AMCON: Managing assets for investors’ security in Nigeria

All too often, investors in businesses who were not involved in the day-to-day running of the show looked on helplessly when, owing to a variety of factors in prevailing global, national and local economies, the fortunes of the businesses took a downward dive. As individual investors, mostly through shareholdings, and corporate players, including financial institutions – banks, leasing companies, etc. – they licked their wounds in utter helplessness.

The paradox is that much of the global economy is supported by one form of credit or another. This means that the global economy is debt-dependent. While credits — in the forms of loans — are themselves not always a bad thing, the problem arises when there is default, and they become a debt burden. The burden is, particularly in the Nigerian circumstance, aggravated by recalcitrance on the part of the loanee/debtor to meet their obligations.

Examples of loans that went bad are provided by the US housing bubble burst of 2008 and the Greece insolvency which sparked a Euro debt crisis that still lingers. Already global debt levels were raising alarms, standing at $200 trillion (as of 2014) or nearly three times the size of the entire global economy. The question was: were we on the brink of another debt-fueled economic meltdown?

The global economy is still in turmoil. No one country is immune to the vagaries of recession. The degree of impact only varies from one country to another. The potential for disaster, however, is not on the level of debt per se but rather on whether there is default and how contagious such defaults would prove – it may be write-downs (reductions in values of assets) in one part of the world. But this could cause losses in others, as happened in the last two major debt crises referred earlier, which rippled through the global economy.

AMCON was created to be a key stabilizing and re-vitalizing tool established to revive the financial system by efficiently resolving the non-performing loan assets of the banks in the Nigerian economy. Cited as “An Act to Establish the Asset Management Corporation of Nigeria for the Purpose of Efficiently Resolving the Non-Performing Loan Assets of Banks in Nigeria; and for Related Matters”, it was signed by the President of the Federal Republic of Nigeria on 19 July, 2010.

Its mission is to positively impact and improve the economy of Nigeria by:

· Complementing the recapitalization of affected Nigerian banks;

· Providing an opportunity for banks to sell off Non-Performing Loans (NPLs);

· Freeing up valuable resources and enabling banks to focus on their core activities.

· To propel the lending ideology in banks again.

In furtherance of these, AMCON routinely purchases loans from various Eligible Financial Institutions (EFIs). It has, since its inception, acquired Eligible Bank Assets (EBAs) or Non-performing Loans (NPLs) of various Eligible Financial Institutions (EFIs) in three different phases/ tranches. The top 5 EFIs represent 58.18% of all purchased EBAs.

The Loan Management Team classifies loans based on their size; Small (N100m and below), Medium (Between N100m and N1b), Large (Between N1b and N10b and Strategic (Over N10b). Strategic Loans make up the greatest percentage (40%) of AMCON’s portfolio.

In concert with other regulatory agencies, AMCON has addressed corporate governance and risk management issues and applied preventive measures

There is no doubt that Asset Management Corporation of Nigeria (AMCON) has emerged as the pillar of Nigeria’s financial stability. Through its operations, Nigeria has been able to cope with one bank in crisis here and another blue-chip company going bust there, ensuring minimal disruption of Nigeria’s financial-cum-banking system.

The question always is: how do we avoid defaults, and if they eventually happen, how do we manage the crisis that follows? There is no one-size-fits-all answer to these questions. Every nation studies its economic peculiarities and adopts the best approach that will mitigate the potential for a catastrophe.

In concert with other regulatory agencies, AMCON has addressed corporate governance and risk management issues and applied preventive measures. It has also adopted global best practices to address the aftermath of defaults — from quantitative easing (QE) adopted by the US to zero interest adopted by the Bank of England.

Nigeria, like other African countries, has also adopted some innovative measures to prevent systemic collapse of our banking system, such as bailout and bridge banking introduced by Nigeria Deposit Insurance Corporation (NDIC). Arguably the most innovative panacea is the establishment of Assets Management Corporation of Nigeria (AMCON) in 2010. Its objective include:

· Assist eligible financial institutions to efficiently dispose of eligible bank assets;

· Efficiently manage and dispose of eligible bank assets acquired by it;

· Obtain the best achievable financial returns on eligible bank assets or other assets acquired by it.

Since establishment AMCON has successfully resolved the non-performing loans (NPL) assets of several organizations in the Nigerian economy. So far AMCON has acquired a total of 12,537 NPLs from 22 banks-or what it technically calls Eligible Financial Institutions (EFIs).

One of the historical interventions by AMCON was the acquisition of the three (3) bridge banks (Keystone Bank, Mainstreet Bank and Enterprise Bank) from NDIC and the investment of the sum of U$6.98 billion into them as capital injection. AMCON also massively injected funds into five (5) of the intervened banks (Intercontinental, Oceanic, Finbank, ETB, Union) with a view to facilitating their merger and/or acquisition.

The positive impact of the intervention by AMCON was that it shored up the affected banks shareholders’ funds that were negative and made investments in the banks attractive to investors. Consequently, Access Bank acquired Intercontinental; Ecobank acquired Oceanic; FCMB acquired Finbank; and Sterling Bank acquired Equatorial Trust Banks.

Indeed, through AMCON, Nigeria is making the best out of the situation of banks’ Non-Performing Loans (NPL), which are known as bad debts.

Where does AMCON go from here? With another wave of debt-fueled crisis threatening the world, the question is not ‘when do we wind up AMCON’, as being hinted in some quarters, but how AMCON should be repositioned to continue to serve the country in a situation of debt-induced crisis that may not necessarily have its epicentre in Nigeria. For, as members of the global community, we cannot dodge from the swirling contagion caused by the debris of a global economic crisis.

However, AMCON’s ride has not all been smooth-sailing. It has come upon a plethora of recalcitrant debtors. None of these have challenged its authority than Arik Air, which has, since, been wallowing in debt.

AMCON, in accordance with the takeover objective of the Federal Government of Nigeria, granted about N4 billion to Arik Air Limited (“Arik Air”) to salvage its operations so it can offset its indebtedness to AMCON to the tune of N142 billion. But on 9th February 2017, following Arik Air’s persistent failure to honour its obligations, it was put in receivership. The efforts have since effectively stabilized the operation of the airline.

However, the founders of the airline have neither shown the requirement commitment to paying its pile-up of debts amounting to N400 Billion, which is the largest owed AMCON by any of its obligors, but have been more active in litigations and petitions against the company and its operatives. But, Kuru’s led AMCON resolved to ensure that not even a “penny” of the taxpayers money owed by all its obligors, including the Arik’s, is both legendary and commendable.

AMCON has benefitted from a focused leadership provided by Ahmed Lawan Kuru, its Managing Director/Chief Executive Officer, a former executive director of defunct Bank PHB, who has brought his expertise to bear on the corporation in critical areas like Risk Management, Compliance, Commercial Banking, Northern Operations, Public Sector, Multilateral Agencies and the West Coast, East and Central Africa expansion programme of the bank.

“The corporation’s work has also benefited from the strict enforcement of the treasury single account (TSA) that has blocked financial leakages,” Mr. Kuru notes with satisfaction. But he says the corporation needs more support from the government. “AMCON has been pushing for a framework for inter-agency collaboration among relevant government agencies to bar institutions and individuals indebted to AMCON from doing business to force them to cough some millions to settle the debt they owe AMCON.”

He plans to meet the obligations of the AMCON through supporting businesses to enhance their productivity. More than that, he is committed to transforming their NPLs to RPLs (Re-performing loans). Doing this, Ahmed believes, will provide liquidity to the banks, which will help them meet their own obligations as well. “Any failure in this scenario will have a trickle-down adverse effect on the economy,” he warns.