Nigerian president Goodluck Jonathan has signed into law a new agency that will take over bad debts from the banking system.

The Asset Management Corporation of Nigeria (Amcon) will attempt to draw the poison out of the country's banks, after a $4bn (£2.6bn) rescue of the nine biggest banks last year.

The banks will be able to replace dud loans with government-guaranteed bonds.

A leader and key staff for Amcon have yet to be appointed.

"The establishment of Amcon is a reflection of the government's commitment to safeguard the interests of depositors, creditors and other stakeholders in the Nigerian financial system, and in doing so rejuvenate the domestic economy," said the president.

The Nigerian government is treading a well worn path, with many governments having set up similar government-backed "bad" banks to help clean up their banking systems.

It is hoped that, with toxic debts off their balance sheets, the Nigerian bank will be able to attract new investors in the private market, and will be better placed to recommence fresh lending to support the economy.

Markets will be keen to discover who will run the agency, as well as the total size of bad debts it will go on to buy from the banks, and what valuation it puts on those debts.

I think this is a very good move by the president, but I also hope that banks that have excess dud loans, after this bill is signed into law should be thouroughly scrutinized and brought to justice, if the failed loan was as a result of their own fault.