After months of debate, the country’s House of Representatives and Senate passed a bill in late March establishing the Asset Management Corporation of Nigeria (AMCON), a parastatal agency that will buy up NPLs from the country’s struggling banks in order to free up their balance sheets, restore investor confidence and make them attractive to capital or buyers.
The formal establishment of the corporation is still pending President Goodluck Jonathan’s signature. Local media reported in early July that sources close to the president said there were questions over some of the bill’s provisions.
The bill is wide-ranging in scope and is necessarily a complicated piece of legislation, addressing as it does a variety of issues ranging from the transparent pricing of toxic assets to improving good governance within the financial sector, as well as ensuring there are adequate safeguards against political pressure.
Lamido Sanusi, the governor of the Central Bank of Nigeria (CBN), has lobbied hard for the establishment of an asset management body as part of his ongoing effort to reform the banking sector and free up credit for investment in the real economy. Speaking to the local press in May, he said that he expects AMCON to be up and running, ready to absorb toxic assets, sometime in July.
The plan is for AMCON to be established with N20bn ($133.3m) in capital from CBN and the Ministry of Finance. In addition to that seed money, it is expected to attract equity from outside investors. The bill as it stands now would empower AMCON to borrow or raise money as it sees fit, through the issuing of stocks, bonds, or other securities. The corporation also expects to generate income from the collection and sale of assets it acquires from the banks, as well as from investment in equities, fixed-income bonds and real estate. In exchange for the banks’ bad loans, AMCON will issue seven-year bonds guaranteed by the Ministry of Finance.
The AMCON bill would transform Nigerian law relating to the sale and purchase of financial assets and grants the corporation special powers to facilitate the collection of outstanding debts. For example, banks will be allowed to transfer loans to AMCON without borrowers’ consent, even when their original loan agreements disallow such action, and AMCON can apply to the Federal High Court for expedited hearing of disputes arising from its actions.
AMCON will also be able to freeze debtors’ accounts or have them declared bankrupt, with the corporation as trustee of their property, if they fail to satisfy a debt. Indeed, AMCON could apply to the courts, ex-parte, for permission to seize debtors’ property, even when said property was not offered as collateral for the original loan. Most strikingly, the AMCON bill would make directors personally liable for their companies’ NPLs and establishes stiff penalties, starting with a fine of N5m ($33,324) or a three-year prison term, for debtors who falsify data or misrepresent their assets to avoid repayment.
Despite being granted such extraordinary powers, AMCON’s actions would be closely monitored and activity would be measured and controlled. According to Arunma Oteh, the director-general of the Securities and Exchange Commission (SEC), AMCON would “neither be in a hurry to dispose of the assets nor mount repayment pressures on operators”. Whenever possible, the operators’ liabilities will be restructured into longer-term obligations in order to give them “breathing space” and “get them back to their core functions.”
After the banks have been relieved of their bad loans, it is hoped they will be able to recapitalise. But Sanusi admits that, in some cases, they may need more help. If they do not get enough money from the sale of their assets to attract new investors, AMCON would be empowered to inject money into them in exchange for equity, he told the local press.
The creation of AMCON is in line with the CBN’s strategy to spur recapitalised banks to resume lending. Right now, there is little credit to be had in Nigeria. Banks are hoarding cash and investing in treasury bills and sovereign bonds. Before AMCON can begin to bail out the banks, however, it has to figure out how to value their NPLs. On the one hand, it needs to be generous enough to put them back in working order. On the other, it needs to ensure that AMCON is not perceived as rewarding their poor judgments.
AMCON’s task is undoubtedly challenging. Once it gets off the ground, however, Nigeria’s banking sector looks set to change for the better.