Revisiting AMCON’s Lifespan

The Senate last month passed for second reading, a bill seeking to amend the Nigeria Deposit Insurance Corporation Act (NDIC). The bill sponsored by the Chairman of the Senate Committee on Banking, Insurance and Other Financial Institutions, Senator Adetokunbo Abiru (APC) Lagos East), aims at making the corporation more effective, ensuring its independence and autonomy, and bringing it in line with current realities.

Leading the debate on the bill, Abiru noted that there have been series of appeals and consensus from among stakeholders on the need for an amendment of the Act to address all the issues that have been raised concerning it.

Curiously, despite all their efforts, the lawmakers left one burning issue in the financial sector, which is the need to activate a sunset date for the Asset Management Corporation of Nigeria (AMCON). There is need to outline an exit strategy for AMCON.

Coming at a time when President Bola Tinubu has established an 11-member committee tasked with the responsibility to execute the recommendations outlined in the Oronsaye Report, which focuses on the reorganisation and streamlining of government bodies, agencies, and commissions, most analysts believe that the operations of AMCON should be streamlined and freed from the intricate management responsibilities of a financial institution.

AMCON was established in July 2010, following the signing into law of the AMCON bill by President Goodluck Jonathan, with the aim of reviving the financial system via the resolution of the nonperforming loans in banks. The organisation was initially considered to exist for a period of 10 years.

The Corporation was created to be a key stabilising and revitalising tool aimed at reviving the financial system by efficiently resolving the non-performing loan assets of the banks in the Nigerian economy.

Initially mandated to purchase Non-Performing Loans (NPLs) and provide liquidity to commercial banks, AMCON successfully achieved this objective by acquiring over 12,000 NPLs worth N3.7 trillion and injecting N2.2 trillion as financial accommodation to prevent systemic failure.

Despite successes in supporting businesses, particularly in the aviation and manufacturing sectors, challenges have arisen, including its underperformance. AMCON’s intervention activity was funded by debt obligation of N4.65 trillion (as at 31st December 2018), which was to be repaid from internal and external sources, to the Central Bank of Nigeria (CBN) this year.

It is worth knowing that, at conception, it was envisaged that AMCON, being a loss minimisation entity, would repay 30 per cent of the obligation. The balance of the AMCON debt was to be offset by the Banking Sector Resolution Cost Fund (BSRCF). Some of the assumptions underpinning the funding model were: the banking sector was projected to grow at 20 per cent per annum; each bank would contribute 0.5 per cent (initially 0.3 per cent) of total assets per year, to the BSRCF and CBN to contribute N50 billion per year to the BSRCF.

The above-mentioned assumptions did not materialise, as the Corporation revealed recently. For instance, the actual growth rate of banking sector total assets from 2013 to 2017, with 2013 being the commencement year of contribution, has been approximately 8.4 per cent (as against the target of 20 per cent), and not all DMBs have contributed to the BSRCF.

In monetary terms, the actual Sinking Fund contribution from 2013 to 2017 was N1.13 trillion, as against an expected N1.45 trillion. This is a shortfall of N0.32 trillion. In addition, the actual recovery on recapitalised banks and intervened banks was 23 per cent and 10 per cent, respectively.

AMCON bonds were refinanced by the CBN at six per cent and this is higher than the rate payable by other intervention funds. The cash shortfall from internal and external sources meant that there was less funds to invest at the stated reinvestment rate.

The expected variance between forecast and estimate for 2018 to 2024, assuming a compound annual growth rate (CAGR) of 8.4 per cent is N1.56 trillion. The total shortfall gap in Sinking Fund is N1.7 trillion. The Sinking Fund was meant to contribute 70 per cent of the funds required to settle AMCON’s obligations.

Considering the fact that it has missed most of its projections, commentators have questioned President Bola Tinubu’s recent appointment of a new management team for the Corporation, wondering why the president did not appoint a team to oversee the winding or the streamlining of the operations of the Corporation in line with the resolve of the government to implement the Oronsaye report.

Indeed, what this means is that the Abiru-led committee would need to revisit the ongoing amendment of the NDIC Act and take a second look at the continuous existence of the Corporation, in line with the federal government’s quest to implement the Oransaye Report.

Abiru, himself does not believe AMCON should continue to exist in perpetuity, and had during a presentation last December, stressed the need for the Corporation to have a timeline to recover all the outstanding liabilities.

“The only challenge that we have today is that we need to have a definite time that all the obligations hanging on the throat of AMCON must be redeemed,” he had said.

Similarly, the Senate Committee on Finance, Sani Musa, had expressed dissatisfaction with the commission’s performance, and had queried why AMCON should not be scrapped since it appeared to have lost its statutory mandate.

Some other lawmakers that also called for the dissolution of the ‘bad bank’ then were Senator Jimoh Ibrahim; Senator Adamu Aliero, and Senator Ifeanyi Ubah.

Even a former Managing Director and Chief Executive of the Corporation, Mr. Ahmed Kuru, throughout his tenure, had continued to stress that AMCON was not established to exist forever, noting that, “the Corporation has begun to put measures in place for eventual wind down of its activities as it is not created to remain in perpetuity.

“AMCON is not set up to remain in perpetuity, it has a sunset period,” Kuru had said further, warning that, “if at sunset, AMCON is unable to recover the huge debt of over N4 trillion, it becomes the debt of the federal government for which taxpayers’ monies will be used to settle.”

He added, “The implication is that the public will be made to pay for the recklessness of only a few individuals who continue to take advantage of the loopholes in our laws to escape their moral, and legal obligations to repay their debts. We should not allow a few individuals to escape with our commonwealth. And we want to do it within the confines of the law.”

“AMCON by its creation has a sunset date and the sunset date is built around its funding model. We believe strongly at AMCON that once you address the funding model bit of it, AMCON has no role to play again. AMCON wasn’t created to be there perpetually. The earlier we finish, the better. But we can’t just walk away like that. It is not like a door you will just close and go. There has to be a process.”

Also, the International Monetary Fund (IMF) had stressed the need to wind down the operations of the corporation in order to curb what it described as “moral hazard and fiscal risks.”

According to the Managing Partner at the Trusted Advisors, Taye Awofiranye and Senior Associate in the Conflict and Dispute Management Practice Group at the Trusted Advisors, Ajibola Olaosebikan, winding down AMCON would help the federal government in cost reduction.

Citing the advantages of winding down the Corporation, in an article they jointly authored, they noted that, “Operational costs constitute a substantial portion of running a corporation of AMCON’s magnitude.

The duo posited, “The proposition to wind down AMCON stands as a prudent financial strategy to alleviate the strain on public resources. By eliminating ongoing expenses tied to its operations, funds can be redirected towards more pressing national priorities. This strategic reallocation of resources ensures a leaner financial structure, thereby fostering fiscal responsibility and efficiency.

“Closing AMCON heralds a shift towards a more streamlined governmental agenda. Freed from the intricate management responsibilities of a financial institution, the government can redirect its attention and resources towards core functions. Emphasising economic development, infrastructure, and social services becomes more feasible without the intricate burden of overseeing a financial entity. This refocusing aligns with the government’s commitment to delivering tangible and impactful outcomes for its citizens.

“Opting for the winding-down route introduces a pivotal element of market discipline. Financial institutions, operating in an environment where the consequences of their lending decisions are realised, are prompted towards more judicious and responsible practices.

“This dynamic contributes to the cultivation of a robust and healthier banking sector. By allowing market forces to play a decisive role, the government encourages financial institutions to make prudent decisions, fostering a more resilient and sustainable economic landscape.”

From the foregoing, AMCON continuing in operation in perpetuity would lead to costly inefficiency and a waste of taxpayers’ funds, as it will continue to incur high carrying cost and operating cost and erosion in the value of assets.

Therefore, it is imperative for the Senate to revisit its ongoing amendment of the NDIC Act so as to integrate the function of AMCON into the proposed legislation, and set a sunset date for the Corporation.