24th July, 2019
Nigeria is facing the risk of never recovering about N5.5 trillion($15 billion) of bad loans from 350 Nigerian firms and individuals, Asset Management Corporation, AMCON has warned.
The loan portfolio that has gone bad represents a third of Nigeria’s external reserve. They were taken over by AMCON during the banking crisis of about a decade ago. The move saved about 10 banks from collapsing and also saved 15,000 jobs.
AMCON Chief Executive Officer Ahmed Kuru said the debtors have failed to repay the loans and they do not want to pay.
He spoke at theJuly Breakfast meeting of the Nigerian-American Chamber of Commerce (NACC) on Wednesday in Lagos. He spoke on “Financial System Stability in Nigeria: AMCON Role and Scorecard.”
He said delays in litigation are slowing recovery process, while tepid economic growth is weighing on the ability of businesses to survive, he said.
Modelled on organisations including Ireland’s National Asset Management Agency Ltd. and Korea Asset Management Corp., AMCON used bonds to bail out 10 lenders and buy more than 12,000 loans from industries including aviation, gasoline marketing and manufacturing after the 2008-09 oil price crash.
It has so far recovered N1 trillion Naira, Kuru said.
“Only 350 obligors out of the 12,000 obligors accounts for more than 80 per cent of the N5.5 trillion debt. Many of the obligors, who are supposed to be role models, have become recalcitrant and failed to meet up with their financial responsibilities,” Kuru said.
AMCON needs to recover the outstanding debts to enable it to meet obligations to the Central Bank of Nigeria, which provided the cash it used to repay holders of bonds issued to acquire the loans, he said.
The CEO said that extending the operations of AMCON beyond its 2023 deadline will do more harm than good, because that could encourage bad behaviour in the financial industry and among borrowers.
“The federal government should be appropriating the money yearly,’’ required to meet its obligations should the bad debts are not recovered, Kuru said.
Kuru said that the global financial crisis of 2008 made the Non Performing Loans (NPLs) in the financial system to rise to about N2.6 trillion, while the national budget was less than N1 trillion.
“The banks that were insolvent accounted for almost 80 per cent of the total NPL in the industry at that time.
“The ratio of the NPL to the total loan was more than 60 per cent and the regulatory threshold is supposed to be five per cent because most banks were not able to borrow and with no liquidity to support their operations,” he said.
Kuru said that AMCON acquired over 12,000 non-performing loans worth approximately N3.7 trillion from 22 commercial banks, injected N22 trillion as financial accommodation to 10 banks.
“The direct impact of AMCON’s action led to the protection of about N3.66 trillion of depositors’ funds and approximately 15,000 jobs were saved,” he said.
“Only 350 obligors out of the 12,000 obligors accounts for more than 80 per cent of the N5.5 trillion debt.
“Many of the obligors, who are supposed to be role models, have become recalcitrant and failed to meet up with their financial responsibilities,” he said.
Kuru said that the inappropriateness of the nation’s credit process needed to be urgently addressed, adding that bringing back the Failed Bank Act would solve the issue and make obligors responsible.
Kuru stressed the need to pay more attention to the rule of law and strengthening governance system toward building a virile and stable economy.
*With reports from Bloomberg and NAN