We’re recovering banks’ bad debts – Chike-Obi
The Assets Management Corporation of Nigeria was created by the
Central Bank of Nigeria in conjunction with the Federal Ministry of
Finance. Its key objective was to soak up non-performing loans (toxic
debts), and stem threat of collapse of the banking sub-sector with loss
of depositors’ funds. The banks were consequently expected to become
better positioned to offer improved services and boost employment by
providing cheaper funds to the real sector, particularly the Small and
Medium Enterprises, which are traditional drivers of economic growth.
By December 2012, AMCON had issued bonds with a total face value of N5.59 trillion, compared with N5.40 trillion at end-June of the same year. The proceeds of the bonds were used to purchase Eligible Bank Assets (EBAs), provide financial accommodation to the recapitalized banks, and to acquire the three bridge banks.
Data from the central bank showed that the AMCON has restructured EBAs amounting to N313.38 billion. It also showed that recoveries amounted to N23.61 billion while the balance of acquired EBAs was N3.92 trillion at end-December 2012.
Several local and international banks have expressed interest in acquiring the bridge banks but AMCON recently engaged advisers to guide it on the best approach towards divestment from Enterprise, Keystone and Mainstreet Banks which it wholly-owns.
In this interview with Daily Sun, AMCON’s Chief Executive Officer, Mustapher Chike-Obi, said the ‘bad bank’ is making recoveries on daily basis; trying to ensure that borrowers in Nigeria imbibe the culture of “borrow from the bank pay back.” The corporation he said is targeting 40 per cent recovery of debts by the end of this year. Among other burning issues, Chike-Obi revealed that the advisers are still working on their assignments and that the corporation is yet to call for expression of interest.
Excerpts:
Quantum of non-performing loans
The problem with Non-Performing Loans is that it prevents banks from been able to make loans to the real economy and the 35 per cent as everybody will agree with me was extremely high. It had the capacity to strangle the economy at large. There are two steps here. The first step which is important is that banks are able to lend. The second step is whether banks are willing to lend. We hope that as time goes by and the bad memory of last few years begins to fade, banks would be more willing to lend. But the danger in calling for banks to lend and lend is that you have to make sure that you do it in a way that you don’t have to fall into the same old problems. I am encouraged, banks have started to lend and I think that in a year or two, they would be fully positioned . But the caution they are exhibiting now is in my opinion warranted.
Monitoring NPL
It is a delicate question. However, there is government policy that government should not own banks. So everything we do with these banks is temporary and we want to make sure that they are returned to private hands as quickly as possible. So we have to be very careful in interfering with the affairs of the banks. Yes, we do own a 100 per cent of these banks. We appointed directors and so we have a duty to make sure they report to us on a regular basis as owner, and we also monitor what the directors are doing. We are fairly certain that the banks are doing what they are supposed to do. Keep in mind they are also examined and regulated by the Central Bank of Nigeria. That means they are subject to prudential lending guidelines. Should their bad loans begin to exceed a certain average; I think the central bank will have a lot to say about it. So, they are well managed and well run by their board as well as being strongly regulated by the central bank. But we keep our eye on everything to make sure our investments are safe.
Local banks expressing interest in bridged banks
There have been some unsolicited expressions of interest. We have not sought those expressions of interest because we have not in fact put in place the process to divest from those banks. When that process is put in place, there will be official invitation to qualified investors to come and express their interest in a more formal way. What we are hearing was informal expression of interest: I am interested, and I am interested. But we have not asked for anything in that regard, and there is none of those that we are taking seriously at the moment.
Why AMCON audit report was not made public
We did pick advisers to tell us what the banks were worth and the best way forward. It has been concluded, but as you must know, that report cannot be shared with the public. It is an advisory report to AMCON. That is the first step. The second step we engaged in was to decide a sequence of how we are going to divest off the banks. The third step is to appoint financial and legal advisers to assist us in the process. It is a transparent, arms-length transaction. We have appointed those. So we have done the first three steps. The next step that will follow will be for those advisers to come up with a process. When that process is announced you will see advertisement in all the major newspapers including international ones asking for expression of interest. They will be evaluated and sent to the regulators to screen the qualified ones and then we get into the process of allowing the qualified ones to do due diligence. After the due diligence will come the real bid and then we will look at those bids. I think it is an eight-step process and I think we have already done the first step.
Do you think AMCON has achieved its mandate?
I am glad you said commended. It was not the general notion at the break of that story especially when Daily Sun first came up with the caption “IMF verses AMCON.”
First of all, the true position was that IMF said AMCON has achieved its objective quicker than expected and should begin the process of winding down. But when you have a banking crisis all over the world, you estimate the size of the problem and because it is a continuous situation until you fix it, the problem keeps getting bigger and bigger. Nowhere in the world has any estimate of such problem been accurate. You look at Northern Island, the problem turned to be three times larger than they thought and it is still growing. Spain has had six estimates of the size of their financial system problem and it is still more than they thought. So, what you do is to create a structure that is flexible enough to handle unforeseen increases. We did not buy loans four times what was estimated. It was about one and half times what was estimated and AMCON has finished buying loans. So the issue of moral hazard as insinuated in IMF’s suggestion is over. That statement was a summary from the minutes of a board meeting. The full report was not read by any one of those who made much ado about it at that time.
You are aware that IMF was part of the creation of AMCON. IMF still has a consultant working with AMCON and has remained supportive. It only suggested seven years for AMCON to wind down. It will get to a certain maximum size and start winding down its assets. We are planning for ten years and we hope that if we can do it quicker than even seven years, we can do it. Nobody wants AMCON to be around forever and we do not have a different philosophy with IMF.
I want to state that AMCON has not completely achieved its mandate. A very important part of the mandate is to do the work at minimum cost. We are still engaged in a fight with debtors to make sure they pay up; and that is a long process. And when they pay up, we still have to dispose of certain assets in an orderly fashion so we don’t disrupt the market. We own about N300 billion worth of listed shares and I think that if we try to sell them in the market without plan, it will disrupt the market. It has to be in orderly manner. So, because we still have things we have to manage well, we have not completed our mandate. But let me say this: the financial sector is about 60 per cent of the stock market. The stock market’s All Share Index has gone from about 16,000 to 40,000 in two years. I can say authoritatively that without AMCON that would never happen, because if the financial sector is not healthy, the whole of the stock market cannot be healthy. That is the objective measurement of what has been done. More needs to be done and the job continues.
Again, one of AMCON’s main objectives is to acquire eligible bank assets (EBAs) from Eligible Financial Institutions (EFIs) towards assisting them to resume lending activities. Accordingly, AMCON issued Initial Consideration Bonds for a total value of about N1.15trillion on December 31, 2010. The issuance was in exchange for EBAs. In order to ensure the full tradability of the bonds held by the EFIs, AMCON issued Series 1 Bonds to swap/ exchange the Initial Consideration Bonds with the Programme Bonds. The Programme enabled AMCON to acquire additional EBAs from the EFIs and provide them with financial accommodation that aided the restoration of Net Asset Value (“NAV”) to zero in the Intervened Banks. The Bonds also raised working capital for AMCON. They have been guaranteed in full by the Federal Government of Nigeria and bear the full faith and credit of the federal government. This was in accordance with the provisions of Section 26(I) and 27 of the AMCON Act, 2010 and Section 47 of the Fiscal Responsibility Act, 2007.
I think that of the three things we are supposed to do; take out the non-performing loans, recapitalize the banks, and to do these at minimum cost, we have done two of them. The third requires constant dealing with debtors which involves going to court and making sure we get our monies and trying to create a culture in Nigeria that says: if you go to a bank and borrow money, you have a duty to pay it back. You cannot expect to walk away from your obligations when you borrow money from a financial institution and we are still working on that.
Bad bank concept and AMCON
AMCON is lucky is to have a very good set of laws in terms of debt recovery. So it has not been as difficult as was the case before AMCON. But I must confess on the other hand that it is very difficult. A bank will sell you a loan when it has tried to collect it and have failed to collect the loan or believe they cannot collect the money. It is a difficult process. Many of these defaulters were unfortunate. Business conditions changed against them. A lot of them are very honest people who are running genuine businesses that went through bad times. And when banks say they won’t advance any more money it is difficult to continue. So we try to work with those people constructively. The three of the known four airlines that are flying today are supported by AMCON. Eight of the largest oil marketers that have depots today are supported by AMCON. Of the fifteen largest manufacturers that we have, about ten of them are supported by AMCON. So, if AMCON were to shut down abruptly, you will lose not less than half a million jobs and the economy would probably shut down and you will have a major crisis than you had. That means we have to be up and doing. I think we can name about ten or twenty people who have been really recalcitrant. We have thirteen thousand loans and most people that come in here are coming with the intension of reaching a settlement. In summary, it’s not as bad as I expected.
Total recoveries
I don’t know the numbers off-hand. All I can tell you is that we have targets and we are exceeding those targets. I cannot tell you off-hand how much we have recovered at the moment because every day, we are making recoveries. So the numbers yesterday may not be the same numbers for today. But I think we are targeting fourty per cent by the end of this year.
Concern about N2.3 trillion loss AMCON reported last year
AMCON did not lose N2.3 trillion. It only absorbed a loss of N2.3 trillion. This was money that was lost by the banks before AMCON was set up. That was the reason why AMCON was set up in the first place: to absorb that loss and manage it. So, this was not as a result of AMCON activities. When you say AMCON lost money, the impression you give Nigerians is that AMCON did something and lost money. We knew it was there and as a loss manager we said there was no course for alarm. It was the result of those banks’ activities that led to the setting up of AMCON. We already knew the banks had lost N2.3trillion of depositors’ funds. We also knew that if that was to be allowed, no depositor would have got any money and the banking system would have shut down. That N2.3 trillion was literally given back to depositors. If we go bank by bank, N600 billion was given to defunct Intercontinental Bank to restore depositors’ funds and the list goes on. So, in order to prevent major crisis, AMCON was set up to accept that loss and manage it over ten years. That is what we are doing. How do you manage a loss of that magnitude in an economy? You can either let depositors bear it, wipe out your banking system and kill your economy or you can put it in a vehicle that can manage it over ten years. The government chose to put it in a vehicle that can manage it over ten years.
AMCON’s 10.7% shares
We are concerned because there is a debt to AMCON and we are concerned because we are shareholders of ETI. But we think the appropriate place to express our concern is at the board meeting.
By December 2012, AMCON had issued bonds with a total face value of N5.59 trillion, compared with N5.40 trillion at end-June of the same year. The proceeds of the bonds were used to purchase Eligible Bank Assets (EBAs), provide financial accommodation to the recapitalized banks, and to acquire the three bridge banks.
Data from the central bank showed that the AMCON has restructured EBAs amounting to N313.38 billion. It also showed that recoveries amounted to N23.61 billion while the balance of acquired EBAs was N3.92 trillion at end-December 2012.
Several local and international banks have expressed interest in acquiring the bridge banks but AMCON recently engaged advisers to guide it on the best approach towards divestment from Enterprise, Keystone and Mainstreet Banks which it wholly-owns.
In this interview with Daily Sun, AMCON’s Chief Executive Officer, Mustapher Chike-Obi, said the ‘bad bank’ is making recoveries on daily basis; trying to ensure that borrowers in Nigeria imbibe the culture of “borrow from the bank pay back.” The corporation he said is targeting 40 per cent recovery of debts by the end of this year. Among other burning issues, Chike-Obi revealed that the advisers are still working on their assignments and that the corporation is yet to call for expression of interest.
Excerpts:
Quantum of non-performing loans
The problem with Non-Performing Loans is that it prevents banks from been able to make loans to the real economy and the 35 per cent as everybody will agree with me was extremely high. It had the capacity to strangle the economy at large. There are two steps here. The first step which is important is that banks are able to lend. The second step is whether banks are willing to lend. We hope that as time goes by and the bad memory of last few years begins to fade, banks would be more willing to lend. But the danger in calling for banks to lend and lend is that you have to make sure that you do it in a way that you don’t have to fall into the same old problems. I am encouraged, banks have started to lend and I think that in a year or two, they would be fully positioned . But the caution they are exhibiting now is in my opinion warranted.
Monitoring NPL
It is a delicate question. However, there is government policy that government should not own banks. So everything we do with these banks is temporary and we want to make sure that they are returned to private hands as quickly as possible. So we have to be very careful in interfering with the affairs of the banks. Yes, we do own a 100 per cent of these banks. We appointed directors and so we have a duty to make sure they report to us on a regular basis as owner, and we also monitor what the directors are doing. We are fairly certain that the banks are doing what they are supposed to do. Keep in mind they are also examined and regulated by the Central Bank of Nigeria. That means they are subject to prudential lending guidelines. Should their bad loans begin to exceed a certain average; I think the central bank will have a lot to say about it. So, they are well managed and well run by their board as well as being strongly regulated by the central bank. But we keep our eye on everything to make sure our investments are safe.
Local banks expressing interest in bridged banks
There have been some unsolicited expressions of interest. We have not sought those expressions of interest because we have not in fact put in place the process to divest from those banks. When that process is put in place, there will be official invitation to qualified investors to come and express their interest in a more formal way. What we are hearing was informal expression of interest: I am interested, and I am interested. But we have not asked for anything in that regard, and there is none of those that we are taking seriously at the moment.
Why AMCON audit report was not made public
We did pick advisers to tell us what the banks were worth and the best way forward. It has been concluded, but as you must know, that report cannot be shared with the public. It is an advisory report to AMCON. That is the first step. The second step we engaged in was to decide a sequence of how we are going to divest off the banks. The third step is to appoint financial and legal advisers to assist us in the process. It is a transparent, arms-length transaction. We have appointed those. So we have done the first three steps. The next step that will follow will be for those advisers to come up with a process. When that process is announced you will see advertisement in all the major newspapers including international ones asking for expression of interest. They will be evaluated and sent to the regulators to screen the qualified ones and then we get into the process of allowing the qualified ones to do due diligence. After the due diligence will come the real bid and then we will look at those bids. I think it is an eight-step process and I think we have already done the first step.
Do you think AMCON has achieved its mandate?
I am glad you said commended. It was not the general notion at the break of that story especially when Daily Sun first came up with the caption “IMF verses AMCON.”
First of all, the true position was that IMF said AMCON has achieved its objective quicker than expected and should begin the process of winding down. But when you have a banking crisis all over the world, you estimate the size of the problem and because it is a continuous situation until you fix it, the problem keeps getting bigger and bigger. Nowhere in the world has any estimate of such problem been accurate. You look at Northern Island, the problem turned to be three times larger than they thought and it is still growing. Spain has had six estimates of the size of their financial system problem and it is still more than they thought. So, what you do is to create a structure that is flexible enough to handle unforeseen increases. We did not buy loans four times what was estimated. It was about one and half times what was estimated and AMCON has finished buying loans. So the issue of moral hazard as insinuated in IMF’s suggestion is over. That statement was a summary from the minutes of a board meeting. The full report was not read by any one of those who made much ado about it at that time.
You are aware that IMF was part of the creation of AMCON. IMF still has a consultant working with AMCON and has remained supportive. It only suggested seven years for AMCON to wind down. It will get to a certain maximum size and start winding down its assets. We are planning for ten years and we hope that if we can do it quicker than even seven years, we can do it. Nobody wants AMCON to be around forever and we do not have a different philosophy with IMF.
I want to state that AMCON has not completely achieved its mandate. A very important part of the mandate is to do the work at minimum cost. We are still engaged in a fight with debtors to make sure they pay up; and that is a long process. And when they pay up, we still have to dispose of certain assets in an orderly fashion so we don’t disrupt the market. We own about N300 billion worth of listed shares and I think that if we try to sell them in the market without plan, it will disrupt the market. It has to be in orderly manner. So, because we still have things we have to manage well, we have not completed our mandate. But let me say this: the financial sector is about 60 per cent of the stock market. The stock market’s All Share Index has gone from about 16,000 to 40,000 in two years. I can say authoritatively that without AMCON that would never happen, because if the financial sector is not healthy, the whole of the stock market cannot be healthy. That is the objective measurement of what has been done. More needs to be done and the job continues.
Again, one of AMCON’s main objectives is to acquire eligible bank assets (EBAs) from Eligible Financial Institutions (EFIs) towards assisting them to resume lending activities. Accordingly, AMCON issued Initial Consideration Bonds for a total value of about N1.15trillion on December 31, 2010. The issuance was in exchange for EBAs. In order to ensure the full tradability of the bonds held by the EFIs, AMCON issued Series 1 Bonds to swap/ exchange the Initial Consideration Bonds with the Programme Bonds. The Programme enabled AMCON to acquire additional EBAs from the EFIs and provide them with financial accommodation that aided the restoration of Net Asset Value (“NAV”) to zero in the Intervened Banks. The Bonds also raised working capital for AMCON. They have been guaranteed in full by the Federal Government of Nigeria and bear the full faith and credit of the federal government. This was in accordance with the provisions of Section 26(I) and 27 of the AMCON Act, 2010 and Section 47 of the Fiscal Responsibility Act, 2007.
I think that of the three things we are supposed to do; take out the non-performing loans, recapitalize the banks, and to do these at minimum cost, we have done two of them. The third requires constant dealing with debtors which involves going to court and making sure we get our monies and trying to create a culture in Nigeria that says: if you go to a bank and borrow money, you have a duty to pay it back. You cannot expect to walk away from your obligations when you borrow money from a financial institution and we are still working on that.
Bad bank concept and AMCON
AMCON is lucky is to have a very good set of laws in terms of debt recovery. So it has not been as difficult as was the case before AMCON. But I must confess on the other hand that it is very difficult. A bank will sell you a loan when it has tried to collect it and have failed to collect the loan or believe they cannot collect the money. It is a difficult process. Many of these defaulters were unfortunate. Business conditions changed against them. A lot of them are very honest people who are running genuine businesses that went through bad times. And when banks say they won’t advance any more money it is difficult to continue. So we try to work with those people constructively. The three of the known four airlines that are flying today are supported by AMCON. Eight of the largest oil marketers that have depots today are supported by AMCON. Of the fifteen largest manufacturers that we have, about ten of them are supported by AMCON. So, if AMCON were to shut down abruptly, you will lose not less than half a million jobs and the economy would probably shut down and you will have a major crisis than you had. That means we have to be up and doing. I think we can name about ten or twenty people who have been really recalcitrant. We have thirteen thousand loans and most people that come in here are coming with the intension of reaching a settlement. In summary, it’s not as bad as I expected.
Total recoveries
I don’t know the numbers off-hand. All I can tell you is that we have targets and we are exceeding those targets. I cannot tell you off-hand how much we have recovered at the moment because every day, we are making recoveries. So the numbers yesterday may not be the same numbers for today. But I think we are targeting fourty per cent by the end of this year.
Concern about N2.3 trillion loss AMCON reported last year
AMCON did not lose N2.3 trillion. It only absorbed a loss of N2.3 trillion. This was money that was lost by the banks before AMCON was set up. That was the reason why AMCON was set up in the first place: to absorb that loss and manage it. So, this was not as a result of AMCON activities. When you say AMCON lost money, the impression you give Nigerians is that AMCON did something and lost money. We knew it was there and as a loss manager we said there was no course for alarm. It was the result of those banks’ activities that led to the setting up of AMCON. We already knew the banks had lost N2.3trillion of depositors’ funds. We also knew that if that was to be allowed, no depositor would have got any money and the banking system would have shut down. That N2.3 trillion was literally given back to depositors. If we go bank by bank, N600 billion was given to defunct Intercontinental Bank to restore depositors’ funds and the list goes on. So, in order to prevent major crisis, AMCON was set up to accept that loss and manage it over ten years. That is what we are doing. How do you manage a loss of that magnitude in an economy? You can either let depositors bear it, wipe out your banking system and kill your economy or you can put it in a vehicle that can manage it over ten years. The government chose to put it in a vehicle that can manage it over ten years.
AMCON’s 10.7% shares
We are concerned because there is a debt to AMCON and we are concerned because we are shareholders of ETI. But we think the appropriate place to express our concern is at the board meeting.
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