The Asset Management Corporation of Nigeria (AMCON) has stopped buying bad loans from the banking sector, its chief executive said on Tuesday, a move aimed at discouraging excessive risk-taking after a 2009 financial crisis, reports Reuters.
AMCON was set up in 2010 to clean up the banking system following a N620 billion rescue of nine lenders that came close to collapse, but AMCON CEO Mustapha Chike-Obi told Reuters it would no longer serve as a lifeline to banks with bad loans.
Before AMCON took on bad loans, they made up about half of all loans, the central bank says, but have since fallen to within its target of 5 percent.
The International Monetary Fund (IMF) in its latest report commended Nigeria’s success in stabilising its banking sector but recommended AMCON wind down its operations to curb “moral hazard”, whereby a party is more willing to take a risk, knowing that the potential costs of taking such a risk will be borne by others.
AMCON CEO Mustapha Chike-Obi declined to comment on IMF’s recommendation, but he said banks now bear the full risk of loans that turn bad. They must make full provision on their balance sheets or sell bad loans to a third party, he said.
“We are not buying any more non-performing loans”, Chike-Obi said, adding that the bank had not done so for six months.
“We have cleaned up the banking system, bad loans are under 5 percent and we want to make sure that everybody adheres to the prudential guidelines”.
AMCON issued a total of N1.7 trillion in bonds to buy non-performing loans which were valued at N2.2 trillion at the time of the 2009 bank bailout.
Chike-Obi told Reuters last year that AMCON’s aim was to gradually reduce its operations and cut staff in the next five years, as a full banking recovery makes it no longer needed.
In the meantime, AMCON is seeking foreign investors to help refinance its sovereign-guaranteed debt to the tune of N5 trillion. At a non-deal road show last week, AMCON executives floated the idea of a dollar-denominated bond to achieve this.