By Emmanuel Ogala, Oluwaseyi Bangudu and Bassey Udo:

In what seems a blow to the Central Bank governor, Sanusi Lamido Sanusi’s much touted banking reforms, the Senate yesterday suspended, indefinitely, a debate on a bill seeking to establish the Asset Management Company.

The company is meant to buy back all the toxic assets of banks – like the margin or non performing loans, and thus free the banks to raise new capital for their operations. It will also make the troubled banks more attractive to new investors and protect their earnings from further erosion. Analysts said the improvement in banking sector liquidity will reduce the debt overhang on the capital market.

However, the Senate suspended debates on the bill because it said it did not receive all the relevant information required for the debate. The documents sent to the Senate had no cost implications and lacked the compendium which was supposed to give a list of the bill’s contents.

However, the Central Bank’s spokesperson, Mohammed Ibrahim, was quick to down play the set back. “There is no need to be anxious about the decision of the lawmakers,” Mr. Ibrahim said, adding, “the House of Representatives had already completed work on the bill. The Senate is having the second reading on it. Like the governor said the other day, the Bill is on course.”

However, in what appeared to be a tacit admission that the bill lacked some vital information, Mr Ibrahim said that the cost implication of establishing the asset company had been compiled and “will be delivered to the National Assembly this morning.’’

Historical background

The Central Bank decided to form an asset management company in response to allegations that the way it gave out money to rescue banks with substantial amount of bad debts, was illegal. After the last set of banks had been screened by the special audit of the Central Bank in the third quarter of 2009, Mr Sanusi announced his intention to work on eliminating the toxic assets accumulated by the banks so that they can be more viable.

In a circular, the Central Bank said that the formation of the company would facilitate an improvement in banking sector liquidity, provide a much needed fillip for the revival of the Nigerian capital market.

The Central Bank further added in subsequent circulars that the Asset Company will be set up before the end of the year. However, it is now obvious that the reality of setting up this company to absorb the provisioned bad debts of the rescued banks, is taking longer than the regulatory body had hoped.

It has also given ammunition to the camp of the critics of Mr Sanusi, who said that the bank did not think through its actions before sacking the management of the commercial banks last year.

Rules are rules

It was Joel Danlami (PDP Taraba) who detected the omission in the documents sent to the Senate by the CBN. He notified the Senate and most of his colleagues agreed that Mr. Danlami’s argument was valid and that the debate on the bill should be suspended till the missing information is made available.

Although some senators argued that the Senate rules should be relaxed for the bill to be read, because of its importance, the Senate President, David Mark, argued that rules should be upheld at all times.

“Let’s not apply different yard stick for different bills,” Mr. Mark said.

“The Point of Order Joel raised is correct because every bill is supposed to include the financial implication and compendium.”

According to Ayogu Eze, the Senate spokesman, the company to be established by the bill is a very important one “which is why a lot of us supported that we should have more facts about it. We all saw the collapse in the banking sector and we saw the attempt by the Central Bank governor to bail the affected banks out. What he did ordinarily amounted to illegality because he took government money and bailed out those banks without an appropriate legal frame work. But, he is now trying to create the framework so that in the event of any such thing occurring in the future, there is a company that can come in and transact the business at commercial value.”

Analysts are optimistic

Despite this delay, some financial analysts are optimistic that the Asset Management company would be formed early enough.

Victor Ndukauba, a financial analyst, said that the Senate’s action was not unexpected and there was no need for alarm. “We need to understand the context in which they made these comments,” Mr. Ndukauba said.

“I know that there are certain elements of the bill that are still being fine-tuned by various interest groups, so I guess that’s what’s going on. I think it’s a question of time really, and the implications go beyond the banks. There are a lot of strategic (operators) that are waiting to see this bill passed. You’ve got the banks on one hand and you’ve got investors on the other hand.

“We need the market to rebound and to pick up; we really should be looking at getting the banks begin to lend again. . The CBN obviously needs to get this sorted, the NDIC and even the nation, the ministry of finance, they are all in this as a whole,” Mr. Ndukauba added.

Likewise, Samir Gadio, an economist and finance analyst at Renaissance Capital, an international investment banking and asset management firm said that despite the hitches, the bill is still on the right track.

“The fact that it has already been discussed is positive news in itself,” Mr. Gadio said.

“I think eventually, it is going to be passed because that is the only way to revive the market. . The Company is really critical to clean the system and to buy back the bad loans. I think conceptually, everyone would realise that whether in the House of Representatives or the Senate” he said.

Investors are waiting

Finance experts believe that potential investors are waiting to see how quickly an asset management company can be set up to assimilate bad debts and make the banks attractive for buyers. However, not only is the fate of the money market dependent on the setting up of the company, finance experts believe that without it, the stock market is not likely to record any sustained recovery.

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