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AMCON urged to improve its financial performance

By on September 15, 2014

Following the recent release of the Asset Management Corporation of Nigeria’s (AMCON’s) 2013 results, which saw its bottom line still deep in the negative territory, financial market analysts in Lagos have advised the Corporation to develop strategies that will improve its financial performance and profitability.

This, according to the analysts, would help crown the past efforts of the corporation.

AMCON announced its operating results last week, with a whopping loss of N635.88 billion. The amount, according to experts is more than the 2013 fiscal budgets of seven states in Nigeria.

A cursory look at AMCON’s 2013 financial statement also revealed that it redeemed N4.5 trillion bonds in 2013, which was partially refinanced by the Central Bank of Nigeria’s (CBN’s) loan of N3.8 trillion at six per cent per annum. Also, its operating expenses were N121 billion, down by 40.6 per cent from N204 billion the previous year.

In addition, AMCON’s portfolio revealed a total of 12,383 loans made up of individuals, corporates and government entities. Approximately 6.7 per cent of the total loans acquired were loans valued at N10 million and below.

But another 1,992 loans within the range of N100 million and N1 billion, accounted for 16 per cent of the portfolio value, while 433 loans of between N1 billion to N10 billion on size accounted for 36 per cent of the loan portfolio. Also, 65 loans all in excess of N10 billion represented 41.5 per cent of the portfolio.

To this end, the Financial Derivatives Company Limited (FDC) pointed out in a report that the alternative of not having AMCON would have had some grievous consequences on the economy, which are better imagined than experienced.
“There is however a pressing need to ensure that its financial operation is equally viable. One will also hope for an improvement in the general state of the country’s economy and asset prices as this will aid AMCON to achieve this task in a timely manner.

“However, the point stressed is that with or without accounting profit, AMCON has turned out a huge economic profit for the nation,” the firm stated.

On its part, Afrinvest Securities Limited noted that AMCON could achieve cost savings by focusing on the top 2,500 loans in its portfolio, which accounts for 93 per cent of the value.

But while warning that a cyclical economic downturn is not unlikely due to both global and domestic issues, the FDC report urged AMCON to prepare “to start detoxifying the banks.”

“There is also the real threat of rising inflation considering the increase in money supply to be witnessed as AMCON redeems N866.73 billion worth of bonds in October, 2014,” it stated.

Nevertheless, the report stressed that the activities of AMCON had helped in ensuring a less destabilising effect on Nigeria’s financial and non-financial sectors in contrast to the experience of many other countries in the crisis and post-crisis era.

Specifically, a number of companies in different sectors that had benefited from AMCON’s intervention include the oil and gas, general commerce, capital market, manufacturing, finance and insurance and aviation.

Continuing, Afrinvest Securities also advised the corporation to engage third parties in the recovery of the balance, saying this would provide a more efficient approach in the recovery process.

“The establishment of AMCON has brought both benefits and handicaps for Nigerian banks. The eventual signing of the trust funds deed by AMCON and the banks in August 2013 officially institutionalised the contribution of 0.5 per cent of assets and 0.3 per cent of off-balance sheet items into the sinking fund.
“The AMCON levy increased by approximately 76 per cent from N54.6 billion in 2012 to N96.0 billion in 2013; thus constituting a chunk of the banking industry’s operating expenses.

“This has invariably put pressure on the net earnings of banks hence increasing the scramble for earnings. However, this has been a complementary source of funding in AMCON’s cashflows, applied towards the redemption of AMCON bonds,” the firm added.

Afrinvest also estimated that AMCON’s levy on banks may hit N143 billion by the end of 2014, further strengthening the corporation’s cashflows in the years ahead.

 

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