Nigeria: IMF and Amcon's Sunset Debate

25 April 2019

Should the Asset Management Corporation of Nigeria be winding down pursuant to a sunset clause like the case of the National Asset Management Agency of Ireland after which it was originally patterned or should the AMCON Act be amended to accommodate an extension of its lifespan possibly in perpetuity similar to the case of the Korea Asset Management company? That is one burning issue in the country's financial systems' discourse regarding which the International Monetary Fund seems to have taken a position in support of the argument for the activation of the sunset clause.

It will be recalled that AMCON was established in July 2010, following the signing into law of the AMCON Bill by the President, with the aim of reviving the financial system via the resolution of the non-performing loan assets of banks in Nigeria. Among the achievements listed on its website include the fact that the corporation 'has acquired the Eligible Bank Assets (EBAs) or Non-performing Loans (NPLs) of various Eligible Financial Institutions (EFIs) in three different phases/ tranches with the top five EFIs representing 58.18 per cent of all purchased EBAs'.

Recently, the Minister of Finance, Mrs Zainab Ahmed, provided what appears to be an update of the activities of AMCON, while inaugurating its Board under the chairmanship of Mr Muiz Banire, when she stated that as of the end of 2018 the corporation had been able to recover over N1trillion while its total debt obligation to the Central Bank of Nigeria was in excess of N5trillion. The Minister was quoted to have said that the corporation at inception "acquired over 12,000 non-performing loans worth approximately N3.7 trillion from 22 commercial banks and injected N22trillion as financial accommodation to 10 banks. The direct impact of that action is seen in the protection of N3.66 trillion of depositors' funds and about 14,000 jobs were saved". Against this backdrop, she asserted, the 'corporation has made significant progress in its management of toxic assets in the financial sector'. This view is also shared by some who argue that AMCON has become an important institution in the Nigerian financial system considering the significant reduction in the NPLs of the banking system to nearly single digit compared to about 35 per cent in 2009.

But the IMF seems to take a different view. At the end of the Fund's Article IV consultation with Nigeria in March this year, the Executive Board of the IMF had, while applauding the decline in nonperforming loans and the improved prudential banking ratios, also noted that 'restructured loans and undercapitalized banks continue to weigh on financial sector performance'. Consequently, the Board recommended, among others, the 'establishment of a credible time bound recapitalization plan for weak banks and a timeline for phasing out the state backed asset management company AMCON'. This is not the first time that the Breton Woods Institution is making such recommendation.

Following the conclusion of the 2012 Article IV Consultation with Nigeria, the IMF had also recommended the winding down of the operations of AMCON in order to curb what the Directors described as 'moral hazard and fiscal risks'. On the issue of moral hazard, it is contended by pro AMCONists that the challenge of a moral hazard is somewhat addressed by the punitive price at which AMCON purchases toxic assets from defaulting operators. In any case, AMCON is known to have discontinued the purchase of NPLs since December, 2012.

Be that as it may, the concern about moral hazard should not be completely swept away. The recent call by the Managing Director/Chief Executive Officer of AMCON, Ahmed Kuru, for the federal government to revisit the Failed Bank Act seems to justify the fears expressed by the IMF concerning the need to curb moral hazards in the banking industry. Mr Kuru is reported to have not only made a strong case for the return of the Failed Bank Act, but also decried the resurgence of toxic loans in the banking sector noting that these days "credits are booked with impunity without any intention of paying back and there is the urgent need to revisit the failed bank act so that operatives become responsible for their actions". Even by AMCON's own admission, it is near impossible for the bad bank to recover all loans by 2023 to 2024 when the corporation is expected to wind down. Mr Kuru underscores this fact when he admitted that "even if you extend the life of AMCON for 20 years, it will not be able to recover all the loans". AMCON is said to be carrying a total portfolio of over 12,000 loans of various sizes and in different sectors that are still outstanding many years after the corporation was established despite outsourcing over 6,000 accounts of such portfolio to Asset Management Partners.

In order to justify its going-concern status, AMCON should borrow a leaf from the Korea Asset Management company (KAMCO) which has taken on new business models to complement its status as a perpetual restructuring institution or bad bank of Korea. Besides the purchase and resolution of non-performing loans of financial institutions and implementing the restructuring plan of corporations, the company, established since 1962, also undertakes the agency business of the government such as the disposal of government-seized properties, management of state-owned properties and liquidation of corporate bodies taken over by the government. The corporation also performs the tasks of investigating the property of persons responsible for repayment of non-performing bonds and debts as well as operates real estate-related trust businesses associated with companies subject to structural improvement. In addition, it conducts personal credit funding programs to help delinquent borrowers repair their credit standings. As a quasi-governmental entity, it is equally engaged in collection of overdue taxes.

In the light of the IMF recommendation, what has become clear is that the Business Philosophy of AMCON which is to 'acquire Eligible Bank Assets (EBAs) from Eligible Financial Institutions (EFIs) at a fair value and put these assets to economic use in a profitable manner' is very narrow and needs to be broadened to accommodate new business models similar to the KAMCO example. To this end, the AMCON Act should be amended to enable a reorganization of the corporation to be able to handle new tasks besides its core mandate. This will bring to a logical end the long-standing debate on the sunset clause for the nation's bad bank.

Uwaleke, is a Professor of Capital Market and the Head of Banking & Finance department at the Nasarawa State University Keffi

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