N5trn debts: Why AMCON may find it difficult to recover money

ARM-TWISTING has been described in certain quartets as, the use of threat, coercion, or other  forms of pressure and persuasion to achieve one’s purpose. Thus, continued use of loopholes in Nigeria’s legal system to create obstacles that frustrate  AMCON’s debt recovery process is seen in some quarters as arm-twisting.

Therefore, the government deems it appropriate to set up a task force that will work out strategies to recover the bad debts. At the meeting held at the Presidential Villa in Abuja last week, AMCON’s chairman, Muiz Banire, said top 20 debtors owed 67per cent of the N5 trillion debts.

Following from this, the Economic and Financial Crimes Commission (EFCC), Nigerian Financial Intelligence Unit (NFIU), the Independent Corrupt Practices and other related offences Commission (ICPC) and the Ministry of Justice have been tasked to go after the debtors.

The Managing Director, AMCON Mr Ahmed Kuru, recently revealed that these debtors were occupying top government positions and should pay up their debts.  Kuru, had threatened to document in a permanent format for generations yet unborn, the so-called big men and women that were behind the debt burden, which AMCON has been battling to recover.

The list of debtors as claimed by AMCON include senators of the Federal Republic and supposed high net-worth individuals, state governments and major corporate institutions, among others. However, some experts believe that though the positions the debtors occupy do not guarantee their ability to pay huge debts, the negative impact of these debts on the economy is huge.

 

Why AMCON should begin to sell

An investment Research expert at Afrinvest (West) Africa Limited Mr. Adedayo Bakare, who spoke with Sunday Tribune said the fact that some debtors are in leadership positions does not mean they have the money to pay back their huge debts, except those who suggest so are assuming that since they are in leadership positions, they are stealing a lot of money that would enable them to pay back, which may not be totally true.

For instance he stated that “If you owe a hundred billion naira, probably through your company and AMCON acquired the debt from a bank; the fact that you become a senator tomorrow does not mean you are going to get the hundred billion naira to repay AMCON.”

From the AMCON’s perspective, Bakare observed that apart from the fact that some people do not have the money to pay back, recovering debt is a difficult task especially when there are debtors creating unnecessary legal barriers to prevent the corporation from getting the money.

Coupled with this, the ‘bad bank’ is assuming too much responsibility by taking over businesses that it probably has no capacity to run. For instance, the corporation may not have enough human capital to run airlines, manufacturing businesses and others, but  it has taken them over.

In Bakare’s opinion, the corporation should divest some of the equity (ownership interests) positions it is holding in some of the entities to private investors who have the technical know-how to manage such businesses.

Although experienced industry watchers agreed that the intervention of AMCON was very necessary at the time it did because it saved the banks and preserved depositors’ money, the continued existence of the corporation according to the International Monetary Fund (IMF) is creating moral hazard.

The corporation has over three thousand cases in court, which Mr. Bakare said, means that AMCON has to wait for judgment on those cases to be able to know what further steps to take.

 

Unending cases in court

A body of analysts are concerned that from 2017, when Mr. Ahmed Kuru, confirmed the IMF’s position that AMCON has over 3,000 court cases at the instance of debtors, till date, the bad bank is still talking about the same number of cases. This means that no judgment has been obtained. While calling for a reform of the judiciary to expedite the hearing of such cases, given the length of time some of the cases spend in court, Kuru said the corporation would no longer buy off non-performing loans as it was already winding down.

He said, “AMCON is supposed to be an intervention agency for 10 years; so, people go to court deliberately to buy time, not that they know that they are right. To some of them, that gives them the window to come and talk to you and they continue to stretch it. We are a law-abiding corporation, so we have to follow the legal process.”

Similarly, available records show that since the commencement of operations of the corporation in 2010, about N1trillion had been recovered from debtors. Out of the recovered amount, cash accounted for 60 per cent, while non-cash assets such as properties and equity securities accounted for the balance of 40 per cent. Over the same period, AMCON’s repayment of its indebtedness to CBN was over N1trillion, while its total debt obligation to the CBN still currently stood in excess of N5trillion.

 

Debt as a slice of ‘National Cake’

Part of the problems that AMCON has been facing with the reluctant debtors is that some of them have no desire to repay the debts as they see them (debts) as their own share of the “National Cake”. Obviously, therefore, Bakare said, Nigeria has to find a way to wind down the operations of AMCON. This is because it is a huge burden not only to the banks that make annual contributions to the sinking fund, but also on the CBN.

The Central Bank of Nigeria (CBN), on January 1, 2011, signed an agreement with banks operating in the country to establish the AMCON sinking fund. It is fund used by AMCON to manage the toxic assets. The agreement required the CBN to contribute N50 billion and the banks an equivalent of 0.3 per cent of their total assets as at the date of their audited financial statements, annually for 10 years.

However, the contribution, a non-refundable levy on all banks in Nigeria, was increased to 0.5 per cent in 2013. Within three years, six commercial banks made payments totalling N155.45 billion into the sinking fund between 2015 and 2017.

Data obtained from the banks’ annual reports showed that Access Bank paid the highest amount of N39.59 billion: N12.06 billion in 2015, N12.06 billion in 2016 and N15.47 billion in 2017.

It was followed by GTBank which paid N35.09 billion: N10.63 billion in 2015, N11.39 billion in 2016 and N13.07 billion in 2017, respectively.

UBA contributed N34.85 billion: N11.08 billion in 2015, N11.08 billion in 2016 and N12.69 billion in 2017. Fidelity Bank paid a total of N18.60 billion, being N5.94 billion paid in 2015, N6.16 billion in 2016 and N6.50 billion in 2017. FCMB Group accounted for N16.94 billion, N5.66 billion in 2015, N5.62 billion in 2016 and N5.66 billion in 2017, while Sterling Bank contributed N12.38 billion, N4.13 billion in 2015, N4.04 billion in 2016 and N4.21 billion in 2017.But despite all the contributions, year in year out, the corporation he further stated, continue to declare losses.  This is coupled with the issue of moral hazard, whereby banks tend to undertake any kind of risk knowing that there is an AMCON somewhere to buy off their toxic assets. The case of Polaris Bank is a good example according to Bakare.

He is not happy that  the AMCON obligations are telling not only on banks, but also CBN’s balance sheet as all the debts taken up by the corporation will have to be paid up somehow. Such huge amount of money could have been deployed into productive sectors of the Nigerian Economy, he regretted.

Other set of analysts are also concerned that the debt stock can go a long way in re-fuelling the economy because these debts are  above the N2.031 trillion allocated to capital expenditure in the 2019 budget. More money could have been available to lend to small businesses which are engines of growth in any economy.

Confirming the notion that some of these debtors have no desire to offset their debts and would need special handling to make them to do that,  a former  minister, who does not want his name in print, in a recent  telephone conversation with Sunday Tribune, recalled that he had predicted that the debts can never be recovered because the debtors from the beginning, had seen them [debts] as their own part of the national cake and had no intention to pay back.

According to the former minister, as long as the fiscal and monetary authorities continue to find it difficult to agree, such mistakes as the AMCON phenomenon will continue to recur. He added that during his term as a minister in the ‘90s, 18 banks were liquidated and the economy moved on. So, those banks that created the non-performing loans should have been liquidated as well, rather than given life support, he regretted.

 

AMCON, good idea wrong approach

However, Dr. Andrew Nevin Advisory Partner and Chief Economist at Pricewater house Coopers (PwC) Nigeria did not see AMCON as a bad idea. In an earlier e-mail conversation with Sunday Tribune, he said the idea behind AMCON was a well-worked out model used successfully in many countries. Specifically he said, creating a ‘bad bank’ that takes non-performing assets off the banks’ books so the banks can return to health and lend again is a good idea.

But to him, the corporation has been very slow to deal with NPLs in the way this is handled in other economies. His words: “They have allowed defaulting entrepreneurs to continue operating the companies that have defaulted. In a well-functioning capitalist system, when an entrepreneur cannot pay back a loan, then he or she has failed, and the company and assets should move to the lender to determine the best course for maximising value. “

According to Nevin, the way AMCON is handling the debtors did not allow capital to flow to the most competent hands in the economy. By not taking control of their companies and assets earlier, the bad bank has essentially encouraged a few failed entrepreneurs – people who have not deployed Nigeria’s limited capital optimally to continue to be richer.

However, he said that it is good  to learn that AMCON has recently decided to take a tougher stance with the borrowers and will be taking direct control of more and more assets and companies.

“In addition, by taking control of assets and companies, AMCOM will be dealing with another critical issue – the concentration of borrowers in the country. The AMCON assets are with only 350 (defaulting) borrowers who have not served the country well. By taking more direct action, they can broaden the base of entrepreneurs and ensure that the people who use capital best are the ones who have access to it,” Nevin submitted.

AMCON  was set up to help banks buy their debts. It  has spent about  over eight years chasing the obligors to pay. According to Kuru, “The people complaining are those people that do not want to meet their obligations.”

The AMCON boss said so far,  the corporation purchased more than 12, 000 loans from 23 banks, paying N1.7 trillion to purchase loans worth N3.3 trillion. The company also provided N2.2 trillion to eight banks as financial accommodation to bring their net book value to zero.

“We have saved jobs in excess of 15, 000 in the banking sector and we have also provided liquidity for those banks because they were not in the position to lend money. When we purchased those loans, we were able to ensure that the NPL ratio in the industry was less than five per cent which also meant that all the banks then were NPL-compliant,” Kuru had said.

With the sluggish pace of things mostly fuelled by the recalcitrance of the borrowers, there are fears that AMCON’s 2023/2024 terminal date looks increasingly unrealistic.