Assessing impact of AMCOM’s amendment bill on banks

While some analysts expect further increase in banks’ contribution to the Asset Management Corporation of Nigeria (AMCON) Resolution Cost Fund (RCF) over time, following the recent amendment bill, others believe this will not have any impact on banks.

Senate last week passed into law, the AMCON Act, 2010 amendment bill, targeted at removing certain ambiguities from the Act that impede the operations of the Corporation in carrying out its mandate.

AMCON was established in 2010, to acquire the bad loans/assets from distressed banks’ balance sheet in order to revive both corporate and consumer lending.

Certain sections of the bill were amended to make AMCON more operational and value-adding. These including – Sections 2(3), 16(5), 34(1), 34(2), 35, 46(2), 48,60, 61 and 62.

However, analysts have reviewed the amendment bill and came up with various opinion on the relevance of same to financial institutions in the country.

Tajudeen Ibrahim and his team of analysts at Chapel Hill Denham Research noted that the contribution of some banks to the AMCON Resolution Cost Fund (RCF) in 2014 financial result was slightly below 0.5 percent of their total assets.

Ibrahim said in an e-mail response that “we expect this to be adjusted going forward, given the passage of the amended bill. Our medium-term earnings forecasts for the banks under our coverage are, however, based on the assumption that the banks will contribute 0.5 percent of total assets to the RCF. Thus, we are unlikely to adjust earnings on the back of this development. Nonetheless, the amended bill suggests that the CBN could increase the contribution over time. This is a downside risk to earnings forecasts over the medium term.”

Olutola Oni, analyst at WSTC Financial Services Limited, believes that the AMCON amendment bill passed by the Senate was simply a correction of the defect in the existing AMCON Act. It officially establishes the levy imposed by the Asset Management Corporation of Nigeria on banks as a law. You will recall that the Corporation increased the levy from 0.3 percent to 0.5 percent of banks’ total assets in December 2012, and banks have since complied with the payment of the levy.

“As regards the effect on the banking sector, I do not expect it to have any impact in as much as the passage of the Bill does not constitute a change in status quo in the banking industry. i.e. the percentage charged remains 0.5 percent of total assets and banks have, since inception of the levy, been making adequate provision for the expense in their books,” Oni said in an e-mailed response.

The banking sector looks to gain significantly from this amendment bill as the lending power of banks to individuals and SMEs should gradually increase, thereby increasing privatisation, Chukwuka Monye, founding partner, Ciuci Consulting, said, while reacting to the development.

“The bill will also enhance AMCON’s management of acquired assets in order to obtain favourable financial returns on bad loans. This works in the favour of the banking system and the Nigerian economy as there will be a source of assets that can be used in the occurrence of future bank failures,” Monye told BusinessDay in an e-mailed response.

 

HOPE MOSES-ASHIKE