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Last Updated: Tuesday, 3 January 2006, 11:56 GMT
Nigerian banks face liquidation
President Obasanjo of Nigeria
President Obasanjo wants to reform the banking sector
A dozen Nigerian banks face forced liquidation after failing to prove they have adequate capital to operate under new government regulations.

Banks must now hold minimum financial reserves of 25bn naira ($190m; 110m), compared with 2bn naira previously.

The reforms are intended to bolster the financial sector which saw regular bank failures and corruption in the 1990s.

Regulators said the banking sector's total capital reserves have increased from $3bn (1.7bn) to $5bn.

Merging to survive

The reforms have led to a series of mergers and takeovers as businesses tried to build up sufficient financial reserves to escape sanctions.

The number of banks operating in Nigeria has shrunk from 89 to 25 as a result of the process.

We are on course to achieve (our) objectives
Charles Soludo, Governor of the Central Bank of Nigeria

However, 13 companies failed to comply with the 1 January deadline imposed by the Central Bank of Nigeria to raise their capital threshold.

These banks now face having their licences revoked or being forced out of business.

The restructuring is part of President Olusegun Obasanjo's efforts to clean up the banking sector, in an effort to attract more foreign investment.

'Tainted'

The Central Bank of Nigeria said the reforms had weeded out "fragile and uncompetitive" banks that had been "tainted by corruption and mismanagement".

"We are on course to achieve (our) objectives," Charles Soludo, the Bank's Governor, said in a report.

Mr Soludo said the reforms had stimulated foreign direct investment into Nigeria and encouraged bank lending to the private sector.

Nigeria was hit by a number of bank collapses in the 1990s, leaving people who had deposited money out of pocket.

According to Reuters, six banks met the new capital requirements without having to merge with other firms.

They include Nigeria International Bank, owned by US financial services giant Citigroup, and Stanbic, owned by South Africa's Standard Bank.




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