Nigeria's bank bailout will not push its fiscal deficit above three percent of GDP and all of the rescued banks will survive in one form or another, Central Bank Governor Lamido Sanusi said on Thursday.
Nigeria has injected around 600 billion naira ($4 billion) into the banking system since mid-August after an audit found nine institutions were facing a grave liquidity crisis.
“In our estimation, the total cost of the bailout ... would still leave us with a fiscal deficit of no more than 3 percent given where we are today,” Sanusi told a news conference in the Senegalese capital, Dakar.
A budget office document seen by Reuters last month shows Nigeria expects its budget deficit to be an estimated 3.02 percent of GDP this year but to widen next year to around 3.28 percent as it tries to spend its way out of the global downturn while economic growth slows.
The central bank injected 400 billion naira into Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank in August and sacked top executives after the audit found lax governance had left them so weakly capitalised they posed a systemic risk.
Two months later it said it was providing 200 billion naira to four more banks -- Bank PHB, Equitorial Trust Bank, Spring Bank and Wema Bank -- also judged to be facing serious liquidity problems.
“Each of these banks will survive in one form or another,” Sanusi said, adding they could raise capital either through public offers or mergers with a stronger bank.
“If the merger involves some form of resolution cost, the federal government will be ready to bear some of that cost.”
Sanusi repeated that he was optimistic legislation could be in place by the end of the year to form an asset management company (AMC) which would free up banks' capital by absorbing their non-performing loans. He told Reuters last month that the firm could absorb up to 400 billion naira in bad loans.
The AMC would purchase loans with a view to strengthening bank balance sheets, improving capital adequacy and reducing debt overhang to the stock market to stimulate capital markets activity, the monetary policy committee said on Tuesday. Sanusi has said he hopes to have a draft bill ready in the coming days but Nigeria's parliament is notoriously slow.
Analysts see the passage of the bill as a key test of political support for his reforms and fear some lawmakers could challenge the legislation.
Sanusi's drive to clean up the banking system has won widespread praise among foreign investors but the banks chiefs felled by his axe -- and some of the debtors he named -- are members of a corporate aristocracy long seen as untouchable, meaning he has also won some powerful enemies.
Sanusi painted a rosy picture of the Nigerian economy, saying an amnesty for gunmen in the oil-producing Niger Delta meant oil production had risen back to just under 2 million barrels per day and that inflation was on a downward trend. He said that once the country sanitised the banking sector and fixed problems including the Niger Delta, it had the potential to see double-digit GDP growth. “Most of the interest in Nigeria is based on the recognition of that potential,” he said.