AMCON as an Elixir

Following the discovery that the nine sick banks jointly have a toxic debt totalling N1.5 trillion, the Central Bank of Nigeria came up with the option of a body that will buy up these toxic debts and give the banks clean bill of health, a situation which gave birth to the Asset Management Company of Nigeria [AMCON].
AMCON, which is expected to be under the purview of the Federal Ministry of Finance had its bill sent to the National Assembly and had passed through many legislative processes.
Early May, the Senate passed the AMCON bill, going by the speed at which all stakeholders want the issue of the sick banks put behind them, the Amcon bill may be the first bill to be assented to by President Goodluck Jonathan
The AMCON bill is designed essentially as an asset resolution vehicle and provided an alternative measure in recapitalising the banks as well as saving the banks from outright liquidation, which will not be palatable to the banking industry.
During the presentation of the bill for third reading, the chairman, Senate Committee on Banking, Insurance and other Financial Institutions, Senator Nkechi Nwogu stated that AMCON would have authorised capital that would not be less than N20billion, to be subscribed by the Federal Government and held in trust by the CBN and the Federal Ministry of Finance, notwithstanding the provision of section 47 of the Fiscal Responsibility Act, the government said it would guarantee the AMCON’s bond or debt instrument.
Senator Nwogu, highlighting the AMCON bill said the corporation shall have special power to act as, or appoint a receiver/ manager for a debtor company whose assets have been pledged as collateral for an eligible loan or debt acquired by it.
She said the corporation would have the power to designate any class of bank assets as eligible, and would not require any consent of borrowers for the purchase of eligible bank assets.
The recommendation of the joint committee of both chambers of the National Assembly that AMCON would be a specialised body which appointment should be immune from politicking was also accepted by the Senate.
A look at the AMCON bill showed ITS specific objectives to among others be to ‘assist eligible financial institutions to efficiently dispose off eligible bank assets in accordance with the provision of the act, efficiently manage and dispose off eligible bank assets acquired by the corporation in accordance with the provision of this act, obtain the best available financial returns on eligible bank assets or other assets acquired by it in accordance with the provision of the act.
AMCON would also provide a window through which the banks can discount voluntarily any non performing loan above 10 per cent of their total share capital. The bill also have a clause where the corporation may, subject to the provisions of the act, within three months of the designation of any assets as eligible bank assets in pursuance of section 24 , specifying a class of  bank assets, purchase voluntarily eligible bank asset from any eligible financial institution desirous of disposing of such eligible bank assets at a value and price which would be determined according to section 28 of this act.
The CBN shall, by regulations, prescribe the maximum percentage of eligible class of bank assets which an eligible financial institution may retain in its books and any eligible bank assets above the prescribed threshold shall be offered to the corporation for acquisition. ‘The consideration to be furnished by the corporation for an eligible bank asset shall be seven years bonds or such other debt securities of such other issued by the corporation and guaranteed by the federal government or such other form of consideration as may be approved by the CBN.
According to section 2 [1] of the bill, ‘the authorised capital of AMCON shall not be less than N20billion, which shall be subscribed to by the federal government and such other subscribers as may be approved by the President on the recommendation of the CBN and the Federal Ministry of Finance.
Regarding the composition of the tenure of the board of AMCON, the bill said ” the board shall consist of the following members to be appointed by the President on the joint recommendation of the ministry of Finance, CBN and subject to the confirmation of the Senate.
”A part time chairman, a managing director who shall be the Chief  Executive Officer of the corporation , three executive directors and four non executive directors.
In section 10[2] the bill provided that ‘ A person shall not be appointed as a member of the board unless such a person possesses ten years cognate financial experience at a senior management level or such other relevant experience as may be prescribed by the CBN.
Section 10[3] states ‘A member of the board appointed pursuant to this section shall hold office for a term of five years and may be eligible for reappointment for another term of five years and no more’
According to the bill, the corporation shall have the ability to appoint or act as receiver/ manager for a debtor company whose assets have been pledged as collateral for an eligible loan/debt acquired by it.
The bill provides among others in section 53[1][a] under offences and penalties that ‘Any person who makes false alarm in material respect in respect to any moveable or immovable property used as collateral for any loan with a view to defeating the realisation of the debts commits an offence and is liable on conviction to a fine of not less than N5million or imprisonment for a term not less than three years or both such fine and imprisonment .
The apex bank’s confidence on AMCON as an efficient utility vehicle in solving the toxic debt issue was aptly demonstrated by CBN governor, Mallam Sanusi Lamido Sanusi when he said by July 2010, AMCOM would commence the buying of debts from the Deposit Money Banks
Sanusi said ‘with AMCON buying up the banks’ toxic assets what will be remaining in the banks debt will not be more than between N300billion and N400billion, this will reduce credit crunch in the system and allow banks to resume their lending roles to the economy”
AMCON bill, commendable as it is, analysts however argued that the company will favour only the banks and leave the stockbrokers and the shareholders to count their losses as a result of the crisis in these banks.
The managing director of Afrinvest West Africa Limited, Mr. Ike Chioke who opined that AMCON would put  banks again on the path of liquidity to enable them commence lending stated that the policy establishing it was against the interest of stock brokers.
He said ”when the AMC finally buys over the toxic assets from the banks, stockbrokers would be the losers, adding that they had already lost a substantial part of their investments when the stock value started depreciating since 2008.”
“The stockbrokers still need to pay back all the loans from the banks plus the interest already paid on loans, whereas the loans or debts have been bought from the banks by the AMC. The truth is that when the AMC comes on board, the brokers’ interest is not protected. It is only the banks that would benefit from it,” he said.
Proffering solution, he said  the best thing to do was sharing of the risk between the banks and the brokers, in the sense that the banks can bear part of the risk and give a kind of debt forgiveness to the brokers, adding that Afrinvest was working out a possible framework under which the coming of AMC would take care of the interest of all parties.
One positive effect of the AMC, according to Chioke, was that it would allow banks to effectively c
ome clean on the true state of their balance sheets, and to provide clear visibility as to future profitability.
“This will help to douse widespread fears regarding the true state of health of the banking sector, and to a limited degree, restore investors’ confidence,” he said.
Chioke, however, noted that the complete take-over of whatever toxic assets that may be left on the books of these banks will provide them the much needed liquidity and substantially free them up to commence lending again.
Also speaking on the issue, the Chief Executive of Gabralph Investment Consult advised the CBN to beware of the fact that the financial institutions did not have the same level of troubled assets, and therefore should classify banks having such debts into different categories based on their risk.
On the path of a public commentator, Mr Kelvin Apeji, his fear over the AMCON vehicle is the possibility of the banks’ assets not been properly valued thereby constituting a loss to the tax payers.
Apeji said the apex bank should define toxic assets under the AMCON arrangement. If the debtor is still servicing the loan and has not defaulted for more than three months or makes alternative arrangement for refinancing, it is problematic to refer to such asset as toxic.