AMCON’s bid to recover trillions from debtors stalled by frivolous lawsuits

by | August 4, 2017 1:00 am

It is sad to be confronted with the fact that AMCON’s attempt to recover trillions of naira owed by obligors in the country is being hampered by frivolous court cases that are hurting the common good. This should not be the case in an ideal society, writes PATRICK ATUANYA.

The Asset Management Corporation of Nigeria or AMCON was formed in 2010 to intervene in the banking sector to maintain economic and social stability in Nigeria following the unprecedented rise in non-performing loans (NPL) to 34.3 per cent of industry assets in 2009, with 8 banks requiring capital injection to remain solvent.

AMCON’s core objectives were to recapitalise the banks, get the industries assets and subsequently get the best financial returns on the assets. Based on the aforementioned objectives, AMCON acquired over 13,000 NPLs worth N3.7 trillion from 22 banks and injected N2.2 trillion as financial accommodation to 10 banks in order to prevent systemic failure, which would have been catastrophic for the Nigerian economy.

This intervention helped stabilise the financial system as about N3.66 trillion of depositors’ funds and interbank takings were protected; and approximately 14,000 jobs were saved. Looking at the 2016 financial statement of the government agency, AMCON has against all odds so far recovered N716.1 billion from obligors, of which cash and assets account for 45 per cent and 55 per cent, respectively.

However the ability of AMCON to successfully play its role as a risk minimizer and reduce the cost to the Nigerian tax payers of its intervention is being handicapped by unwillingness of debtors to settle their debts and is some cases a use of the judiciary to frustrate attempts at recoveries.

It is sad to note that obligors indebted to AMCON to the tune of a whooping N1.3 trillion have sued the Corporation in various courts in Nigeria either disputing the debt or claiming damages against AMCON. “This has hampered our business model and our third objective of obtaining the best achievable financial returns on assets acquired from the banks. The idea is that AMCON is to efficiently monetize the assets to repay its own obligation without recourse to the public treasury,” noted the AMCON Managing Director, Mr. Ahmed Kuru in a recent meeting with reporters in Lagos. Kuru further stated that just 350 notable obligors’ accounts represent about 80 per cent of AMCON’s current exposure of N2.5 trillion as at December 31, 2016.

There is therefore a need by all the relevant government agencies to rally round AMCON because the failure of AMCON would mean that the gains Nigeria recorded in 2010/2011, when AMCON was created would be lost to the nation. The three arms of the Government namely the executive, legislature and judiciary can come to the assistance of AMCON by several means to ensure that all recoveries due the agency are received. For the executive, there should be a means of vetting current obligors to ensure that those not acting in good faith do not get any form of patronage from any arm of Federal Government until they settle their outstanding obligation with AMCON.

The National Assembly on the other hand must be seen to be alive to their responsibilities by enacting relevant laws critical to the acceleration of stability in the financial sector in particular and sustained economic growth generally and work with AMCON to that effect. AMCON has also recently been relying on the judiciary for meaningful recoveries, which should be sustained. For instance the Hon. Justice A.T. Mohammed of The Federal High Court Abeokuta Division, Ogun State recently granted an injunction against Gateway Portland Cement Limited and Olumuyiwa Odegbami on the application of AMCON.

Consequent upon the court order, AMCON’s appointed Receiver, Mr. Charles Adeogun-Phillips has formally and successfully taken possession of Gateway Portland Cement Limited factories and facilities located in Abeokuta and Mowe areas of Ogun State over a debt profile of nearly N3 billion. That is the way to go, if indeed Nigerians want AMCON to succeed in this national assignment

Despite the negative fallout from recalcitrant debtors of the Corporation and the headwinds of the Nigerian economy falling into a recession in 2016, and the attendant depression of asset prices that followed, AMCON’s operations have nevertheless been improving. AMCONs 2016 financial performance showed that the firm adopted more efficient debt recovery measures as non-performing loan (NPL) ratio improved by 2 percentage points to 63 per cent, from 65 per cent in 2015.  The company also efficiently ran its operations, having adopted several cost-saving measures.

Total operating expenses improved 23.5 per cent to N64.7 billion from N67.7 billion the previous year as the bad loan manager wiped N4.3 billion off its personnel costs. Similarly, liquidity ratio, defined as the proportion of AMCON’s liquid assets to its total assets, rose by 1.5 percentage points, from 7 per cent in 2017 to 8.5 per cent in 2016. AMCON made a total recovery of N134 billion in 2016 according to data from the financial statement of the Corporation.

A breakdown of the recoveries shows that cash collection contributed N86.9 billion, Asset forfeiture N30.46 billion, sale of properties N7.9 billion and dividends sold N8.7 billion. Further details show that a total of N913 billion has been transferred to AMCON reserves from payments made by banks to the resolution sinking fund. While AMCON continues to make progress however, the FG should be firm and take a cue from the Troubled Asset Relief Programme (TARP), which was a bank bailout enacted during the American financial crises. Congress approved $350 billion for use in 2008 and it allowed the U.S. Department of the Treasury to infuse cash into the nation’s banks to keep them operating. TARP expired on October 3, 2010.

The Treasury Department used TARP funds to invest, make loans and guaranteed assets. In exchange, it bought shares or bonds from failing banks and other companies. That kept the financial system operating. As of May 2016, the banks had paid the government back with interest. In total, $250.46 billion in TARP funds had been committed to assisting 700 banks.  Of that, $165.33 billion went to the big banks, with assets of $10 billion or greater. Another $14.57 billion went toward the smaller banks.

The big banks paid back $179.51 billion in principal and interest. The small banks only returned $13.94 billion, since more of them went bankrupt despite assistance. Citigroup and Bank of America returned $81.59 billion. All told, the banks repaid $275.04 billion, creating a $25 billion profit. AMCON needs all the help it can get so that our home grown answer to our financial crises turns into a resounding success as it has in other climes like Malaysia, Korea and United States of America.