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Why The National Assembly Must Support AMCON

Bashir Ibrahim  Hassan
Posted: Nov 16, 2016 at 7:25 pm   /   by   /   comments (0)

Since the global financial crisis of 2008, many nations have adopted a variety of measures to support their financial institutions in various ways. Three distinguishable measures – capital injection, asset relief and debt guarantee became the trend. For instance Netherlands provided 10.8% of its GDP to support its financial institutions; Belgium provided 11.7%, Germany 11.8 %, Switzerland 11.8%, while United Kingdom provided the highest in Europe with 16.7% of its GDP.

One of the ways the authorities tackled the problem in Nigeria is the creation of Asset Management Corporation of Nigeria (AMCON). The Corporation was established as a strategic measure to clean up the toxic assets from the financial institutions’ balance sheets (asset relief). As a result, AMCON bought over the non-performing loans (NPLs) from 22 banks in the country. Having taken over the loans and injected fresh liquidity to the banks to enable them continue the business of banking; part of AMCON’s mandate is to go after the obligors with a view to recovering the debts. In the course of this debt recovery effort, AMCON entered into agreements, debt restructuring with the obligors among others. And this is where moral hazard comes into play as a good number of AMCON obligors made commitments in bad faith.

Although AMCON intervention is paying off,  it still faces some prolonged and winding litigation challenges. Financial analysts believe that AMCON will perform better with more government support in its operations, which was why the news that the National Assembly recently said it was poised to help AMCON recover its unpaid debts has been applauded by financial experts. AMCON’s establishment was a welcome development that helped stabilise the financial sector in Nigeria. It restored confidence in the financial system in the country. Hitherto the coming of AMCON, financial institutions were allowed to fail. And with their failure came the erosion of deposits fund, job losses and huge investments.

AMCON is stuffed with highly qualified professionals who are doing the work diligently with sharp focus on achieving the mandate of the Corporation. Sitting on the driver’s seat of the institution is Ahmed Kuru, a risk management guru of repute. A peep into his career reveals so. He was Executive Vice Chairman, Emeritus Capital Limited, a financial service firm with speciality in international business development focusing in sub-Saharan Africa. Ahmed has passed through so many critical departments in the banking sector. At the famous Bank PHB were he was an 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, Ahmed was the MD/CEO of Enterprise Bank Limited.

The federal government truly needs a tough-built individual like Kuru to lead AMCON at a time like this because AMCON acquired  over 12,000 NPLs worth N3.6 trillion from 22 commercial banks; thus saving our banking system at the time. The Corporation also provided financial accommodation of N2.2billion and protected about N4.7trillion of depositors’ funds and interbank takings as well as saved approximately 14,000 jobs. Its objectives include assisting 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.

The peculiar nature of AMCON’s assignment therefore makes it mandatory for institutions of government like the legislature, judiciary and the executive to lend it continuous support to the Corporation. This is important in the life of AMCON because misreading of the overall objective of AMCON sends the wrong and misleading signal. Indeed, what AMCON needs from government is full support in its pursuit to recover the taxpayers’ money that was invested in buying up the NPLs. Also critical to the success of AMCON is the maintenance of strict the confidence in the institution among its stakeholder and appreciation of the daunting task of debt recovery. No amount of such support is a waste. In fact it is the right step to take.

The fact that top debtors of AMCON are unperturbed by the huge size of their indebtedness and actually living in opulence, is part of the moral hazard challenges. However, AMCON is making progress. Today AMCON has settled over 56 per cent of the total N3.7 trillion bad debts it had to manage from various institutions. It has also introduced another mechanism to its recovery effort with the involvement of Asset Management Partners (AMPs). The AMPs are consortiums with specialist skills required to ensure recovery and debt resolution from banking, legal, valuation and accounting backgrounds. The move is AMCON’s strategy to resolve over six thousand accounts with loan balances of N100 million and below. From the look of things, AMCON is trying its best to maintain a delicate balance.

Therefore the willingness of the lawmakers to assist in AMCON in its debt recovery effort because the recoveries, if injected back into the economy especially at a time like this, would have tremendous impact in the economy. It is for this reason that financial experts are insisting that in carrying their legislative oversight functions, the National Assembly needs to be guided by the rationale behind the establishment of AMCON; the daunting tasks of carrying out its mandate and the achievements so far recorded with the stability of the financial sector. There is also need to make laws that prevent financial recklessness in banks to avoid a repeat of the past.

By Bashir Ibrahim Hassan

Hassan, a financial system Analyst, writes from Abuja.