Kunle Aderinokun
10 November 2009
Abuja — The Central Bank of Nigeria (CBN) yesterday said it has proposed in the Asset Management Company (AMC) bill, currently before the National Assembly, a N250 billion capital base for the firm, which is expected to manage the huge bad loans of banks.
CBN Director of Banking Supervision, Mr. Samuel Oni, who made this known in Abuja after the meeting of the Bankers Committee, said the apex bank envisaged the AMC bill would be passed into law by December 31, 2009. The Bankers' Committee is an association of the chief executives of banks and selected financial institutions which meets bi-monthly to discuss the state of affairs in the industry. The CBN Governor usually chairs the meeting. According to Oni, the proposed AMC will have a life span of 10 years after which it must have satisfied the reasons for its existence. Oni addressed the press along with the Managing Director of Skye Bank, Mr. Sola Akinfemiwa; his counterpart at Union Bank, Mrs. Funke Osibodu; Managing Director of Kakawa Discount House and acting President, Chartered Institute of Bankers of Nigeria (CIBN), Mr. Laoye Jaiyeola; and Managing Director of Standard Chartered Bank, Mr. Christopher Knight. He said: "The N250 billion capital proposed in AMC bill is to be contributed by the CBN and ministry of finance in the proportion of 60: 40. And it is hoped that the company will be alive for 10 years after which it must have completed the objectives for which it was set up." An asset management company is an investment management firm, which invests the pooled funds of retail investors in securities in line with the stated investment objectives.
The investment company provides more diversification, liquidity, and professional management consulting service than is normally available to individual investors. Part of the liquidity problem of the banks has been attributed to their over exposure to the stock market and the oil and gas. The stock market has lost about N7.6 trillion or 60 per cent of its market value since the meltdown started in March 2008. After the second round of capitalisation that led to excess cash in their coffers, the banks saw the stock market as an avenue to invest part of their funds. They began to give out margin loans to stock broking firms and directly to investors. The banks in turn collected share certificates of securities bought with these loans as collateral. Any bank lending margin facilities also made their shares part of the investment portfolio of the borrowers. Enticed by the huge profits stock broking firms and investors were making, some of the banks began direct trading in stocks.
However, the bubble burst when the market crashed and the funds got trapped. While the CBN last year put the margin loans in the region of N800 billion, the Chartered Institute of Stockbrokers (CIS) said the banks' exposure to the market was over N1 trillion. The Director-General of the Nigerian Stock Exchange (NSE), Prof. Ndi Okereke-Onyiuke once confirmed that about N1 trillion of bank loans was trapped in the stocks, whose value have depreciated significantly. Oni explained that the CBN was not just starting the process, rather he pointed out that there had been correspondences and meetings of CBN officials with the lawmakers, the recent one being the visit of the CBN Governor, Mallam Sanusi Lamido Sanusi. He said the National Assembly had been put on notice and were well aware. "When the governor appeared at the National Assembly of recent, that issue was brought up and they appreciated the need for us to set up the AMC. "The AMC as a national project and we are looking at a situation whereby banks will be helped given what has happened in the global world where banks have actually failed.
We have ensured that no bank is allowed to fail in this country," he said. Oni explained that the AMC was to transform some of the banks' bad loans, stressing that the CBN would issue bonds to the banks for sufficient liquidity. Akinfemiwa hinted that banks would have a strategy session between December 11 and 13 this year, where they will look at how they could support the government on power and infrastructure. He said experts in the development financial institutions and banks would be assembled to brainstorm on the way forward. "We are going to be bringing specialists, experts in different areas together especially the development banks like Nigeria Export Import Bank and Bank of Industry together to look at how banks can contribute to financing some of the major elements in our economy.
That we believe could engender growth and development in the economy," he said. Responding to questions on why banks are not lending to customers in recent times, Akinfemiwa said it was only natural for banks to look inward and address the issues raised by the CBN before they resume lending. He was, however, optimistic that by the first quarter of next year things will begin to pick up and banks will resume normal lending. He said: "There are banks under administration here and there are things these banks have to do before they go back into doing business. What has happened is not such that you go in as a new managing director and start giving money out. In those eight banks or so, you will probably see some slow down in the process. "Sooner than later, I believe that we are going to go back to business. Even in the other 14 cleared banks, there were issues.
There were things that the CBN is asking you to address, so you find out that the major part of your business today is devoted to sorting out those things so that tomorrow can be better. "So, my view is that whatever is being experienced now is something that we all must go through so that we may have a more organised banking system in the country. Apart from that, I think what the CBN is doing in terms of AMC is that the National Assembly would have passed the AMC bill by the end of the year so that we can have a situation whereby banks are released to be able to do more business because now they would be freer, they will have some liquidity to play with and all of these other things that the Central bank has been pushing through the system. "It is my hope that by next quarter, things would begin to warm up again.
I'm sure you agree that what has happened in this industry is not something that people would begin to do the same thing all over." In terms of lending to small businesses, the Skye Bank boss said the problem was not peculiar to the Nigerian economy. "What we will be doing at the retreat that we are planning for December is to find out how do banks behave this way," he said. In his own contribution, Knight said the CBN was about to disburse the second tranche of the commercial agriculture loans totalling N100 billion. He said N40 billion would be distributed through the states, while leftover of N60 billion would be dispensed through the participating banks including Union Bank, Fidelity Bank, Guaranty Trust Bank, Zenith Bank and Unity Bank. Speaking further on the commercial agric loans, the CIBN boss added that before December, some of the money would be disbursed to commercial farmers.
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