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Nigeria's banking crisis

Problems from big loans with little collateral. Sound familiar?

A money dealer counts the Nigerian naira on a machine in his office in the commercial capital of Lagos, Jan. 13, 2009, when the country's central bank moved to reassure investors following sharp falls in the currency. They said that the depreciation had protected its foreign reserves and the exchange rate would soon stabilize. (Akintunde Akinleye/Reuters)

LAGOS, Nigeria — When Nigerian Central Bank Governor Sanusi Lamido Sanusi took office in June, he certainly had a hunch about how deeply distressed his nation's banking sector was.

Foreign risk management analysts had been issuing warnings about Nigerian banks and their toxic assets since January, and oil prices were down — always a harbinger of hard times coming for Africa's top oil producer.

What he may not have known is that he would soon have a  genuine banking crisis raining down — something a lot like the larger banking crises in the U.S. and Europe.

Nigeria's central bank has had to inject 620 billion naira ($4.2 billion) to keep the country's banks afloat, and some analysts say the bailout may top one trillion naira. However high the price tag soars, the money hasn't yet staved off the credit crunch facing ordinary Nigerians and the businesses they'd like to launch — which is why their president is proposing a $2 billion stimulus package to reinvigorate Africa's number two economy.

It is an achingly familiar vocabulary for the global recession — bailout, credit crunch, stimulus — except that Nigeria's banking crisis has little to do with credit default swaps or subprime mortgages.

In terms of the global financial system, the collapse of Nigeria's top lending institutions might be taking place on a separate universe, but it is strangely parallel, both in its timing, and in the cavalier attitude of its lenders towards debt repayment.

Major Nigerian banks are in ruins, responsible for an estimated $10 billion in bad debt, according to financial analysts at New York's Eurasia Group. So far, Sanusi has fired the leaders of eight banks, including three banks last week.

The government may nationalize the least solvent banks, and will certainly investigate the leaders responsible for the situation — hundreds of bankers, investors and highly indebted people are already under the anti-corruption police's microscope. The CEOs of three banks are under 24-hour surveillance. A fourth fled the country last month.

The public saga marks a messy end to an all-too-prosperous growth cycle in Nigerian finance, the shaky and perhaps even criminal underpinnings of which are evermore visible with each government audit.