Banks would not raise lending to the real sector until the first quarter of 2011, Governor of Central Bank of Nigeria (CBN), Lamido Sanusi, said on Monday, declaring that the CBN has now bought $10 billion of toxic debt from the banks.

Bank lending to private industry has declined in five of the past eight months and is little changed from December 2009, according to the central bank website.

“I don’t think you’re going to have a pickup in lending until at least the first quarter of 2011,” Sanusi said in a telephone interview with the Bloomberg.

“This quarter is likely to be a quarter of deals, mergers and acquisitions, and for the beginning of integration,” he maintained.

The CBN had bailed out 10 banks last year with N620 billion ($4.1 billion) to avoid a collapse of the financial system, and is now pushing for the takeover of some banks and the merger of others.

The purchase of toxic debt by the state-owned Asset Management Corporation (AMCON) will be part of those negotiations, Sanusi said.

The government has not bought any toxic assets yet, he said. Banks will work with the CBN to cut the cost of running their business by 30 per cent over three years, Sanusi told reporters at a conference in Abuja last week.

The government has created a team of inspectors it can send to commercial banks in order to reduce the threat of a repeat of last year’s banking crisis, he said.

“In terms of an improvement in profitability, there is more aggressive cost reduction by the banks, so the margin will improve very quickly,” Sanusi said in the interview.

“The share price will recover in reaction to a return to profitability.”

The Nigerian Stock Exchange Banking Index, which tracks performance of the top 10 capitalised and most liquid stocks in the industry, has fallen 1.3 per cent this year and is down 68 percent since the start of 2008. Shares in Zenith Bank Plc., the country’s biggest lender by market value, have gained 8.5 per cent and declined 52 per cent over the same periods.

Sanusi fired the chief executive officers of eight of the country’s 24 banks last year for their handling of the debt crisis that resulted from banks lending to speculators to buy stocks in companies traded on the Nigerian Stock Exchange.

The crisis was triggered by a slump in share prices.

Nigeria’s economy, the second-biggest on the continent after South Africa, is expected to grow 7.78 per cent in 2010, up from 6.96 per cent last year, driven by non-oil industries, such as agriculture, Sanusi said.

Growth is expected to reach 7.72 per cent in the third quarter and 8.19 per cent in the fourth quarter, compared with 7.69 per cent in the three months through June, he said.