Nigeria’s bank bailout will not push its fiscal deficit above three per cent 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 N600 billion ($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 per cent 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 it budget deficit to be an estimated 3.02 per cent of GDP this year but to widen next year to around 3.28 per cent as it tries to spend its way out of the global downturn while economic growth slows.

The Central Bank injected N400 billion 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 N200 billion 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 N400 billion 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.