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AMCON bonds raise CBN’s liabilities to N6tn – Report

By on September 11, 2014

The Asset Management Corporation of Nigeria’s bonds acquired by the Central Bank of Nigeria has raised the central bank’s liabilities from N2.1tn in 2009 to N6.1tn in 2013, a new report released by Afrinvest has revealed.

The 2014 Banking Sector report, which was released in Lagos Tuesday, disclosed that the development had made over 40 per cent of the CBN’s asset portfolio ‘unmarketable.’

The report read in part, “Our review of the CBN’s balance sheet as of November 2013 raises crucial questions that require urgent attention. The CBN’s proactive response to the 2008/2009 banking crisis was arguably the right move although this has, in itself, magnified CBN’s level of indebtedness. Over 40 per cent of CBN’s asset portfolio is unmarketable, comprising principally of AMCON bonds, intervention funds and development finance loans.

“These are long term investments without a discernible exit time frame other than the eventual performance of the loan portfolio. For instance, the 190.5 per cent surge in other liabilities from N2.1tn in December 2009 to N6.1tn in November 2013, traceable to the acquisition of AMCON’s debt by the CBN, is alarming.”

The report noted that in the event of another crisis in the banking sector, the CBN might not have the capacity to bail out the banks without avoiding the option of printing money.

Afrinvest, however, noted that the option to print money might have significant consequences on price stability.

Consequently, it stated the CBN might be forced to raise the AMCON levy on banks from the current 0.5 per cent to include an additional 0.5 per cent of their off-balance sheet items in coming years.

The report added, “This will exert further pressure on industry bottom lines as AMCON’s fee as a proportion of total OPEX has risen from 4.6 per cent in the financial year 2012 to 7.6 per cent in the financial year 2013 and is expected to cross the 10 per cent threshold in financial year 2014.”

 

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