CBN, AMCON get the knocks

Business a.m. - - FRONT PAGE - Ades­ola Afo­labi

AN ES­TI­MATED N1.4 TRIL­LION dished out by the Cen­tral Bank of Nige­ria (CBN), and As­set Man­age­ment Com­pany of Nige­ria (AMCON) in bail­ing the de­funct Skye Bank have been termed un­nec­es­sary es­pe­cially given the fact that the com­pany even­tu­ally failed to get back on its feet.

AN ESTIMAT ED N1.4 TRIL LION dished out by the Cen­tral Bank of Nige­ria (CBN), and As­set Man­age­ment Com­pany of Nige­ria (AMCON) in bail­ing the de­funct Skye Bank have been termed un­nec­es­sary es­pe­cially given the fact that the com­pany even­tu­ally failed to get back on its feet.

Ac­cord­ing to Collins Aziken, a La­gos based cor­po­rate and com­mer­cial lawyer, se­cu­ri­ti­za­tion, which is sim­ply the sale of bad loans, could have helped the coun­try’s fi­nan­cial reg­u­la­tors save much in terms of money spent and lost share­holder’s in­vest­ments.

Aziken was the guest speaker at the Oc­to­ber edi­tion of the busi­ness a.m./GTI Fi­nance & In­vest­ment Di­a­logue (FID) and he spoke on the theme “In­vestor pro­tec­tion, bad loans and AMCON in­ter­ven­tion.”

“The CBN pumped in over N600 bil­lion the first time the Skye Bank prob­lem started around late 2015/early 2016. If they wanted to avert what took place now, they would have taken the route of se­cu­ri­ti­za­tion,” he said.

Con­tin­u­ing, Aziken said sell­ing the non-per­form­ing loans and hedg­ing losses would have been the best de­ci­sion to save the mon­u­men­tal losses.

The CBN at the an­nounce­ment of its lat­est in­ter­ven­tion in the bank, when it got con­verted to Po­laris Bank ad­mit­ted that about N800 bil­lion was fur­ther in­jected into the com­pany. The eq­uity in­jec­tion, sav­ing the com­pany from out­right close down how­ever failed to pro­tect ex­ist­ing share­hold­ers.

“Share­hold­ers are at a loss, AMCON is also at a loss be­cause AMCON is not go­ing to sell at the value of money it has pumped into Skye Bank,” Aziken said.

Al­though the le­gal ex­pert ac­knowl­edged that sell­ing bad loans via se­cu­ri­ti­za­tion will re­duce the worth of the loans, he said about 50 per­cent of the value of bad as­sets sold could be gained if se­cu­ri­tised, as against a gain of 10 per­cent or even less if un­se­cu­ri­tised.

Ex­plain­ing that se­cu­ri­ti­za­tion in­volved trans­fer­ring the re­spon­si­bil­ity of go­ing after debtors to pro­fes­sion­als or in­sti­tu­tions that their sole role is to ac­quire bad debts, Aziken said the new in­vestors are then left to deal with the ex­ist­ing debtors in a way that funds can be re­cov­ered.

Speak­ing to the Skye Bank is­sue, Aziken noted that as at June 2016 when man­age­ment was be­ing changed, what could have been done was to se­cu­ri­tise the loan, set up an SPV and trans­fer non­per­form­ing as­sets to the SPV while al­low­ing the SPV is­sue it out to in­vestors after which they get their money back as the new in­vestors pur­sue the debtors them­selves.

He ex­plained that the ad­van­tage of se­cu­ri­ti­za­tion over an out­right pur­chase of an ail­ing bank is that “the share­hold­ers are saved.”

Aziken also ac­knowl­edged the fact that AMCON has for seven years since its es­tab­lish­ment suc­ceeded in bring­ing a sem­blance of sta­bil­ity to the coun­try’s bank­ing sec­tor, stat­ing that the cor­po­ra­tion has helped in mod­er­at­ing the ef­fects of ris­ing bad loans and sus­tain­ing liq­uid­ity po­si­tions of fi­nan­cial in­sti­tu­tions much to the ben­e­fit of de­pos­i­tors. How­ever, AMCON in its role of ac­quir­ing bank’s bad loans has left in­vestors at a dis­ad­van­tage.

Aziken thus pro­posed se­cu­ri­ti­za­tion as a means to­wards en­sur­ing that ex­ist­ing share­hold­ers of ail­ing fi­nan­cial in­sti­tu­tions are pro­tected dur­ing a take over.

Ex­press­ing strong reser­va­tions on the out­right “takeover of as­set” cur­rently be­ing prac­tised by the cor­po­ra­tion, after which the as­sets are man­aged for a pe­riod of time and sold to the high­est bid­der, Aziken said a case by case ap­proach can be oth­er­wise adopted.

“They should not feel be­cause it is an eas­ier route, then pro­ceed to sell the as­sets they takeover,” he said.

Sound­ing a note of ad­vise to in­vestors and share­hold­ers, Aziken said share­hold­ers have to en­sure that share­holder funds are at all times within the re­quired ba­sis to cush­ion the ef­fects of non­per­form­ing loans.

“They are the watch­dogs for man­age­ment, the only se­cure in­vestor by the means with which AMCON take over as­sets in this coun­try are de­pos­i­tors. Share­hold­ers are at a loss,” he warned.

on the out­right “takeover of as­set” cur­rently be­ing prac­tised by the cor­po­ra­tion, after which the as­sets are man­aged for a pe­riod of time and sold to the high­est bid­der, Aziken said a case by case ap­proach can be oth­er­wise adopted.

“They should not feel be­cause it is an eas­ier route, then pro­ceed to sell the as­sets they takeover,” he said.

He said sell­ing bad loans via se­cu­ri­ti­za­tion will re­duce the worth of these loans, how­ever about 50 per­cent of the value of bad as­sets sold could be gained if se­cu­ri­tised, as against 10 per­cent or even less if un­se­cu­ri­tised.

Sound­ing a note of ad­vise to in­vestors and share­hold­ers, Aziken said share­hold­ers have to en­sure that at share­holder funds are at all times within the re­quired ba­sis to cush­ion the ef­fects of non­per­form­ing loans.

“They are the watch­dogs for man­age­ment, the only se­cure in­vestor by the means with which AMCON take over as­sets in this coun­try are de­pos­i­tors. Share­hold­ers are at a loss,” he warned.

Kuru

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