Nigerian banks may record high bad loans -S&P have emerged that Deposit Money Banks may record huge non-performing loans next year.
Rating agency, Standard & Poor’s, said on Tuesday that the banks might report increased loan losses amid growth in lending.
Bloomberg quoted an analyst at S&P, Mr. Matthew Pimie, as saying, “Banks in Nigeria are expected to see loans and deposits rise from 20 per cent to 30 per cent this year helped by foreign exchange and non-oil industry lending. We expect increased losses in 2014 to 2015, we tend to see quite short credit cycle in Nigeria.”
He said banks had “muted” credit growth last year of about 12 per cent as they pushed down ratios of non-performing loans.
Pimie said, “Nigerian banks take low-cost short-term deposits and place them into higher yielding loans or government bonds. As interest rates have been high, so have yields on government bonds, allowing for a simple interest arbitrage opportunity.”
Nigerian banks are returning to health after a debt crisis in 2008 and 2009 triggered by loans given to stock market speculators.
The Central Bank of Nigeria, led its governor, Mr. Lamido Sanusi, fired eight chief executives of the country’s 24 banks and the government set up the Asset Management Corporation of Nigeria to buy the debts and stabilise the banking industry.
The Managing Director, AMCON, Mr. Mustafa Chike-Obi, said on Tuesday that the corporation would require 10 years to clean up the nation’s financial system of toxic loans.
The period, according to him, will be used to pursue the recovery of the N5tn bad loans from debtors and ensure the refinance of the corporation’s N1.7tn ($11bn) bonds, which were created by its acquisition of non-performing loans.
Chike-Obi, while reacting to reports that the executive board of the International Monetary Fund had recommended the liquidation of AMCON, said the corporation would need about 10 years to complete its task of freeing the financial system of bad loans.
He also said AMCON had stopped buying bad loans from the banking sector in order to discourage excessive risk-taking by the banks.
He said it would no longer serve as a lifeline to banks with bad loans following the rescue of nine lenders that came close to collapse in 2009 after it was set up a year later.
“We are not buying any more non-performing loans,” Chike-Obi said, adding that the corporation had not done so for six months.
“We have cleaned up the banking system, bad loans are under five per cent and we want to make sure that everybody adheres to the prudential guidelines,” Reuters quoted him as saying.

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