The Resurrection of Zombies: A Nigerian Saga

The Japanese Crisis in 1993 paved the way for many banks to be in the Zombie Bank status. The term Zombie Bank was coined by Mr. Edward Keyne and it applies to those banks with net worth zero yet operating on government bailouts. The 10 years of Japanese Crisis is also described as the Lost Decades which witnessed Japanese Asset Price Bubble collapsing within the Japanese economy.

According to the FDIC Problem Bank List there are around 844 banks which are almost like Zombies, in the US itself. The list has been kept confidential. The threat of Zombie banks is becoming universal and countries are finding ways to bring these banks back to action.

Most prominently EU banks are debating about recapitalizing their Zombie Banks. According to the recent speech of Mr Klass Knot, Dutch Central Bank President and The European Central Bank Governing Council member, revival of the banks will vitalize the depressed economy and is inevitable in the current scenario.

The main strategies in revitalizing could be Blanket Guarantees, Liquidity Support, Recapitalization, and Nationalization. For the process of revitalization, it’s important for the banks to be transparent about their losses so that effective strategies could be made to improve their balance sheets.

While EU countries debate on stress tests and recapitalizing their Zombie Banks, Nigerian Banks are showing a high growth rate. Nigerian economy which had a boom in 2006 through the changes in the bank laws and consolidation efforts got a severe blow in 2009 due to the enormous amount of bad loans and over lending. Their stock market collapsed by 70% in the same year.

The Central Bank of Nigeria came up with a canny strategy of recapitalization to revive the 8 banks which included 5 zombie banks which were Union Bank, Oceanic Bank, AfriBank, FinBank and Intercontinental Bank. The failed banks were imputed to NDIC.

The Bank of Nigeria shelled out £2.5 billion to the ailing banks, the leadership of 8 banks were changed and they were asked to stick on to the ethics and to practice high professionalism

According to The Nigerian Banking Sector Outlook 2013: At the start Of A New Cycle, which was published in March 2013 Nigerian banks are expected to show a high growth rate even though the economy has threats due to the volatility in oil prices because the foreign currency lending and the loan business are concentrated in the oil and gas sectors.

The EU has Nigerian banks as a great example with pragmatic results and they should not be procrastinating their decision in revitalizing their ailing zombie banks.