Ahmed Lawan Kuru 300 NPLs Account for 70% of 14,000 Bad Loans Acquired by AMCON
Mr. Ahmed Lawan Kuru, managing director of the Assets Management Corporation of Nigeria, does not have an easy job. The entity, which he heads acquired non-performing loans (NPLs) of banks and in pursuit of the corporation’s mandate as provided by the AMCON Act 2010, he is constantly interfacing with men of power and influence who could not meet their debt obligations to financial institutions. From banking to aviation, his footprints are obvious as he goes about recovering bad loans. This has cost him treasured friendships in some cases and expanded the camps of those who loathe his resolute commitment to his assignment. But he says he is unperturbed by this as he sees his work as crucial to growth of the economy and national development. His finance sector background prepared him for this current assignment. A budget analyst with the Federal Ministry of Finance in the mid-80s, Kuru started his banking career over three decades ago with Habib Bank. Prior to his appointment as the chief executive officer of AMCON, he was the Group Managing Director of former Enterprise Bank Limited. At his waterfront office in Marina, Lagos, this alumnus of Ahmadu Bello University, Zaria, who will be two years in the saddle in three months, shares his experience with Tokunbo Adedoja and Olaseni Durojaiye. Excerpts:
How hasyourbackgroundas aseasonedbankerhelpedas ManagingDirectorofthe Assets ManagementCorporationof Nigeria(AMCON)? AMCON’s work basically is banking related. Of course you know that AMCON was set up to purchase Non-performing loans away from the financial institutions.There’s this joke in the banking sector that when everybody is tired ofyou, in those days banks don’t sack people anyhow, due process has tobe followed, it is a recent development that you wake up one day andyou hear that they have sacked 300 people; in those days you follow quite a number of processes. If within the system there is somebody that is not performing in marketing, not performing in the back office, what we used to do in those days is to send them to debt recovery department ormedia department or credit worker department, because those places arelike a dumping ground of the banks. Now AMCON has the misfortune ofbuying all those credits and basically that is what we do day in dayout.
So I can tell you that the experience that one has garnered in the banking sector is very relevant to what one does now; all one needs to add to that is to sharpen one’s negotiation skill, sharpen your restructuring skill, sharpen your resolution mechanism and also develop a more broad mindedness because more than what happens inthe banks, here you also try to see the possibility of breathing life back into those credits.
So I can tell you that what we’ve learnt in the banking industry has tremendously helped us with what we’re doing here and that is why the majority of our staff is from the banking industry.
Whatisthenumberofbadloansin AMCON’s portfolioandthepercentageofnon-performing loansinthebankingindustryatthemoment?
AMCON purchased roughly around 14, 000 loans the financial institutions and we paid about N1.7 the loans were valued then at about N3.3 trillion, and other hand we also provided financial accommoda- about N2.2 trillion.But the funny thing is that about those 14,000 loans which is less than five per cent, ac- for more than 70 per cent of the total outstanding of loans that were purchased. So if I focus on the 300 I attacking more than 70 per cent of my loan book. So see that there is more preponderance of the heavy more than the smaller loans.
As you are aware, the non-performing loans in the industry at that time was more than 40 per cent and that was why AMCON was created so that AMCON could buy the non-performing loans and provide liquidity to the banks so that the banks will have the opportunity to lend the liquidity back into the economy; and at that time we we r e able to reduce the non-performing loans to less than five per cent regulatory requirements as set out by the Central Bank of Nigeria (CBN).
RecoveryofNPLsisaHerculeantask,particularly in a societywherepeopletakeloanswithoutanyinten- tionto repay.Whatistherecoveryratesofarandwhat arethe challengesfacedinthecourseofdoingthat?
Like you rightly pointed out, debt collection is one of the most difficult thing that you can go through. If you have a neighbor and he comes to you and say borrow me N 1 0 , 000 when I get my salary I will pay back and you lend him the N10,000, the moment salary day is approaching you’ll begin to see some friction between you and your neighbour because typically he doesn’t want to pay. If you now transposed that into the corporate level you will be surprised at the kind of challenges that we go through in terms of debt recovery. Let us not forget that the basic role of the financial institutions is to lend money; if you look at the balance sheets of most of the banks more than 60 to 70 per cent of revenue are from interest earnings, which means loans are very key to the profitability of financial institutions. Now the only thing that will make a financial institution to sell a loan tells you that they have lost all manner of hope of that loan coming back. More than 80 per cent of the loans that comes back to AMCON have been restructured and restructured over time.
Like I always say, some of the loans were brought to AMCON inside the incubator, some were inside ICU (Intensive Care Unit) and some of them were already inside the coffin.
In some of the banks, they had written off the facilities but suddenly there is an opportunity to get some liquidity out of some of the facilities so they went into their warehouses and dusted the documents and they sold it to AMCON.
Now it is thought that there is a magic wand in AMCON such that when you knock on somebody’s door and say pay your debt, the person will just bring out his cheque book and write you the amount he owes. And like I said, quite a number of those companies are already dead. So the recovery process was and is still very tedious.
Again, the assumption at the beginning was that if I buy a loan with a book value of N3.2 trillion and I pay N1.7 trillion and I provided for financial accommodation of N2.3 trillion, it presupposes that, with our inflationary trend in Nigeria, property that owes N10, if you kept it for three to four years, usually it should appreciate to about N30 to N40 based on our inflationary trend, but unfortunately in the last couple of years things slowed down a bit, so the assumption that we will be able to get more value for some of the asset – because the N1.7 trillion were backed up with assets while the N2.2 trillion which is the financial accommodation is not backed up with asset – the assumption was that the excess from N1.7 trillion will take care of the N2.2 trillion that is not backed up by asset; however, the contrary happened.
So we are left with no option than to communicate, negotiate and litigate. In the last six years we’ve been talking to people, in the last six years there were instances where we put money in the businesses and nothing has worked. So we’re now left with no option than to litigate because we can’t arrest people on the street. If you have been talking to somebody for the past six years and it is not achieving any results, the only option left is to resort to the courts which is why more often than not you see us going to the courts because many Nigerians are not ready to pay back their loans; and if I told you that less than five per cent (of loan defaulters) accounts for more than 70 per cent of the total loan portfolio, so that tells you that they are not ordinary people, even though ordinary people also don’t like to pay back loans; we’re talking of billions and billions of naira.
So in terms of recovery rate we’ve been able to achieve 35 per cent of our recovery in terms of forfeiture and cash because what we also do is if you have an asset and you are unable to pay us, we ask you to forfeit the asset to us. We have quite a number of those assets that we’re holding and because of the economic situations currently we cannot sell some off the assets because if we sell them we’ll have more attrition in terms of recovery rate.
Thethreebankstakenoverby AMCON-Enterprise,Mainstreet andKeystoneBank–havebeen successfullysold, butwhydidit takealongertimetogetKeystone offyourplate?
I think it has to do with the process and the economy at the time. At the time that the first two banks were sold the economy was not badly hit by what we now like to call recession and when we started that process was when it was declared that we had recession.
When we started the process there were more than 26 entities showing interest but one by one they dropped off because the economy at the time wasn’t doing very well and when the economy is not doing very well the banking industry is about the most badly hit. It was a very tedious process for the advisers based on what they set out to achieve particularly because, as I said before, the interest that it generated at the beginning; so by the time that the economy started to contract it affected their ability to keep to the programme.
Even after the process was completed the regulatory clearance also took a while because the regulators also needs time to verify certain things and get approvals before it was announced; but for us what is most important is that there must be a process that is dependable and transparent and that we can defend the process. I think that was why it seemed like it took longer time.However, I can tell you that, because I was MD of Enterprise Bank whenit was being put up for sale, it look longer time to conclude the saleof Enterprise Bank compared to Keystone Bank. It took more than one year, almost two years to conclude that one, but because there was so much information around during the process of selling Enterprise Bank people didn’t notice that it was taking that long. When we did the analysis, we realised that it took longer time because Enterprise Bank was the first to be sold; of course Mainstreet Bank took shorter time.
But in terms of when the process was started and when it was completed the process of selling Keystone Bank took shorter time than when Enterprise Bank was sold.
AM CON has done well in the financial services sector, especially with the rescued banks all of which now have new owners. How optimistic are you that the corporation will replicate same level of success in the aviation industry with the take over of Aero and A rik air?
The aviation sector is another ball game altogether. When I think of the aviation sector I get worried and I’ll tell you why. Any sector of
the economy that you cannot say there is a business or company in that sector that has successfully operated in that sector for more than 10years, then there is a problem somewhere. You can’t pick one airline and saythis airline has successfully operated for more than 10 years; that tells you that there is a structural problem more than the entrepreneurial calling. Some of the guys that have invested in the aviation industry have invested in other sectors and they’ve been successful meanwhile there are issues in the aviation industry.
So to my mind, I think more than the businesses, there is the need to look at the structure of the aviation industry from the regulatory perspective and from the government perspective, and I think the Minister of Aviation (Mr. Hadi Sirika) has realized that. I think he is doing a good job of looking at some of those issues in terms of providing infrastructure, looking at some of the fees to ensure that it applies to standard.
Unfortunately, it is one of the industries that are heavily dependent on foreign exchange. If you want to buy, even a plug, it is foreign exchange related. So there must be availability of foreign exchange to run an airline. So if you have to go and get FX at the rate of N400 or N450, you have to struggle to get aviation fuel - it actually accounts for more than 45 per cent of their expenses; then they have to go and borrow money at the rate of 30 per cent and also deal with some of the regulatory charges. We really need to take a critical look at the industry template. I believe that is where the
solution to the problem of the industry lies.
As a journalists, ask yourself or attempt an analysis of what has happened to the Okada, Kabo, Chachangi, Sosoliso, ADC, Albarka and the likes; what has happened to all of them? Of course there are issues of corporate governance because some of them were ran like one man business where the owner of the business is the chairman, the MD and the Director of Finance; you do have those issues because there is always a link between governance and performance; but I believe the problem of the industry is a combination of so many things. The good thing is the minister of Aviation is currently looking at these things given the information that we have.
ApartfromAeroandArik,arethereanyotherairlinethat areofinteresttoyouintermsofnon-performingloans?
Yes. AfriJet is still with us, IRS is still with us, same thing with Bellview, Air Nigeria is with us and I am talking of those that are already down; substantially from the old ones but thankfully new and good airlines are also entering the market. Like Medview, Air Peace; they are helping to reduce the pressure as to what is happening in the aviation industry. But like I said it is important that the reform that the minister is looking at is thoroughly looked at because the issues confronting the industry are still there.
There is the need to look at availability of aviation fuel, there is the need to look at the rate at which they borrow money which translates to cost of transportation. From Lagos to Abuja if you’re not careful you’ll pay as much as N35,000. Now N35,000 is a lot of money for many Nigerians and even at that rate the airlines are barely breaking even. N35,000 is a lot of money for many Nigerians and even at that rate the airlines are bleeding.
Thank God the CBN has been working very hard and we’re beginning to see some traction, supply of FX to the aviation industry is becoming easier so they can import spare parts, tires and have maintenance checks abroad. If they want to do C-Check the cost runs into millions of dollars; by the time you convert that into Naira, then when they bring back the aircraft, to recoup that money also takes a lot if you consider the load factor. There are few lucrative routes, if you take away Lagos, Abuja, Port Harcourt the airlines are merely doing balancing on some of the other routes because they also need to network. So it is a challenging industry.
Thereisanongoingcontroversyoverthedebtprofileof Arik.Thereareclaimsandcounterclaimsonthis .What istheactualdebtprofileofthatcompanyandisitsdebt farmorethanitsassetsasclaimed?
I think there has been a lot of communication around that even though when it comes to the Aviation industry you have to be very careful not to put too much out there because it is an industry that rely so much on safety, and I am very happy that Aero and Arik pay very high premium on safety issues, they also have very good maintenance facilities locally.
That said, AMCON’s exposures to Arik is in excess of N142 billion. AMCON intervened in Arik to ensure that Arik continues to fly. Arik was beyond just being a business, the airline just needs to continue to fly because it is one of the few airlines that connect almost every part of Nigeria.
The airline used to have about 30 aircraft but by the time we intervened their fleet had reduced by more than 70 per cent; and we could see that if we had not intervened at the time we did, based on information available to us, the airline would have stopped to operate in two or three weeks thereafter.
So intervening in Arik was not a recovery move like go into a place, appoint a receiver and we sell what we can sell and move out. It was more to ensure that the airline continues to fly and I can assure you that we’ve been doing so much to ensure that the airline continues to fly; we will continue to add to the fleet but of course we must have an exit strategy because AMCON will never manage or participate in managing any business because that is not our call; our call is to pursue companies for the recovery of our money and if in the pursuit of that money there is the need for us to get involved in running that business what we do is we go and look for professionals in the industry who people cannot ordinarily question their choice.
In Arik for example, we went for Captain Roy Alagbado - he is one of the finest guys you can talk about in the industry - to go and manage it, independent of AMCON because we have no interest in the managing of the business; and that is why it is surprising when people alleged that AMCON has taken over Arik. AMCON has not taken over the airline.
I can’t manage an aviation business, manage businesses in food and beverage industry, manufacturing, financial services, and still go after business in the oil and gas sector, real estate and more; how would I have the skills.
We’re only a resolution company. But of course if I have to go into any industry for recovery effort I will look for professionals in that particular industry for the holding period; only for the holding period while I work out my exit strategy.
Controversial as the intervention in Arik may have become, depending on who you are talking to, I think we are all witnesses to what Arik had become at that stage in terms of delayed flight, total cancellation of flights. Certainly if you were servicing a route with 20 to 30 aircraft and suddenly you only have seven, eight or nine certainly you can’t keep your commitments, yet your overhead is fixed. So there must be some kind of intervention to protect the airline and I think AMCON’s intervention actually saved Arik because if our intention was to recover our money we will simply take possession of aircraft and then put it up for sale; and we will leave trade creditors to Arik Air to deal with. Contrary to that, our intention was to ensure that the airline continues to fly and I think we have kept to that intention; what we now need to do is to work out what is the next stage for the airline.
Recently,theFinanceMinisterdisclosedthatsomeinvestors wereexpressinginterestsin AeroandArik,thetwoairlines thatweretakenoverbyAMCON.Canyoushedmorelight onthatandhowsoondoweexpecttogettheseairlines toreturntothepathofprofitability?
There has been quite a lot of interests. Even yesterday I had a meeting with some of the previous owners. We have received tremendous, serious proposals from people that have shown interest in both Aero and Arik; in a country of 160 to 170 million people, a country that is very wide and diverse, means of transportation is very key. And while we are trying to get the train network back on track, air travel will continue to be relevant.Good enough, quite a number of the interests that we have received areinterested in budget travelling, such that if you are going to Abuja you should be able to book a seat for N5000 or maximum of N10,000; so there are quite a lot of interests. When you go to a place like Europe you find such airlines that are cheap so that people can be able to afford them.
And like I said, we are talking to people, even the owners, to try and make it easy for people to invest because whether we like it or not, both airlines require the injection of fresh money and that money must not come by way of debt because it will kill the company, it must come by way of cash. It must come by way of equity because if you borrow money at the rate of 20 to 25 per cent, what is your margin? You don’t make profit margin of five or ten per cent in aviation. If you borrow money at the rate of 20 to 25 per cent and then you still have to deal with some other related issues, like your expenses, it further depresses your margin.
So there are quite a lot of interests and our initial projection was that within the first 90 days we should be able to work out something that will be long lasting and we are still working along that line. I expect that within this year we should be able to achieve our goal because these are legacy airlines that are very strong brands that we can’t allow them to fizzle away; we must ensure that they remain in operation profitably and these has been our objective.
Therespeculationsthatthetwoairlineswouldlikely formthetakeoffplatformoftheproposednationalcarrier bythefederalgovernment.Howtrueisthis?
It is not possible and people that are familiar with the way financing work will tell you the same. If an airline has a debt obligation of almost N300 billion, how do you create a national carrier out of it?
If I have N100 billion I can set up a brand new airline unencumbered, without any problem. Like in Arik, everyday you have new claims on the business, you can’t fly Arik international now because they have debts and over there if they don’t play, they can impound the aircraft.
Let me shed more light on how airline business works. For example if you pick Arik, Arik may have 30 aircraft, but many of the aircraft belong to different entities, may be 10 belong to AMCON, another five may belong to Zenith Bank, another number belong to Access Bank, the aircraft all have different owners; the way the airline business is structured is too complicated.
That said, I can tell you categorically that it has never been discussed and I don’t think it makes any sense at all to propose the two airlines as take off platform for the new national carrier being proposed. If government wants to set up a national carrier, they are better off starting afresh and I think they are aware of that, they recently appointed advisers regarding that. If they have N100 billion they can lease 50 aircraft, you don’t need more than N10 billion to set up a structure and build a terminal, then you can go and get new, small bodied aircraft on lease agreement that can fly from one place to another.
Thinking of converting Arik or Aero into a national carrier will be a disaster, that, I can tell you and nobody has ever thought about that, it is all gist from the street.
TherewastheissueofaN50billionnairaloaninvolving BarristerJimohIbrahimandUnionBank, howwasthis
Like I always say, some of the loans were brought to AMCON inside the incubator, some were inside ICU (Intensive Care Unit) and some of them were already inside the coffin. In some of the banks, they had written off the facilities but suddenly there is an opportunity to get some liquidity out of some of the facilities so they went into their warehouses and dusted the documents and they sold it to AMCON. Now it is thought that there is a magic wand in AMCON such that when you knock on somebody’s door and say pay your debt, the person will just bring out his cheque book and write you the amount he owes. And like I said, quite a number of those companies are already dead. So the recovery process was and is still very tedious