AMCON Overwhelmed:Bank’s toxic assets may hit N3.0 Trillion

The on-going stress in the banking industry may have compounded the weakened capacity of the Asset Management Corporation of Nigeria, AMCON, to deliver on its mandate to the Nigerian banking industry. *Ahmed Kuru… AMCON was established in 2010 as a resolution vehicle to purchase the non-performing loans (toxic assets) from banks, inject liquidity into the banks and subsequently recover the purchased bad loans. Sunday Vanguard’s investigations following the fallout of the recent take-over of Skye Bank Plc by the Central Bank of Nigeria, CBN, shows that AMCON could not play the role of relieving the bank of its toxic assets since 2015, a development which bogged down the bank until CBN’s intervention. Skye Bank’s toxic assets is said to be over N500 billion as at last year. But an executive of the bank told Sunday Vanguard that AMCON was part of the problem Skye Bank had to grapple with when it purchased Mainstreet Bank Limited from AMCON, which Skye Bank officials felt was badly managed by AMCON while some toxic assets concealments resonated into the huge non-performing loan (NPL) books of Skye Bank until its take over two weeks ago. A source at AMCON told Sunday Vanguard that beside Skye Bank, several other banks had found themselves in similar position since last year and more toxic assets are being accumulated up till this year, while AMCON had since lost the capacity to acquire those assets. According to him AMCON has not been able to resolve the over N5.1 trillion toxic assets it acquired from the banking industry between 2010 and 2012, a situation which had made it impossible for the Corporation to assume new liabilities. ‘‘Skye Bank was just one of the new problems that emerged on the scene last year. We are still battling with the initial problems in the assets we acquired five years ago’’, the official stated. Another source at the Central Bank of Nigeria, CBN, who corroborated this claim said toxic assets in the banking industry would be in excess of N1.0 trillion this year, adding that the apex bank is still working with all the banks to manage them without necessarily resorting to the AMCON option. However, some banking industry sources believe the situation would become worse if the economic environment does not improve before the end of this year, adding that the apex bank would also need to manage the current liquidity situation in the banks successfully otherwise the fear of Skye Bank contagion effect may crystallise soon, ballooning industry toxic assets to over N3.0 trillion. In the wake of CBN’s action on Skye Bank, many financial analysts expressed worry that CBN was making full disclosure on how  bad Skye Bank’s current financial position was, as it was yet to release any result since 2015. They were also wondering how many banks are now in bad shape. One of the analysts at Nairametrics said ‘‘the concerns are pertinent when you consider the number of bad loan provisions made by commercial banks at the end of the 2015 annual report. The impact these loans have on the capital adequacy ratios of some banks is quite worrisome especially as the country faces a possible recession ’’. They also wondered why the apex bank was giving conflicting signals as it had claimed in March this year that its stress test on banks ‘‘re-affirms that all the banks have adequate capital to absorb unexpected losses”. But four months later, in July 2016, the same apex bank stated that ‘‘Skye Bank’s Liquidity and Non-performing loan Ratios have been below and above the required thresholds, respectively, for quite a while,” adding that “given the aforementioned issues and the fact that Skye bank is a Systemically Important Bank (SIB) with significant interconnectedness, the CBN would be failing in its duties if it does not take immediate action to nip the steadily declining health of the bank in the bud and correct the situation”. These developments, according to banking industry analysts, would have been ameliorated if AMCON was functioning in line with its mandate. But the analysts also noted that AMCON has not been able to manage the toxic assets it had acquired since 2010, as it was unable to dispose of the assets profitably while most of the bad loans it acquired have not been managed well or recovered at all. Apparently, it was against this backdrop and some other management issues that forced federal government to replace its past management while setting up a presidential multi-ministerial/agency committee to salvage the situation in AMCON. Earlier the Ahmed Joda-led Transition Committee had reported to President Muhammadu Buhari that “critical attention should be taken to ensure efficiency in its (AMCON) mandate,” and then identified lack of transparency in disposition of assets as the key challenge facing the company, while recommending that measures should be taken to ensure divesture of AMCON’s assets are “carried out in a transparent and competitive manner”. In June last year, a lawyer, Ajibola Aribisala (SAN), raised the alarm by alleging that AMCON deliberately sold Delta Steel Company at N28billion as against the N33billion offered by a Chinese company, China Polaris Technologies Company Ltd, despite the latter’s offer to pay immediately. While urging President Muhammadu Buhari to cancel the deal, the lawyer alleged that there was fraud in the deal as the company that purportedly won the bid, Premium Steel & Mines Ltd, was only incorporated when the bidding was already in full progress on December 14, 2014. With the replacement of the management of the company many observers had thought that AMCON would have been positioned to meet its mandate in the current turbulence in the banking industry. However, Sunday Vanguard learnt that the multi-ministerial/agency committee on AMCON repositioning may have also run into glitches as no major recoveries or asset dispositions have been executed almost one year after. The presidential committee headed by the Attorney General of the Federation and Minister of Justice, Abubakar Malami, has members drawn from various ministries, departments and agencies. They include the Minister of State (Aviation), Hadi Sirika; Inspector General of Police; Chairman, Economic and Financial Crime Commission, Ibrahim Magu; Accountant General of the Federation and Group Managing Director, Nigerian National Petroleum Corporation, NNPC. Others include Director General, Debt Management Office; acting Executive Secretary, Petroleum Products Pricing and Regulatory Agency and managing director, AMCON, Ahmed Kuru. It would be recalled that at the inauguration of the committee in Abuja, the Justice Minister stated that ‘‘the establishment of AMCON in the wake of the global financial system crisis and the banking sector consolidation reforms in 2008 was to prevent the collapse of the Nigerian banking sector’’. According to him the decision by AMCON to purchase the toxic loans was to stabilise the banking sector, and by extension the Nigerian economy. He said, however, that the debtors who cut across the aviation, banking, oil and gas sectors, have since failed to repay the loans, while some had resorted to court actions to frustrate AMCON’s? efforts to recover the loans, sometimes with active conspiracy of some financial institutions. The frustrating experience, the minister noted, informed the president’s approval of the committee, which terms of reference include to ascertain the current status of AMCON recoveries in terms of achievement from inception to date as well as the total outstanding value of assets. The committee is also expected to ascertain how government at various levels could be made to honour their debt obligations to AMCON; request and obtain information from any persons and/or onshore/offshore entities that would support the Federal Government effort to recover the loans. Other responsibilities include ? assisting in third party investigation outside AMCON office relating to obligors and identifying ? the criminal nature of commercial transactions that would assist in pursuing criminal prosecutions. The committee would also ascertain how government agencies could collaborate to support AMCON’s recovery effort in ensuring that payments due to obligors were made to AMCON; see the prospects of going into a Joint Venture Agreement with AMCON; ensure the acquisition of forfeited assets from AMCON, and take-over of recalcitrant businesses/companies where feasible. The committee was also expected to establish the working framework for AMCON to have direct contact with the agencies for assistance and report made on achievements and challenges as well as design workable strategies to pursue the recovery of the AMCON loans. Insiders in the Corporation said it would still take a longer time to get the Corporation buoyant enough to assume more toxic assets acquisition as it has to, first, deal with the existing ones successfully. But they said the Corporation was still working hard with its Asset Management Partners (AMPs) to assist in the resolution of over 12,000 accounts with loan balances of N100 million and below, which yielded toxic assets burden of over N1.0 trillion hanging on AMCON’s neck. The AMPs are consortia with specialist skills to recover and resolve debts in banking, legal, valuation and accounting. Sunday Vanguard learnt they were put in place to help AMCON’s staff strength of approximately 300, with a strategic approach to improve coverage and strengthen the capacity for more recoveries. The AMPs were vested with the powers granted by AMCON enabling Act, to, among other things work with it to trace, identify and locate obligors (both pledged and unpledged) to resolve their outstanding indebtedness. They were also involved in tracing, identifying and locating assets of obligors to enhance the Eligible Bank Assets (EBAs) value and achieve set recovery objectives, negotiation of settlement and restructuring terms with identified obligors in line with approved guidelines. Banking industry executives said until AMCON comes back on its mandate or any other option is created, the banking industry is in for tough times ahead in management of its toxic assets.