Amcon: Taking Nigeria out of bad debts trap

Amcon: Taking Nigeria out of bad debts trap

Amcon: Taking Nigeria out of bad debts trap

By Bashir Ibrahim Hassan

The global economy is still in turmoil. At the centre of it is debt that goes bad traceable back to US housing bubble burst of 2008 and the Greece insolvency which sparked a Euro debt crisis that still lingers. Already global debt levels are raising alarms, standing at $200 trillion (as of 2014) or nearly three times the size of the entire global economy. The question is: are we on the brink of another debt-fuelled economic meltdown?

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 — indeed whether write-downs (reduction in value of asset) in one part of the world could cause losses in others. That’s what happened in the last two major debt crises referred earlier, which rippled through the global economy experts believed.

The world economy is supported by debt. This means that we are operating a debt-depend economy. In essence, therefore, debt in itself is not always a bad thing. The problem of debt arises when there is default. So the question 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.

Since the 2008 financial meltdown there has been heightened vigilance over corporate governance and risk management as preventive measures. Similarly, there has been no shortage of measures adopted by different countries to address the aftermath of defaults. From quantitative easing (QE) adopted by US to zero interest adopted by Bank of England.

Nigeria, like other African countries (as will be highlighted), has had its own fair share of the impact of the 2008 financial meltdown on its banking sector. And we adopted some innovative measures to prevent systemic collapse of our banking system. Three prominent ones among them were bailout, bridge banking introduced by Nigeria Deposit Insurance Corporation (NDIC) and, perhaps the most significant of all, the establishment of Assets Management Corporation of Nigeria (AMCON) in 2010.

AMCON was created to be a key stabilizing and re-vitalizing tool to revive the financial system. It went ahead to efficiently resolve the non-performing loans (NPL) assets of the banks in the Nigerian economy. 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; and obtain the best achievable financial returns on eligible bank assets or other assets acquired by it. 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 ?1.012 trillion (U$6.98 billion) into them as capital injection. AMCON also injected the sum of ?1.379 trillion 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 investment in the banks attractive to investors. Consequently Access Bank acquired Intercontinental; Ecobank acquired Oceanic; FCMB acquired Finbank; and Sterlling Bank acquired Equitorial Trust Banks.

Through AMCON, Nigeria is making the best out of the situation of banks’ Non Performing Loans (NPL), which are known as bad debts. At the driver’s seat of this all-important piece of innovation is a risk management expert of widely acknowledged repute. Ahmed Lawan Kuru. Ahmed played at the top echelon of Bank PHB as executive Director overseeing 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. Before assuming his current position of MD/CEO at AMCON, Ahmed was the MD/CEO of Enterprise Bank Limited. He was also Executive Vice Chairman, Emeritus Capital Limited, a financial service firm with speciality in international business development focusing in sub-Saharan Africa. With all these considerable experiences in the banking and asset management companies Ahmed is a round peg in a round hole.

His plan to meet obligations of the AMCON consists of supporting businesses with a view to enhancing their productivity. More than that, it includes 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.

So with another wave of debt-fuelled 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.

–Hassan is a Financial Analyst