The Asset Management Corporation of Nigeria (AMCON) has ruled out any further purchase of bad loans from lenders, even as non performing loan (NPL) ratios rise across the banking industry as a result of the economic slowdown and oil price slump.
“I will say it’s a capital no, there will be no more purchase of new loans,” Ahmed Lawan Kuru, the MD of AMCON said yesterday at a media event in Lagos, in response to BusinessDay questions.
“If AMCON continues to take on NPLs, it means that we will be encouraging lax underwriting standards and poor risk management by the banks. AMCON has moved on to the next phase, which is focusing on recoveries and meeting our financial obligation to our creditors,” Kuru said.
The Nigerian banking sector experienced a homegrown crisis in 2009 which was a fallout from the global financial crises that led to a significant overhang of NPLs of various financial institutions spread across different sectors of the economy.
AMCON was set up in 2010 to help recapitalise ailing banks, restructure performing loans and absorb about N3.7 tn of Eligible Financial Institutions (EFIs), Eligible Bank Assets (EBAs) from the sector, freeing up banks’ balance sheet resources and enabling them to focus on their core mandate of lending.
While industry NPLs that peaked at a high of 30 percent of loans at the height of the crisis fell back down to below 5 percent in 2014, they are increasing again, a symptom of the slowdown in growth being experienced in the wider economy.
Impairment charges for credit losses taken by the five top tier banks which control about 60 percent of industry loans increased by an average of 142 percent to N81.7 billion in the most recent third quarter (Q3).
The Nigerian economy expanded by just 2.84 percent in Q3 2015, down from an average growth rate of 6 per cent recorded in 2014, according to data from the National Bureau of Statistics (NBS).
Nigeria’s economy, the biggest on the continent, which relies on crude exports for around 70 percent of government revenues and 95 percent of foreign exchange earnings, has been hit by the near 80 percent slump in crude oil prices from their 2014 peak.
Pressures stemming from slowing growth, lower commodity prices and currency depreciation affecting many African economies, combined with structural challenges, such as infrastructure bottlenecks and fiscal imbalances, will continue to threaten African banks’ asset quality metrics, leading to an increase in NPLs in 2016, Moody’s Investors Service said in its outlook for Africa’s banks, released yesterday (Nov. 8).
“The most vulnerable banking systems are in oil or commodity exporting Sub-Saharan African countries, including Angola, Nigeria and Ghana,” said Constantinos Kypreos, a Moody’s Vice President – Senior Credit Officer and author of the report.
The slide in oil prices is affecting the valuations of some assets for AMCON, according to the MD.
“The seawolf rig disposal is a big problem. Also some of the tank farm values have gone down, compared to when we acquired them. Now we do open competitive bidding for the sale of our assets, however the challenge is in selling at a fair value, as people want to buy at a discount from us,” Kuru said.
AMCON is currently funded by a combination of loan recoveries, contribution from the CBN, sales of assets pledged and a sinking fund that currently constitutes a 0.5 percent levy of banks’ total assets and a 0.33 percent of off-balance sheet items annually.
AMCON has purchased a total of N1.75 trillion of nonperforming loans to date, with the cost of negotiated loans as at year end 2014 equivalent to N754 billion. The cost of non negotiated loan as at year end 2014 was N754 billion, while N1 trillion has either been restructured with an outstanding amount of N403 billion.
PATRICK ATUANYA
