Nigeria’s Senate on Wednesday approved a bill to create an asset management company (AMC) designed to absorb non-performing loans and revitalize lending among financial institutions following last year’s $4 billion bailout.
Lobbying efforts by the Central Bank of Nigeria have been instrumental in pushing for the AMC. Under the proposed framework, the AMC will purchase bad loans from banks in exchange for government bonds, effectively clearing toxic assets from their balance sheets. “This would effectively take care of and free our banks of the non-performing loans that retard their efficiency,” said Senator Nkechi Nwogu, chairman of the banking committee.
Before becoming law, the bill must be harmonized with a similar version passed by the House of Representatives in March, after which it will be sent to Acting President Goodluck Jonathan for signature.
The central bank plans to co-fund the AMC with the finance ministry, estimating its value at 10 billion naira. This move comes as nine banks rescued last year had recorded loan loss provisions exceeding 2.2 trillion naira by the end of September. With new investor recapitalization unlikely until these bad loans are removed, the bill mandates that toxic assets be exchanged for 7-year bonds or other debt instruments issued by the AMC and guaranteed by the finance ministry.
