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AMCON ends purchase of bad loans Oct. 31 – Chike Obi

By on October 21, 2011

The Asset Management Corporation of Nigeria (AMCON) will complete the acquisition of non-performing loans (NPL) from rescued banks in a N620billion 2009 bailout by October 31, its Managing Director, Mustapha Chike-Obi, said yesterday.

At that date, AMCON would have acquired N2.78 trillion face value of NPLs from 21 banks at the cost of N1.16 trillion, representing over 95 per cent of all outstanding bad loans in the sector.

The AMCON boss also also hinted that the government is considering the possibility of compensating the shareholders of the three nationalised banks. They are Spring Bank, Afribank and Bank PHB.

Speaking in Lagos at a press conference to update the public on the corporation’s activities, Chike-Obi said placing moratorium on NPL acquisition will enable the corporation focus more on recovering the 9,000 bad loans it already bought from the banks.

He explained that the corporation is more interested in securing the jobs of employees of those firms, than taking measures that would run them out of business. “We want to make sure that institutions with viable businesses are well run and profitably. AMCON will continue to cooperate with honest and viable businesses that approach us in good faith, and show firm commitment to repay their debts,” he said.

However, some banks he said have been compelled in consultation with the AMCON and the Central Bank of Nigeria (CBN) to sell ‘systemically important loans’ to AMCON to forestall any further crises in the sector in the future. Most notable among these are loans to Zenon Petroleum (financed by Access Bank, Zenith Bank, Keystone Bank, Intercontinental Bank and First City Monument Bank) worth N150 billion; Seawolf Industries (financed by First Bank) worth N100 billion and Geometric Power Industries (finance by Diamond Bank) with debt profile of N25 billion.

Chike-Obi explained that taking over these loans from the lending banks would stabilise the industry and remove the adverse implications of default on the banks’ liquidity. He said that those loans are up and running but are too large compared to the lender’s balance sheet structure.

AMCON, he said, has restructured and recovered over 10 per cent of NPLs it acquired. “In the process, AMCON has tried to balance maximum recovery with minimum disruption of viable businesses keeping in mind that employment of Nigerians is paramount to government, the AMCON boss said.

He disclosed that AMCON has successfully restructured several NPLs and supported genuine businesses in critical sectors such as manufacturing, aviation, oil and gas among others. He said the exercise has saved over 2,000 jobs.

Chike-Obi noted that there have been no government interference so far in AMCON’s activities, adding that other countries have commended the manner in which the banking crises was resolved without depositors losing money and at no cost to the national treasury. He said that the funding model for AMCON has been structured such that the Nigerian tax payer will not bear the cost.

Shedding more light on the compensation for  shareholders of the nationalised banks, the AMCON boss, who said that the modalities have not been worked out, said such compensation, if approved, will not be immediate.  Shareholders of the three defunct banks lost over N32 billion after the banks were nationalised.

The AMCON boss explained that regulators are looking at a modality that would involve taking average performance of shares of five other rescued banks that escaped nationalisation, and using it as a benchmark in compensating the beneficiaries.