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Report says AMCON existence sending wrong signal about Nigerian banking system

Report says AMCON existence sending wrong signal about Nigerian banking system

Barely three months after Nigeria’s Senate Committee on Banking, Insurance and Other Financial Institutions demanded the dissolution of the Asset Management Corporation of Nigeria (AMCON), a newly released Market Intelligence and Strategic Advisory Group report by Proshare has reaffirmed the need to say goodbye to the bad bank.

The report titled ‘AMCON: A Time to Say Goodbye’ noted that setting a timeline for winding up AMCON was necessary “because its continued existence sends the wrong signal to the global financial market about a Nigerian banking system in perpetual distress”, adding that asset resolution companies globally are designed to resolve problems, “and once this is achieved, they fade into the horizon with warm memories of their triumphs”.

It stated: “Recalling that AMCON remains the longest-existing bank loan asset recovery agency in the world, how does this not send a strong signal that Nigeria does not expect that the banking system is out of its loan asset recovery cycle?”

Released on Thursday, March 7, the report further noted that: “In the context of global best practices, AMCON, an asset resolution company, has reached its time to rest and retire. Why? With an estimated N7trillion debt to the CBN, the bank debt resolution company is the second largest debtor to the money market regulator, after the CBN’s N36trillion credit to the Federal Government of Nigeria’s (FGN) including the FGN’s Ways and Means (W&M) financing of roughly N30trillion as of January 2024”.

“While AMCON has grabbed the steering wheel of resolving banks’ toxic debt assets, the NDIC has laid hold on the transmission system of depositor protection. In theory, this does not raise a problem but creates a world of difficulties for bank cost management in practice.

“Walking the tightrope between bank depositor protection and toxic loan resolution has created a difficult regulatory oversight blindspot. While the NDIC is propped to cover depositors’ money in the event of a bank going bust, AMCON is charged with protecting the failure of a bank from becoming contagious,” it stated.

It further noted that, “If we leave AMCON to run as if it where a standard operating entity, we run the risk of signalling that there is an ever-present problem within our financial system. Perhaps that is the message we stubbornly fail to grasp. The AMCON Act, as amended, contrary to popular conception, did not stipulate a sunset clause as resolution practice demands.

“Truth be told, the ten-year period from our investigations, was an estimated final resolution time frame agreed between Khalifa Muhammed Sanusi II, the Central Bank of Nigeria (CBN) Governor at the time, and Mr. Mustapha Chike-Obi the AMCON’s inaugural chief executive officer (CEO).

“The agreement rested on calculations around the expected growth of banking assets over the decade between 2010 and 2020 and the domestic money centre banks’ (DMBs) capacity to support a sinking fund designed to retire the amount AMCON had spent to bail out the banking system. These assumptions did not pan out as expected, as we addressedon August 23, 2018,” it stated.

Last month, President Bola Tinubu sacked Ahmed Kuru, as the managing director and chief executive officer (CEO) of Asset Management Corporation of Nigeria (AMCON) and appointed Gbenga Alade as his replacement.

Meanwhile the report noted that “the AMCON (Amendment) Act, 2021, is like a lovely French souffle, crusty on the outside and soft in the middle. Its core mission was to be a key stabilizing and re-vitalizing tool in the Nigerian economy by ‘complementing the recapitalisation of affected Nigerian banks; provide an opportunity for banks to sell off non-performing loans (NPLs), and free up valuable resources that enable banks to focus on their core activities’; it was never the intention to have it as a permanent
institution”.

The report noted also that, “If the governments’ adoption of a realignment of multiple and overlapping agencies is to materialise, entities such as AMCON and NDIC co-existing signals an absence of faith in the banking industry’s governance around loans, for which far-reaching monetary decisions remain ongoing. “It becomes pertinent to ask whether the CBN knows more than it lets on by retaining the current structure rather than setting up a new one. Should we, therefore, prepare for another NPL explosion?

It recalled that the revised NDIC Bill passed a second reading at the Nigerian Senate without considering the need to revise the deposit-protection institution’s scope of activities. “If the NDIC Bill does not consider AMCON’s possible shutting down, and the adjustments necessary in the NDIC bill to take on the responsibility and lessons from AMCON’s intervention, are we not delivering an amendments bill that is not reflective of the progress made?”, it questioned.