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AMCON to pay N1.6tn interest on N4tn debt

By on February 19, 2014

The Managing Director, Asset Management Corporation of Nigeria, Mr. Mustafa Chike-Obi, on Monday said the agency would pay N1.6tn as interest on the N4tn used to purchase the bad loans that led to the collapse of some banks in the country.

He stated this in Abuja at a one-day public hearing on the amendment to the AMCON Act, 2010 organised by the Senate Committee on Banking, Insurance and other Financial Institutions.

The amendment of the law is meant to further empower the agency and protect depositors’ funds in banks.

Chike-Obi explained that AMCON had issued bonds worth N4tn and that the interest over three years would make the amount to be worth N5.6tn.

He said, “So, the N5.6tn was not actually the amount of money AMCON spent; the money we spent was N4tn. The N1.6tn was the interest for three years.

“Of that N4tn, AMCON used N1.7tn to purchase non-performing loans. It also used about N861bn to recapitalise the three wholly owned AMCON banks, which are Enterprise Bank, Keystone Bank and Mainstream Bank.”

Chike-Obi added that an additional N1.47tn was spent to recapitalise five other distressed banks namely: Fin Bank, Equatorial Trust Bank, Oceanic Bank International Plc, Intercontinental Bank Plc and Union Bank Plc.

He said, “So, N2.3tn was spent to recapitalise the banking institutions. This recapitalisation led to the fact that no depositor in Nigeria lost a kobo. There is no banking crisis anywhere in the world of this magnitude where depositors would not lose funds.

“Nigeria is the first case where every depositor got his or her money back. So, the N2.3tn was spent by AMCON to give the Nigerian depositors confidence in the banking system that when they put money in the banks, they can get it out. Now, of the balance, the AMCON operating cost represents less than one per cent of this amount spent.”

The AMCON boss further explained that the total operating cost of the agency till date was under N40bn and “while that sounds like a large number, much of that money is being used to pay lawyers and debt recovery agents.”

Chike-Obi stated that the agency had recovered or restructured over 50 per cent of the non-performing loans it acquired “against the 15 per cent figure being thrown around recently.”

He said, “These are debts that banks have given up on. They had been trying to recover these loans for years. Some of these debts were seven to 10 years old; and in the planning of AMCON, we expected that after the third year, we would have recovered about 30 per cent.

“So, the 50 per cent was well ahead of what we expected. It had been very difficult because Nigerians don’t have the culture of  wanting to pay their debts, but we are determined that anybody that owes AMCON money will have to account for it either by restructuring or by surrendering all the assets that they gave to us.”

Chike-Obi implored Nigerians to bear with the agency because it acquired over 13,000 loans and that the sheer amount of loans meant that it would take some time to talk to all the debtors.

He said, “The challenge we have is that if AMCON goes ahead and employs 2,000 people to collect these loans; when these loans have been paid, we will have the instititutional problem of reducing the size of the workforce with its attendant difficulties.

“So, we are trying to maximise debt recovery while minimising unnecessary employment; we do not want to create a huge bureaucracy, which will create a burden on Nigerians.

“To date, we have kept our staff strength at below 300 to handle difficult loans from 21 institutions.”

In December, 2013, the AMCON boss said the agency was able to pay N1tn of its debt well ahead of schedule, adding that it also planned to pay an additional N1tn in October this year, which will reduce its indebtedness by 30 per cent in four years of operation.

He said, “The banking industry as a whole had a non-performing loan ratio of about 35 per cent. Currently, the ratio for the banking industry is about three per cent and no single bank is above five per cent.

“That mandate has been faithfully carried out by AMCON since December 2011. The second is to recapitalise all the weak institutions in Nigeria and since December 11, every Nigerian bank that is licensed today has a capital ratio well above the statutory minimum and liquidity ratio well in excess of the statutory minimum.

“We can claim that we have performed our function adequately. The redemption of our series one bond in December 2013 of N1.7tn is the largest bond redemption in the history of Nigeria and is considered the largest redemption anywhere in the world, and I think it is a matter to be celebrated.”

He said the challenge of the agency was the amendment bill, which is currently before the Senate for consideration.

Chike-Obi urged the Senate to expedite action on it so that the Memorandum of Understanding signed between the Central Bank of Nigeria and the commercial banks, which led to the injection of N4tn bond issues guaranteed by the Federal Government, would have a legal backing.

He said, “The main purpose is to make sure that five years from now, a new CBN governor or a new bank managing director will not decide that the MoU, which is currently in place, is not binding on them.

“It is important that the banks, which are the beneficiaries of AMCON and which are the cause of the crisis, are made to understand that a future crisis will come at a cost to them and that they should bear the burden of cleaning out the mess because they are the major beneficiaries of AMCON.

“We want the agreement to be codified into law so that nobody can escape their obligations and pass it on to the Nigerian tax payers. There are certain powers that will need to be strengthened so that we can go after very difficult loans.”

He expressed confidence that the banks were now fully capitalised hence, they were able to give out $2bn in loans to the power industry, stressing that without AMCON,  it would have been difficult for them to support the sector at no direct cost to the government.

The President of the Senate, David Mark, who was represented by the Senate Leader, Victor Ndoma-Egba, explained that the proposed amendment would clarify and remove certain contradictions in the current AMCON Act.

Mark said the amendment would specifically ensure that any financial mismanagement by banks would not be borne by taxpayers, but rather, by the banks.

 

 

[Punch]