Business, Featured
By Anayo Ezugwu
IN the last nine years, the Asset Management Corporation of Nigeria, AMCON, has saved depositors’ money worth N1.1 trillion in eight commercial banks in the country. Ahmed Kuru, managing director, AMCON, said the agency has also saved jobs in excess of 15,000 and provided liquidities worth N3.3 trillion to banks.
Speaking at a breakfast meeting organised by the Nigerian-American Chamber of Commerce, NACC, Kuru said AMCON has also disbursed about N380 billion to businesses directly as financial accommodation to support them. He regretted that the interventions into the economy mostly financial sector are yet to yield results.
“Regrettably the performance of that intervention is less than five percent because in Nigeria part of the challenge that we have in all the businesses is the absence of good leadership. Then, when you add that to lack of business infrastructure you will understand why we are struggling as a nation.
“When you also look at the other issues like the interest rate, I’m not aware of any business now or before that you will take a loan at the rate of 25 or 30 percent interest rate and still be able to manage. So what we do in the banking industry is to keep the credit in the bank. I can tell you that if you give those credits as loans 80 percent of people will not be able to pay back because at the rate of 25 percent I don’t know what they will be doing with the credit to be able to balance at that level,” he said.
Kuru said the most recent intervention AMCON made into the financial sector was in Polaris Bank. “As you are all aware, we recently intervened in Polaris Bank, former Skye Bank. There was N750 billion bad loans and AMCON was encouraged to put in about N1 trillion in Polaris Bank to save the institution. That in itself is part of our roles as enablers in the financial stability framework. Whether it is the right thing to do or not, again is subject to some further discussions.
“By intervening in eight banks through purchasing of loans and paying the banks average of N3.3 trillion, we have saved depositors’ money worth N1.1 trillion, jobs in excess of 15,000 and provision of liquidities to those banks. Most of those banks were not in a position to lend money again. So when we purchased those loans, we were able to ensure that the marketplace lending, MPL ratio in the industry was less than five percent.
“What this does is in two ways, one you have cleanup the books for them and number two you have also provided them with extra liquidity for them to start lending. By the way, we didn’t appropriate money from the federal government to buy the loans, funds were raised from the market believing that within a period of 10 years, we will be able to pay back the loans.
“Unfortunately some of the assumptions didn’t go as it was planned. It was assumed that the banking industry should be growing at the rate of 20 percent year-in year-out. It was assumed that the economy would come back unfortunately the economy didn’t pickup and then AMCON was not in the position to settle the money it borrowed. So what was done was that we then borrowed from the CBN. We sold the loans to the CBN. Therefore our debt now is seated with the central bank worth N5.5 trillion. As I said earlier, we intervened in the banking, aviation and manufacturing sectors,” he said.
According to Kuru, the federal government created AMCON because of the global financial crisis. He explained that most of the commercial banks were not lending money to businesses at the time and as a result there was need for intervention. He noted that in the wisdom of the government of the day, AMCON was created.
“During the financial crisis the non-performing loans was about N2.6 trillion. First of all, financial stability is the primary responsibility of the CBN. AMCON is just like an agency of the CBN. CBN has the bigger picture and based on what they see they do special examination of the commercial banks.
“It was through the special examination findings that AMCON was created. AMCON was created more or less as a buyer bank. What we do is largely influenced by the CBN. During the crisis of 2008-2009, the non-performing loans rose to almost in excess of N2.6 trillion and at that time the national budget was less than N1 trillion.
“Although some banks were bad and they account for about 80 percent of the non-performing loans in the industry at that time. And the ratio of non-performing loans to the total loans was more than 60 percent and the regulatory threshold is supposed to be five percent. And because of that, some banks were not in position to lend to customers and there were no liquidity to support their operations.
“As a result of that AMCON was created to provide liquidity to some of those banks for them to be able to lend. AMCON purchased more than 12,000 loans from three banks and we paid N1.7 trillion to purchase loans worth N3.3 trillion.
“Then on the other side, mostly on the intervention side, in most countries what they do have is an interrogation agency that examines bad loans and converts it to liquidity for the banks. But in Nigeria, additional responsibility was given to AMCON to also provide financial stability and that we do through what we called financial accommodation.
“AMCON also provided N2.2 trillion to eight banks as financial accommodation to bring their net asset bad loans to zero. So those ones were not given under any asset, but the N1.7 trillion that was used to purchase N3.3 trillion was covered by assets. The assumption was that given our inflationary trends, the asset covering the N1.7 trillion was envisaged that it will reach to the level of taking care of the N2.2 trillion that is clean.
“Unfortunately, those assumptions were made believing that we will come out of the global economic crisis quickly. As whether we came out of it five years down the line is subject to many discussions because they faced other challenges after the crisis.
“AMCON as an enabler is based on our Act. We are empowered to purchase loans at any particular time in order to provide financial stability. So after purchasing the N1.7 trillion, AMCON also has the responsibility to support some of the businesses. In the past, AMCON had disbursed about N380 billion to businesses to support them directly after purchasing those loans from the commercial banks,” he said.
– July 24, 2019 @ 16:05 GMT |
Tags: Why AMCON intervenes in financial sector – Kuru
