• Friday, March 01, 2024
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AMCON losses continue decline, as structural flaws develop in financial system

amconAMCON, the institution set up to absorb non-performing loans in the Nigerian banking sector in 2010, recorded a loss of N627bn for FY 2013.
The trend however, shows a decline from the loss recorded in 2011of N2.37Tr and in 2012 of N702bn.

The financial statements show an increase in interest income by 80 percaent to N108bn from N60bn.

This is as the AMCON levy received from banks increased in the same period by 76 percent from N55bn to N96bn.

Gross earnings for the period were N180bn.

Interest expense also increased in the same period by 6 percent from N513bn to N545bn; representing the costs of servicing the AMCON bonds and other borrowed funds, 42 percent of total AMCON liabilities.

AMCON bonds are serviced with funds from operations, capital gains, divestment/sale of assets, asset returns, recoveries, sale of loans and investments in Intervened Banks.

During the period under review, AMCON bonds of N4.5 trillion face values were redeemed in December. The bonds were part refinanced by a loan of N3.8 trillion from CBN.

The firm however suffered impairment and loan restructuring losses to the tune of N215bn, with the largest chunk of impairment charges arising from the insolvency of Consolidated Discount House (CDL), where N100bn deposit for shares was invested.

Even as losses in the asset management firm continue to decline and AMCON bonds as a percentage of total liabilities have fallen from 99 percent in 2011 to 42 percent in 2013, there are still structural stress points in the Nigerian financial system that if breached could lead to another crisis.

First, while it is laudable that lending has increased in the banking sector, with a 22 percent increase from N8.2tn in 2012 to N10tn in 2013; loans are concentrated in the power sector and oil and gas sector, posing a systematic risk to the economy.

This is because power sector firms have been unable to earn their projected cash flows as a result of tariff and gas supply challenges.
This could create another wave of significant non-performing loans in the financial system.

Secondly, an Afrinvest report on the banking sector reveals that the CBN would be unable to afford another bailout should banks be saddled with significant non performing loans. This is as a direct result of the surge in the CBN balance sheet in the last year due to interests in AMCON.
On the asset side, 40 percent the CBN asset’s portfolio is largely due to AMCON loans, intervention funds and development finance loans.

On the liabilities side, a 190.5 percent surge in other liabilities from N2.1tn in 2009 to N6.1tr in 2013 as a result of the acquisition of AMCON debt is alarming.

This implies credit risk in the system has only been passed around, which would greatly impede the capacity of the CBN to intervene effectively in another bailout – without a resort to printing money.

Thirdly, Nigeria is not insulated from the effects of QE measures by the US Federal Reserve.

Bismarck Rewane, CEO at Financial Derivatives Company (FDC) said at the Afrinvest 2014 Nigeria Banking Sector Report Launch, “even as money supply has increased with quantitative easing, we have inflation at such low levels and asset prices at such high levels.”

“The only justification for that is that the definition of money supply has changed. Even though we don’t see inflation in the Consumer Price Index, it has manifested itself in asset price bubbles”, he continues.

He further adds that Nigeria would continue to face inflationary pressures that could push the inflation rate pass the 9 percent target cap.
Managing Director/Chief Executive, Asset Management Company of Nigeria (AMCON), Mustapha Chike-Obi, disclosed that total assets in the firm has hit N5 trillion, making it the largest financial institution in the country.

Apart from the banking sector, AMCON has intervened in the aviation sector and the oil and gas sector.