to the capital market are taken off their books and transferred to the AMC.
He said the Central Bank will be meeting the House of Representatives to ensure the speedy passage of the bill within the next six to eight weeks.
Mr. Sanusi explained that the move has become necessary as some sectors of the economy, particularly the real sector, do not have sufficient funds to run their operations.
The CBN governor, speaking at the CEO Agenda Nigeria, with the theme, “Renewing Business Confidence”, organised by The Economist magazine, observed that the manufacturing sector is starved of credit due to the high cost of doing business in the country, which has compelled many banks to look at areas with less risk.
Consequently, there is the need for a deliberate policy that would encourage banks to lend more to the manufacturing sector of the economy.
Speaking on the topic, “Uncrunching Credit: The Future of Banking and Finance in Nigeria”, he noted that the large exposure by banks to the capital market compounded the credit crunch in the system. “If the banks are allowed to lend to just any sector, there is likely to be another bubble.”
He said this is the basis for the setting up of the AMC that will buy up the debts in order to free the banks to be able to lend to the productive sectors of the economy.
AMC intervention
Explaining the intervention role of the AMC, the CBN governor emphasised the need to restore confidence in the economy as it has the potential to bounce back with the right policies in place. “What we are saying is that with the AMC buying up the banks’ toxic assets, what will be remaining in the banks’ debt will not be more than N300 billion to N400 billion.” He said this will reduce the credit crunch in the system and enable banks to resume their roles of lending to the economy.
Banks debts are estimated in excess of N1 trillion made up mostly of exposures to the capital market and the oil and gas sectors. As part of measures to address the situation, the CBN injected N620 billion into seven banks in a bid to stabilise the banks and save them from imminent collapse. The CBN also sacked the chief executives of five banks and gave two others up till June 30, to recapitalise.
Cost of funds
The CBN governor however, noted that due to the poor state of infrastructures in the country, it would be asking for too much to expect cost of funds to drop to a single digit regime. “Cost of lending is high because the cost of doing business by the banks is high. A more realistic lending rate will be between 15 per cent and 17 per cent until the problem of infrastructure is addressed.” He faulted the many ratings of banks in the past, which he said did not necessarily give a true picture of the situation, adding that banks are not in a position to rate themselves, as “rating agencies work with information supplied by the banks.” He said the CBN will begin a more realistic rating of banks in the country.
Mr. Sanusi affirms his support of the categorisation of banks in the country, saying that governance and management structures in the banks would guarantee sustainability rather than the size of their capital base.
“Universal banking must be backed by stringent laws that would ensure market discipline,” he said, adding that the CBN has appointed PricewaterhouseCoopers to advise it on the prospect of categorisation in the banking industry.
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