N1.7trn investment under threat as IMF recommends closure of AMCON

Nigeria’s estimated N1.7 trillion investment in the operations of the Assets Management Corporation (AMCON) may go down the drain if the Federal Government accepts the recommendation of the International Monetary Fund (IMF), calling for its immediate closure.

The advice was part of IMF’s Executive Board assessment and recommendation to the Goodluck Jonathan administration, after the conclusion of its 2012 Article IV consultation with Nigeria. The directors had commended Nigerian authorities’ success in restoring financial stability, after the 2009 banking crisis, but subsequently recommended the winding down of the operations of the Asset Management Company.

According to Investor Advocate, an on-line medium, the IMF, in the report last week, advised the Nigerian government to wind down the operations of AMCON, in order to curb its moral hazards and associated fiscal risks. The advice to the Nigerian authorities may not be unconnected with the corporation’s widely reported operational loss of a whopping N2.37 trillion ($15 billion) for the 2011 financial year, an indication that the scale of financial devastation left by a 2009 banking crisis was deeper than many had originally thought. However, reacting to the suggestion, Managing Director of AMCON, Mr Mustapher Chike Obi, said the corporation has been talking with IMF, but at no time had the issue of its closure been mentioned, adding that if such an idea was to be contemplated, his board would be adequately briefed by the Bretton Woods institution.

But commenting on the IMF advice, Dr Oladimeji Alo, managing partner, Excel Professional Services and financial analyst, wondered why the IMF suggestion would be coming at this time that AMCON was beginning to handle some serious business of cleaning the financial system of the rot that hit it.

The former chief executive of the Financial Institution Training Centre further state that the setting up of an asset management company was a global trend that was not peculiar to Nigeria, stressing that the suggestion to wind up AMCON makes no sense considering the situation Nigeria found herself in 2009 with the banking crisis. He said it was too late in a day to make such recommendation since the European state of Cyprus was currently contemplating setting up a bad bank to manage its financial crisis.

Alo admitted that the issue of moral hazard has always been there but that the option was one of the best available for the country then to overcome a debilitating crisis that nearly rocked the country’s financial system. He advised that AMCON should be allowed to operate at least for five years so that Nigerians would be able to assess its performance critically. AMCON had acquired liabilities of rescued and other financial institutions in the country estimated at over N4.3 trillion at a discounted value of N1.7 trillion with the hope of recovering part of the risk assets to remain in business.

Its managing director had, while briefing the media on the direction it intends to go to achieve the objectives of setting it up, stated he would appoint professional debt recovery agents, while complementing that with the efforts of the government security apparatus to secure commitment of some high profile debtors to the affected banks. In collaboration with the CBN the names of some high profile debtors were actually published in several national dailies as part of last ditch effort to make them honour their obligations.

But while some had come forward to pay back their debts, AMCON is still facing an uphill task recovering a significant portion of the debt owed raising worries the government may have embarked on another profligate venture. AMCON’s surprisingly large loss has raised questions about how it will refinance a N1.7 trillion naira zero-coupon bond at the end of 2013, a development that may also have serious implications for Nigeria’s national budget.

The after-tax loss – which AMCON officials revealed at a news conference – comes in the first accounts to be published by the bad bank since it was set up in 2010 to absorb the debts of banks hamstrung in a crisis caused by over exposure to a weak oil and local stock market in 2008–09. The crisis almost sank about 10 banks but for the timely intervention of the Central Bank with a $4 billion bail-out fund to keep them afloat.

The loss was a “wake-up call” that the banking sector’s problems will not be resolved as easily as first thought and that banks may end up paying a higher contribution towards its resolution, said Razia Khan, head of Africa research at Standard Chartered Bank. “The non-performing loans that we bought were four times larger … which shows you that what was disclosed as NPLs (non-performing loans) on the books of the banks were (below) what we found when they started selling to us,” said AMCON Executive Director of Finance, Mofoluke Dosumu. “We bought four times what we initially envisaged.”

Analysts questioned how AMCON’s losses would impact its ability to repay a total of N4.5 trillion government-backed bonds used to clean up the banking sector if the value of the assets it hold continued to erode and whether the sinking fund will be sufficient in the short-term.

The IMF also welcomed the central bank’s commitment to address supervisory and regulatory gaps identified in the Financial Stability Assessment Update, particularly the need to strengthen cross-border supervision and the regime against money laundering and terrorism financing.

As part of the Nigeria’s Central Bank’s effort at combating money laundering and financing of terrorism,  it issued an exposure draft of Know-Your-Customer (KYC) requirements to cover low-value and low-risk accounts, thereby promoting and deepening Financial Inclusion while ensuring compliance with Anti-Money Laundering and Financing of Terrorism (AML/CFT).

To check the above, the CBN also developed AML/CFT RBS Template for Statutory Returns by Financial Institutions under its regulatory purview and the Nigerian Financial Intelligence Unit (NFIU) to ensure uniform rendition of Reports. The CBN also developed in conjunction with Chief Compliance Officers of Banks (CCCOBIN), Standard Account opening forms for reporting Institutions to improve KYC compliance.

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