In an apparent response to the International Monetary Fund, IMF, report, the Asset Management Company of Nigeria, AMCON, Tuesday, said it has stopped buying bad loans from commercial banks in Nigeria.
The Chief Executive Officer of AMCON, Mr. Mustapha Chike-Obi, in a statement said the company decided to stop buying the loans so as to discourage excessive risk-taking by the banks.
Chike Obi noted that AMCON would no longer serve as a life line to banks with bad loan, adding that the banks now bear the risk of loans that turn bad.
He added that the banks must make provision on their balance sheets or sell bad loans to a third party.
He said, “we are not buying any more non-performing loans, and the bank had not done so for six months”.
He added that the company has cleaned up the banking system, saying that bad loans are now under five per cent.
“We want to make sure that everybody adheres to the prudential guidelines”.
Chike-Obi said the company’s aim was to gradually reduce its operations and cut staff in the next five years, as a full banking recovery makes it no longer needed.
Meanwhile, the International Monetary Fund, IMF, in its report commended Nigeria’s success in stabilising its banking sector but recommended AMCON wind down its operations to curb what it called ‘moral hazard’, whereby a party is more willing to take a risk, knowing that the potential costs of taking such a risk will be borne by others.
AMCON was set up in 2010 to clean up the banking system following a $4 billion rescue of nine lenders that came close to collapse.
Before AMCON took on the bad loans, they made up about half of all loans, the Central Bank of Nigeria, CBN, said, but have since fallen to within its target of five percent.
AMCON issued N1.7 trillion in bonds to buy non-performing loans which were valued at N2.2 trillion at the time of bank bailout in 2009.
In 2011, two months after it commenced operations, AMCON, acquired N1.036 trillion bad debts of 21 banks. It held a completion board meeting where it signed agreement with 21 banks to issue N1.036 trillion worth of bonds to purchase their bad debts.
The agreement covered purchase of all the bad debts of eight rescued banks and the margin loans of 13 non-rescued banks.
Among the rescued banks were Afribank, Bank PHB, Oceanic Bank, Union Bank, Intercontinental Bank, Finback, Equatorial Trust Bank and Spring Bank.
Chairman of AMCON, Alhaji Aliyu Kola Belgore said, the company is making history in the world, succeeding where many have failed, or not even dared to try.
He said the company has within record time, come up with a programme which would help in shoring confidence in banking system, re-invigorate the Nigerian capital market and improve the soundness of the financial system and Nigeria’s sovereign credit rating.
The N1.036 trillion bonds issued by AMCON to purchase the bad debts are known as consideration bonds and are for the purpose of purchasing margin loans of all the banks and the other non-performing loans of rescued banks.
In the second phase, the corporation would issued N3 trillion worth of bonds known as Proper Bonds, part of which would be used to replace the consideration donds issued in the first phase.
AMCON registered to issue up to N3 trillion in tradable bonds, although it used only between N2.4 trillion to N2.6 trillion in the recapitalization process.