AMCON may pay 1% for huge, unsecured toxic assets

[TGD]

 THE Asset Management Company of Nigeria (AMCON) is currently battling with what will be the fair price for some sets of huge loans without collateral incurred by Nigerian banks, it has been revealed.

The Guardian learnt that the huge loans include those extended to stockbrokers by banks, using the banks' shares, which are currently largely worthless as collateral.

The second set of loan in this category, a source at AMCON said, are those extended to oil marketers, which went bad due to the drop in oil prices.

According to the source, while AMCON has agreed to pay to the banks five per cent of the principal of their other toxic assets, AMCON is considering paying one per cent to the banks on the principal of the two sets of loans mentioned.

It noted that the two sets of loans, apart from being huge, are extremely toxic and without proper collaterals, noting that in some cases, the borrower of such loan might be deceased, thereby compounding the whole matter.

The implication, it was gathered, is that for a bad loan of N1billion in that category, AMCON will pay the affected bank the sum of N10 million.

To this effect, The Guardian was informed that, AMCON is currently revaluating all banks' loans without collaterals in order to arrive at a fair value.

It would be noted that, according to the Central Bank of Nigeria (CBN's) prudential guidelines, non-performing loans of 90 days should be classified as sub-standard; 180 days (doubtful loan), one year (lost), and above one year (toxic).

Therefore, to tackle this problem, the apex bank had also prescribed that banks must make provision for different sets of non-performing loans in their books.

For instance, the banks are mandated by the CBN to make 20 per cent provision for sub-standard loans, 50 per cent for doubtful loans and 100 per cent provision for bad loans.

AMCON, in conjunction with the CBN, has declared that any bank whose non-performing loans (NPLs) exceed five per cent of total loans will henceforth have its bad loans bought at punitive prices.

The company also lamented that the capitalisation process of the rescued banks was being delayed.

AMCON's Managing Director and Chief Executive Officer, Mustapha Chike-Obi who spoke at the second yearly Africa Investor Conference recently, said apart from banks which exceed the five percent limit on NPLs, the CBN and AMCON will not hesitate to intervene in any bank that shows signs of systemic risk and is a threat to the banking industry, in a way that will ensure the safety of the industry as a whole.

He said for now, all AMCON has done is to rescue the banks from the brink at a reasonable price that will not hurt them. So far, AMCON has bought 9,000 bad loans worth about N2.3 trillion.

Chike-Obi who gave reasons for rescuing the banks, said Nigeria was grossly under-banked, and the growth rate of credit to the private sector was very slow. He added that the fact that it was much cheaper to rescue the banks than to liquidate them was another reason for the intervention.

He also explained that it would be more costly for the depositors to be paid than to rescue the banks and assured that the eight rescued banks would be further capitalized by the second quarter of this year.

The AMCON boss had expressed disappointment at shareholders going to court over the capitalization of banks, saying they are simply uninformed about the actions of the CBN.

He disclosed that several investors had approached AMCON with the intention of buying the bad loans, but AMCON, he said, "was not ready to sell."

The corporation, Chike-Obi noted, has the power to recover bad loans and assured that it would only partner people with good ideas and capital management to recover the loans.

"In whatever partnership anybody will have with AMCON, the corporation will remain the owner with ability to recover loans," he said.

He added that the corporation has acquired a 100-hectare virgin land as part of collateral, and as such, would seek for competent partners with good ideas to forge ahead.

AMCON was established on July 19, 2010 when the president signed the AMCON Act into law. It was created to be a key stabilizing and re-vitalising tool to revive the financial system by efficiently resolving the non-performing loan assets of banks in the Nigerian economy.

Its business philosophy is to acquire Eligible Bank Assets (EBAs) from Eligible Financial Institutions (EFIs) at a fair value and put the assets to economic use in a profitable manner.

Meanwhile, Stephen Jennings, Global CEO, Renaissance Capital, has said the world will be shocked at the transformation that will be seen in Nigeria if the right policies are put in place.

He made the remarks during the Renaissance Capital Second Pan-African Investor Conference in Lagos recently.

"We will be shocked by the growth that we will see in the next few years if we do things right. We are real believers in the Nigerian economy," he said, adding that Nigeria's strength lies in its opportunities in its high population.



Source: The Guardian.