Nigeria Bank Crisis Prompts Reforms

29 August 2009

Nigerian investigators have vowed to probe the debt crisis which forced the sacking of executives of five banks and the injection of $2.6 billion into the institutions two weeks ago. The central bank says the banking sector is stronger now after the bailout.

The anti-graft agency, the Economic and Financial Crimes Commission, has so far detained dozens of bankers and debtors over massive debts owed to ailing banks in a scandal that has shocked Nigeria's financial industry.

EFCC spokesman Femi Babafemi says investigations have focused on fraud and corruption, but other infractions may be uncovered. "We are just looking at a broad scene that has a link with fraudulent abuse of credit process, insider trading, capital market manipulation and money laundering running into billions of naira. But then eventually investigations may lead us to other things," he said.

Nigeria, the continent's second-largest economy behind South Africa, two weeks ago injected $2.6 billion into five troubled banks and sacked their senior management, saying they had become so weakly capitalized that they posed a systemic threat to the Nigerian economy.

The banking sector is strategic to Nigeria's economic prosperity and the crisis has precipitated some panic and deep concerns about the Nigerian economy. Central Bank Governor Lamido Sanusi dismisses such concerns, saying the Nigerian economy is set for growth. "In the short to medium term, we will see that investors and creditors alike have greater confidence in Nigeria. The potentials remain there, the fundamentals remain there. We have a country of 150 million people, 23 million bank accounts, oil prices are going up, foreign reserves are not depleting any more at the rate they were. I think the prospects are simply there," he said.

The governor, a former banker with a reputation for prudent risk management, has promised a clean-up of Nigeria's banking system.

Nigeria, a big petroleum exporter, expects to see its economy grow at five percent this year, rising to double-digit rates in 2010.