President Goodluck Jonathan’s signing of the Asset Management Corporation of Nigeria Bill into law brightens the prospect of recovery of the Nigerian financial industry and the expected positive impact on the economy

After months of anticipation, President Goodluck Jonathan finally signed into law the Asset Management Corporation of Nigeria, AMCON, bill last Monday 19 July. The long-awaited AMCON is expected to mop up toxic assets of financial institutions, thereby positioning them always on healthy footing to enable them breathe life and play their due roles in the nation’s economic growth.

Though the idea of establishing AMCON was first mooted in 2004 to take care of fallouts of the then Cental Bank of Nigeria-induced consolidation in the banking industry, the bill was unable to get the stamp of the National Assembly. The need for the establishment of what has been referred to as “Bad Bank”, however, received added impetus with the recent crisis in the Nigerian banking industry caused primarily by toxic assets estimated to be about N1.5 trillion. An audit of the books of banks, as ordered by Sanusi Lamido Sanusi when he assumed office as CBN governor mid last year, revealed serious deficiencies on liquidity and capital adequacy concerning eight banks. The chief executive officers of the banks were also indicted for corporate governance infractions. After removing the CEOs from office, the CBN injected the sum of N620 billion into the banks to sustain their operations and keep them afloat.

The apex bank also immediately announced it would pursue the establishment of AMCON as part of solution to the crisis rocking the Nigerian banking industry and the downturn in the capital market. “The formation of this company should facilitate an improvement in banking sector liquidity, protection of the earnings of banks from further erosion and a reduction of the debt overhang on the capital market and its participants. This should provide a much-needed fillip for the revival of the Nigerian capital market”, Mohammed Abdullahi, spokesperson for the CBN said in October last year. As further explained by Sanusi, by buying off toxic assets from the balance sheets of the banks in exchange for cash, AMCON will help tackle the problem of liquidity squeeze afflicting operators in the industry. This, in turn, is expected to increase the capacity of banks to advance credit to different sectors of the economy. The CBN governor said the AMCON dream is in line with his policy objective that no bank will be allowed to fail and that he will stand by banks and work with their respective boards, management and other stakeholders to restore the stability of the financial system.

Significantly, all the regulators in the Nigerian financial sector agreed on the necessity for the creation of the new company, although not all analysts agreed it is the cure-all for the problems afflicting banks especially that have hindered them from driving the economy the way they should. In a memorandum presented at a public hearing on the bill by the House of Representatives earlier in the year, Arunma Oteh, the Director General of Securities and Exchange Commission, SEC, advocated for a quick passage of the AMCON bill. The proposed Corporation, she was optimistic, is capable of helping to reverse the misfortune of the nation’s capital market, where turnover crashed by over 71.1 per cent in 2009. “With such apathy from investors, it was not surprising that new corporate issues have been practically frozen, losing about 95 per cent in 2009, against 29.5 per cent in the preceding year,” Oteh said while emphasizing that AMCON will help engender new confidence among investors. In the same vein, Umaru Ibrahim, acting Managing Director, Nigerian Deposit Insurance Corporation, NDIC, said AMCON will help alleviate the burden of settling depositors of failed banks.

Though Sanusi had promised the bill would be passed by the National Assembly within the first quarter of the year, the National Assembly only gave their assent to it late last month. As contained in the harmonized version passed by the lawmakers, the specific objectives of AMCON, shall be, among others, to:

“Assist eligible financial institutions to efficiently dispose of eligible bank assets in accordance with the provisions of this Act;

“Efficiently manage and dispose of eligible bank assets acquired by the Corporation in accordance with the provisions of this Act; and,

“Obtain the best available financial returns on eligible bank assets or other assets acquired by it in pursuance of the provisions of this Act (having regard to the need to protect or otherwise enhance the long-term economic value of those assets, among others).”

AMCON is expected to offer a window through which the banks can discount voluntarily any non-performing loan that is above 10 per cent of their total share capital. “The consideration to be furnished by the Corporation for an eligible bank asset shall be seven years bonds or such other debt securities of such other tenor as the Central Bank of Nigeria may prescribe, issued by the Corporation and guaranteed by the Federal Government or such other form of consideration as may be approved by the Central Bank of Nigeria.”

AMCON will be a multi-purpose resolution vehicle empowered to purchase non-performing assets from banks, as well as inject needed capital in form of appropriate securities. In the case of distressed banks, the body will play the important role of helping to consummate mergers and acquisitions, or capital injection by new investors by facilitating negotiations between the boards of directors of the banks and interested parties. The company is expected to be fully operational by September.

AMCON, to be funded by the Federal Ministry of Finance and the CBN, will have an authorised capital of N10 billion. The corporation will advance credit to operators in the banking sector through redemption of promissory notes, which will be partially funded from the sale of 10-year bonds that will be guaranteed by the finance ministry. The price at which AMCON will buy off toxic loans from the books of banks will be determined by the company when it begins operations, based on the quality of the asset. CBN, it was gathered, had set up a technical team to value bad bank loans that would be purchased by AMCON. Sanusi had indicated that the firm will buy about $10 billion in bad debts by the end of the year.

The board of the corporation will consist of a part-time Chairman; a Managing Director who shall be the Chief Executive Officer; three Executive Directors and four non-Executive Directors. Members of the board will be appointed by the president on the joint recommendation of the Ministry of Finance and the Central Bank of Nigeria subject to the confirmation of the Senate. Members of the board are eligible for re-appointment at the end of their first tenure, which is five years.

The Act empowers AMCON to appoint or act as a Receiver/Manager for a debtor company whose assets have been pledged as collateral for an eligible loan/debt acquired by it. In this regard, the Act provides among others, specifically in Section 53 (1) (a) under Offences and Penalties that: “Any person who makes false claim in any material respect in relation to any movable or immovable property used as collateral for any loan with a view to defeating the realisation of the debt commits an offence and is liable on conviction to a fine not less than N5 million or imprisonment for a term not less than three years, or both such fine and imprisonment.”

The delay in passing the bill by the National Assembly did not detract from the excitement its eventual passage into law generated at the signing ceremony at the Aso Rock Presidential Villa last Monday. “I sign this bill today in full recognition of the critical role that AMCON will play in achieving these two critical objectives for our economy,”  President Goodluck Jonathan said at the brief signing ceremony. He added that the eventual establishment of AMCON was in line with the resolve of his administration to ensure the stability of the country’s financial sector and recovery of its economy. The president was hopeful that when it becomes fully operational, AMCON will help bring the Nigerian financial sector out of the woods by boosting the liquidity of banks through buying their non-performing loans, helping them to recapitalize and increasing access to restructuring or refinancing opportunities for borrowers. It will also help in engendering confidence in balance sheets of the banks, enhance Nigeria’s credit and risk ratings, restore confidence in Nigeria’s capital markets and halt the on-going job losses in the financial industry. Jonathan added that the establishment of AMCON is another demonstration of government’s commitment to safeguarding the interests of depositors, creditors and other stakeholders in the financial system.

Jonathan also commended the cordial working relation and cooperation between the CBN, Federal Ministry of Finance and Ministry of Justice which ensured the eventual passage of the bill. The governor of CBN was no less ecstatic about the signing when he spoke to journalists after the signing ceremony. “This sets the stage for the final phase of the resolution of the banking crisis. This is also the tool for cleaning up the banks’ balance sheet to ensure they put the past behind them and move to the new dispensation,” Sanusi said.

Olusegun Aganga, the Minister of Finance is already thinking of setting up an appropriate management structure for the new body. “Now that the new law is in place, we have the instrument to operate with. The next step will be to establish the board and management team, and to start engaging with the banks. We are now going to get into proper operations. The legal framework has been signed by the president and we are ready to go,” he quipped.

In what may appear to be a dampener of expectations to some players in the industry, it is not every junk in the books that AMCON will soak up, though it is called the Bad Bank. Only bad loans with the capacity to yield valuable dividend would be considered and bought at the end of the day.

Industry reaction to the signing of the bill has been positive, at least on the Nigerian Stock Exchange. Last Wednesday, the next day after the  signing, Bloomberg reported that its “NSE Banking Index that comprises of the top 10 capitalized and most liquid companies in the Nigerian banking industry gained the most in a week, rising 7.77, or 2.08 per cent, to close at 380.69, the highest surge of the index in almost four months. As reported by the website, the highest gainers were the banks rescued last year by the Central Bank. Afribank plc recording the maximum daily limit of five per cent to close at N1.89. Intercontinental Bank plc gained 4.7 per cent to close at N1.79, while Oceanic Bank plc rose 4.9 per cent to close at N1.7. Even then, analysts have insisted that the effects of AMCON cannot be fully felt until it starts buying up the toxic assets in the books of the banks.

—Oluokun Ayorinde/Abuja