Nigeria Bank Reforms may Flag in Political Impasse

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Political support for central bank chief may waneNigeria's fiscal and bank reforms could stagnate amid uncertainty over the future of President Umaru Yar'Adua, particularly if any successor fails to give the central bank the political backing it has enjoyed so far.

Yar'Adua has been in Saudi Arabia for more than two months receiving treatment for a heart condition but has not formally transferred power to his deputy, leading to questions over the legality of government decisions in his absence.

Whatever the outcome of his medical trip, few expect him to run for a second term in 2011 elections and no clear candidate to replace him has yet emerged, clouding the country's policy outlook and causing investment decisions to be put on hold.Yar'Adua's support for Central Bank Governor Lamido Sanusi helped push through the boldest bank reforms in the nation's history last year, a 600 billion naira ($4 billion) bailout which took down some of Nigeria's biggest financial executives.

The drive to clean up the banking sector won praise from foreign investors but also won Sanusi powerful enemies, among them politically influential figures with interests in some rescued banks who could seek to undermine reform, analysts say."If Yar'Adua is not there, the new administration could scuttle the reforms," said Wole Famurewa, head of research at Lagos-based PHB Asset Management.One Nigerian analyst said that should Yar'Adua not return from Saudi Arabia, or be replaced, that in itself could trigger a downgrade of recommendations on Nigerian bank stocks. Nine banks, five of which accounted for 40 percent of the total lending market in sub-Saharan Africa's number two economy, were given a liquidity injection and effectively remain on life support from the central bank while new investors are sought.

Eight bank chief executives were fired after central bank auditors found lax governance had left their institutions so weakly capitalised that they posed a systemic risk.Many analysts believe the bank reforms have gone too far to be rolled back. "These reforms have gone so far down the road that they will probably have to continue in one form or the other," said Razia Khan, head of Africa research at Standard Chartered in London." Even if a leader less supportive of the governor comes in, that leader will have to understand that (removing) the life support that the banks are on at the moment would involve pretty severe systemic risk," she told Reuters. Sanusi's reform drive has so far continued unabated despite the uncertainty.

Last week, the central bank announced it was limiting the tenure of bank chiefs to 10 years in a bid to avoid an excessive concentration of power which it says contributed to the near failure of several of the bailed out banks.But the first real test of the depth of political backing for reform is legislation currently before parliament to create an Asset Management Company (AMC), which would buy up bad bank loans in exchange for government bonds in the hope of freeing up their balance sheets and getting them lending again.Finance Minister Mansur Muhtar said on Wednesday parliament understood the urgent need for the AMC and voiced optimism the bill would pass soon.

Source: Nigeria bank reforms may flag in political impasse

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