AMCON continues to deliver despite odds
The Nigerian economy has immensely benefitted from the interventions of the Asset Management Corporation of Nigeria (AMCON) across important sectors. Set up as a stabilizing and revitalizing tool, the corporation is helping to bring much needed stability to particularly vulnerable sectors through bail out, bridge banking and outright takeovers.
It is important to understand the global dimension to what AMCON is doing in Nigeria. In many countries, especially developed ones, there is a social contract between governments and citizens that is premised on mutual trust. The global financial crisis saw stronger governments bail out wealthier banks with public funds obtained from citizens’ taxes, but these banks paid back their governments - with interest. AMCON’s role is similarly ensuring that citizens do not lose out, by maintaining trust in ailing institutions that hold the economy together during times of crisis and beyond.
For the Nigerian private sector, the stresses caused by difficult conditions like the 2008 global crisis or the 2016 recession are compounded by the incompetence of many CEOs and boards to run their organisations competently. This is in addition to their failure to take proactive measures to strengthen these institutions to stave off collapse when storms hit. Over the years, this weak system of oversight as well as the frail regulatory framework of operations has led to massive losses for investors, depositors and workers.
This is the context in which AMCON has, over time, acquired over 12,000 non-performing loans worth about N3.7 trillion from 22 banks. Out of these, the corporation injected N2.2 trillion into ten distressed commercial banks. These judicious and timely interventions ensured that these banks did not collapse during the recession, which would have put further pressure on the already frail economy.
A recent example is AMCON’s intervention to save the distressed Skye Bank, which had run into negative share capital due to its legacy portfolio of bad loans. Following CBN’s revocation of its operating license, Polaris Bank was created as a bridge bank for AMCON to manage and recapitalise the liquidated entity. Through the injection of N786bn ($2.2bn), AMCON helped to save over 5,000 jobs and almost N1 trillion in deposits. This also protected other institutions with financial dealings with the bank. These interventions have also propelled the lending ideology in Nigerian banks, which notoriously have very low lending rates. By disposing of their Non Performing Loans (NPLs), Nigerian banks have been able to free their limited resources to focus on the provision of other core financial activities.
In the capital markets, AMCON has also played a much-needed stabilizing role due to heavy losses since the financial crisis. Currently making up about 17.93% of the Corporation’s eligible bank assets, this sector continues to struggle with liquidity. In 2018, there was a recorded loss of about 14.3% with increased negative performances as the volume traded dipped. However, the outlook for the sector has recently improved, due in part to the disposal of NPLs.
In percentage terms, the highest intervention has been for the oil and gas sector, currently making up 27.23% of bad loans. This is very strategic because despite recent efforts at diversification, Nigeria remains an oil-driven country, contributing approximately 87.7% of foreign exchange earnings and 92% of Government earnings in 2018. The precarious nature of operations in this sector exposes it to a high risk of failure. However given the primacy of the sector, it is critical that banks be continually encouraged to lend to participants in these sectors. Thus, AMCON’s support of the sector is crucial to the Government’s ability to continually earn revenue and implement the 2019 budget.
In the transportation sector, AMCON has also provided vital support to airlines burdened with debt, under administration or in borderline of collapse, including Arik Air, Aero Contractors, and Peugeot Automobile of Nigeria (PAN). The Corporation’s takeover of about N146bn of Arik’s non-performing loans in particular prevented its imminent collapse, which posed a systematic threat to the sector. With the largest fleet in Nigeria and 30 aircrafts serving local and international routes, making up about 55% of the country’s aviation market, AMCON’s intervention prevented a shock to the sector that would have had long-term effects and prevented future local and international investments. In spite of their persistent fragility, all of these companies are back in operation as a result of AMCON’s value adding interventionist approach.
Despite these clear accomplishments, the Corporation is facing orchestrated media attacks. The main source of these attacks is unhappy debtors who have taken to portraying AMCON’s debt recovery efforts as witch-hunting. It is noteworthy that before AMCON begins recovery efforts, these debtors had failed to settle their debts to both their initial creditors (the banks) and third party creditors. The Corporation only comes in as a final resort when the original creditor writes off the debt and sells it to AMCON.
The Corporation’s courageous decision to publicly identify persistent high value defaulters in the media has obviously rattled the high net-worth debtors behind these attacks. The decision was designed to send a strong message to the debtors after several months of asking them to negotiate payment plans over agreed timelines failed to produce any significant results. Rather than cooperate, these defaulters have been disappointingly brazen in their indebtedness leaving AMCON with no option than to pursue more stringent approaches. These so called “VIP” debtors are bent on exploiting all available technicalities including legal shenanigans to either delay repayment or totally renege on the terms of agreement.
As AMCON MD Ahmed Kuru revealed to a stunned nation, the high networth debtors - individuals and organisations - collectively owe the country over N1trn in bad loans. Kuru has made it very clear that the corporation is determined that they will not get away with these antics. To underscore this, AMCON is set for a new stage that will include the take-over of properties of delinquent debtors that have refused to adhere to negotiation. According to Kuru, going forward, in cases where the registered assets of indebted companies are not adequate to clear their obligation, AMCON would go after the directors and their private companies.
The move puts current and potential applicants for such huge loans on notice that they are expected to honour their debt obligations or risk severe sanctions. It will also put positive pressure on banks to lend more responsibly knowing that they and their customers will face serious sanctions including having their brands tarnished by the tag of being identified as persistent defaulters. This should help to reduce the high level of non-performing loans in the banking industry and help to secure the financial system. This paradigm shift in the recovery process is also essential given the termination date for AMCON’s existence is set for 2024.
Adole wrote this from Abuja