How AMCON Is Contributing Towards Nigeria’s Financial Stability

Bashir Ibrahim Hassan

— Sep 2, 2016 4:50 am | Leave a comment

Resilience is one word that best describes the Nigerian economy in the face of the turbulence it is undergoing. As acknowledged by economists, Nigeria is experiencing triple, simultaneous, shocks—economic, political and social. The sluggish economic growth, which exacerbates the other two shocks, is mainly attributed to a slowdown in economic activity which has been adversely impacted by the inadequate supply of foreign exchange aggravated by falling price of oil, the nation’s main FX earner accounting for about 75 percent of its export revenue.

Despite the recession, which has pushed the country down to the 3rd largest economy in Africa, Nigeria is still forging ahead. A renewed effort at non-oil revenue collection is helping to reduce fiscal vulnerability caused by oil price shocks. The revenue from the non-oil sector is propping the country in the mean time.

The reforms pursued by the Buhari administration have the potential to lay a foundation for renewed growth. These include: enforcement of the single treasury account (TSA) to block financial leakages; renewed efforts at enforcement of tax compliance; increasing the ratio of capital to recurrent expenditure to 30:70 and continuous support for agencies saddled with the responsibility of stabilizing the financial system such as Assets Management Corporation of Nigeria (AMCON) are fast yielding results.

Finance minister, Kemi Adeosun recently disclosed that TSA has significantly witnessed an increase to N3.3 trillion in May 2016, noting that the Finance Ministry had continuously discovered revenue platforms that had escaped its net. These include shipping levies, airport landing charges and visa fees, amongst others. On the other hand, the FG received 2.2 trillion naira from the Federation Account Allocation Committee (FAAC) between June 2015 and May 2016.

AMCON, which was set up because of the global financial crisis of 2008/2009, has contributed a lot in stabilising the economy as at the time it was set up, through acquiring the Non-Performing Loans (NPLs) of some of the distressed banks in Nigeria, providing financial accommodation to others thereby engendering financial stability in the banking system.

Established in 2010, AMCON is the innovative idea thought of to help stabilise the banking system from systemic collapse after going through well-conceived structural reforms, which involved bank consolidations, recapitalisation and managerial changes at some banks, and portfolio clean-ups. These reforms provided a solution to the banking crisis that Nigeria experienced few years ago and eventually the soundness in the banking sector was restored.

Its objectives include assist eligible financial institutions to efficiently dispose of eligible bank assets; efficiently manage and dispose of eligible bank assets acquired by it; and obtain the best achievable financial returns on eligible bank assets or other assets acquired by it.

In an unprecedented move AMCON acquired about 13,774 Non-Performing Loans (NPLs) worth N3.6 trillion from 22 commercial banks saved our banking system, while its provision of financial accommodation of N2.2billion protected about N4.7trillion of depositors’ funds and interbank takings as well as saved approximately 14,000 jobs.

Today AMCON is pursuing the recovery of these assets. This, it is doing vigorously as it is well into its sixth out of ten year mandate period.

The MD/CEO Ahmad Kuru, a thorough-bred banker and risk management expert of repute, in a recent interview with Economic Confidential magazine, clarified the issue of AMCON’s lifespan pointing out that “AMCON is not set up to perpetually bail out financial institutions. AMCON has a sunset period. He said. “When AMCON was set up, it was supposed to be there for only ten years!” he added.

But from the good work that AMCON is doing, an extension is a possibility.

So far AMCON has settled over 56 percent of the total N3.7 trillion (about N.072 trillion) bad debts it had to manage from various individuals, groups and organisations in the country. According to Mr. Kuru, AMCON has in this process helped a lot of businesses bounce back and on the part of recovery. “We don’t want any business to suffer because of their debts. We are not out to kill businesses but to encourage them to grow by following the global best practices in debt reconciliations and settlements. Our desire is to recover the money for the nation through painless processes” he told Economic Confidential.

In addition to returning the much needed cash to FG, AMCON is also building confidence in our financial system, although, Kuru says “there should not be an institution to anticipate failure.” Indeed, the idea of AMCON as stabilizing and re-vitalizing tool established to revive the financial system has paid off and has changed the mindset of bad debtors that they can get away with depositors’ funds. This alone is reassuring to our investors and other bank clients.

The aggregate results of efforts such as that of AMCON will surely improve our business environment, which the World Bank’s “Doing Business Report” portrayed as not encouraging investment and competitiveness in our industrial sector. The 2016 report ranked Nigeria as 169th out of 189 countries. This is one point improvement over last year when Nigeria was placed 170th out 189. The improvements were mainly in the areas of protecting minority investors and registering property.

Add the result of AMCON and other agencies managing our macro economy throuugh massive injection of money announced by the FG towards improving infrastructure with a view to stimulating the economy is a welcome development. Two weeks ago, Vice President Yemi Osinbajo revealed that the Federal Government planned to spend N100 billion ($312.50 mil¬lion) on capital projects in the com¬ing days as part of the 2016 budget. The VP also said government capital spending so far has reached N332 billion. These moves will surely enhance people’s productivity and reflate the economy.

Surely, the FG and its agencies such as AMCON are serious in rekindling our growth. The faith Nigerians have shown in the Buhari administration thus far lies in the commitment and sincerity shown by the administration to take Nigeria out of the woods. The commitment of our professionals in various fields working to salvage our situation and bounce back is highly commendable.

–  Hassan is a financial systems analyst