Allow AMCON to continue its operations - THE CITIZEN
It was astonishing that the International Monetary Fund (IMF) recently urged the Nigerian government to wind down the activities of the Assets Management Corporation of Nigeria (AMCON) ahead of schedule after the international body had commended the Central Bank of Nigeria (CBN) for initiating and implementing fiscal reforms that have made the Nigerian banking system more stable and in a stronger position to 'absorb most credit and market risk shocks, withstand liquidity pressures and absorb moderate potential losses'. The IMF report on the Financial Sector Assessment Program (FSAP) also added that 'Nigerian banking industry has achieved considerable success and that the reform now serves as a model for both developed and developing countries.'
It should be noted that part of the reforms that led to the present healthy status of the Nigerian banking industry has been the laudable achievements of AMCON which was set up by the joint efforts of the CBN and the Ministry of Finance and backed by a Act signed by the President, Dr. Ebele Goodluck Jonathan, in 2010 that gave the corporation a ten-year mandate to clear up the non-performing loans in the banking industry and restore confidence and stability to it. AMCON immediately injected fresh capital into eight banks that were verified to be in a precarious financial standing by a combined CBN/NDIC audit.
Five of those banks entered into successful merger/acquisition agreements with other banks; and three of them that could not meet the deadline for fresh investors were bought over by AMCON. Therefore, when Enterprise Bank, Mainstreet Bank and Keystone Bank emerged from the AMCON intervention, the corporation averted a colossal financial disaster as the shareholders and investors did not lose their interests and deposits. Interestingly, after just two years of operations, the new banks under AMCON have returned to profitability. Commendable too is that the liquidity and capital adequacy of banks in the financial industry have greatly increased.
So far, AMCON, as the bad bank of Nigeria, has moped up about N4.3 trillion of liabilities in the financial system. Before the corporation was formed, non-performing loans in the banking industry were as high as 35%; but as at the end of 2012, the toxic loans were down to 5%. In fact, AMCON has confirmed that it had not bought any new loans since December 2012. Indeed, the corporation has been effective in recovering the non-performing loans from the defaulting customers of the three banks it bought over. It is within its legal framework to recover these liabilities because as soon as those banks came under AMCON, the debtors also became liable to the new owner.
AMCON, managed by its Director General, Mustafa Chike-Obi, has also contributed to the enviable status Nigeria has in the international community by its intervention programmes in other sectors of the economy. The corporation intervened in the agricultural sector with a N31 billion investment; manufacturing with N51 billion; the construction industry recorded an intervention of N19 billion to support construction firms; whereas it provided a package of N22.6 billion to stockbrokers who were affected by margin trading.; and no fewer than 7,000 jobs were saved in the aviation industry when AMCON intervened with N132 billion for struggling airlines. Therefore, these interventions ensured that the stakeholders saved their jobs and continued to provide for their families and dependents. Moreover, AMCON is driving Nigeria's economy as the largest financial institution in Nigeria with about N5 trillion worth of assets; and it is also the largest issuer of bonds in the country presently.
AMCON was structured in a way that the costs of its operations to Nigerian tax payers would be minimal. Apart from recovering the non-performing loans, a sinking fund was created which requires each of the participating banks to make an annual contribution to the fund which will be 0.3% of its total assets as at the date of its audited financial statement for the immediate preceding financial year. The CBN is also committed to an annual remittance of N50 billion to the fund; it had earlier provided the initial seed money for the operations of AMCON.
Therefore, compared with its minimal operating costs and its huge achievements, we can conclude that AMCON has been successful as a vehicle for restoring confidence and stability in the banking industry. The governor of the CBN, Mallam Sanusi Lamido Sanusi, had described its success as 'amazing' and the IMF is recommending it as a functional economic model. Thus, there is the need to sustain what AMCON has achieved in less than three years of operation. We agree with Sanusi who believes that there are still risks inherent in the financial industry and that though AMCON has solved one problem (reducing non-performing loan portfolios); time is required to manage the situation. He explained to the IMF that AMCON required enough time to recover the loans in its books. He noted that the banks would finally pay off the investments AMCON committed in them, but added that it would lead to risky behaviour and panic within the industry if banks were hurried to do so.
We also share the sentiments of experts and industry observers who insist that AMCON is now functioning as an institutional framework for preventing future financial crises in Nigeria. They argue that AMCON should be allowed to run its course because a developing economy, like Nigeria's, requires a pre-emptive mechanism that will detect, contain, fix any economic crises and provide economic insulation to fiscal shocks; therefore, with the glaring success of AMCON, they assert that it is cost effective and time-saving to keep it running than setting up a new instrument when another financial disaster strikes. The potentials for another crisis are there just as a Standard and Poor's, a renowned credit rating agency has predicted increased losses by Nigerian banks in 2014 to 2015 because of renewed lending operations and apparent defaults.
We also appreciate the inherent fears underlining the call by the IMF for AMCON to wind down operations before 2020. It had suggested that the operations of the bad bank would encourage 'moral hazards and fiscal risks' based on the assumption that banks will take further risks knowing that there is a corporation that is on standby to mope its debts. However, it is our view that banks will be less averse to taking wholesale risks considering that AMCON purchased previous liabilities at very unattractive prices. Moreover, evidence show that the nationalized banks are bouncing back to profitability and some are already considering buying back their assets from AMCON. In fact, the corporation confirmed recently that it would soon commence selling off the three banks so as to recoup the tax payers' funds used to rescue them.
On the other hand, the CBN governor has suggested an amendment to the AMCON Act which would empower the President to initiate dissolution of AMCON with out recourse to the National Assembly if it becomes apparent that the operations of the bad bank are promoting a moral hazard.
Therefore, our position is that AMCON should be allowed to perform its functions for the whole duration stipulated by law. On the balance of merit and relevance, it deserves to continue operations beyond 2020 in order to forestall 'economic hazards' to Nigeria. AMCON has helped the financial industry to recover from its doldrums; it has restored confidence in the industry and above all, in collaboration with the CBN, it is still keeping tabs on the banks in order to sustain the stability that has been achieved in the Nigerian financial system.