The Nation Newspaper

Tag: AMCON

  • Ex-shareholders vow to stop sale of ‘bridged’ banks

    Ex-shareholders vow to stop sale of ‘bridged’ banks

    A aggrieved former shareholders of the bridged banks have vowed to sustain ongoing legal challenge against the sale of the banks.

    AMCON recently announced the beginning of the final process for the sale of its wholly-owned ‘bridged’ banks – Enterprise Bank, Keystone Bank and Mainstreet Bank. AMCON expects to complete the sale of the three banks by September next year.

    Former shareholders of the previously quoted public limited liability banks said the announcement of the sale process and any subsequent actions are illegal, citing subsisting law suits and vowing to institute new suits against AMCON and prospective buyers.

    The Central Bank of Nigeria (CBN) on August 5, 2011 had withdrawn the banking licences of the trio of Afribank Nigeria Plc, Bank PHB Plc and Springbank Plc due to deficient capital base and inability to meet the September 2011 deadline for recapitalisation. The Nigeria Deposit Insurance Corporation (NDIC) immediately took over the three banks, which were quoted on the Nigerian Stock Exchange (NSE), and transferred all their assets and liabilities to private limited liability companies, otherwise referred to as bridge banks.

    Enterprise Bank is the defunct Springbank; Keystone Bank is the now rested Bank PHB while Mainstreet Bank is the obsolete Afribank Nigeria. The three banks were sold to AMCON and were valued at about N30 billion as at the time they were bridged.

    Minority shareholders’leaders said they would resist the sale of the banks without consideration for them, arguing that the CBN only has statutory power to withdraw its banking licence not their primary equity ownership of the companies.

    Shareholders have contested the ‘bridging’ of the banks on two major fronts. They argued that the banks as quoted and actively trading entities with known investors’ value should have been acquired through compensations to qualified and non-management existing shareholders at subsisting market value. They also remonstrated that the banks were under CBN-appointed management and thus the vicarious liability of the apex bank in the failure to meet recapitalisation target.

    The minority shareholders’ leaders told The Nation the subsisting cases should serve as caveat emptor to any intending buyer of any of the bank, adding that they could file new law suits to join any prospective bidders for the banks as soon as they become evident.

    National Coordinator, Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu, said the announcement of the sale process was a nullity since the cases relating to the appropriateness of the bridging of the banks are subsisting in courts.

    “It’s illegal to go ahead; we should all wait for the court to fully decide on the matter. We will pursue all the cases to logical conclusion,” Nwosu said.

    Nwosu’s contention was echoed by Chairman, Standard Shareholders Association of Nigeria, Mr Godwin Anono and President, Professional Shareholders Association of Nigeria (PSAN), Mr Boniface Okezie.

    “It’s not right, we will file a new case and put it on record that we fight the sale of these banks,” Anono said.

    He claimed that prime properties of the bridged banks have been sold to some directors of AMCON, lamenting that the bridging and sale of the banks amounted to taking from the poor minority shareholders to feed the rich men, who were responsible for the huge bad loans that sank the banks.

  • Why we are starting banks’ sale with Enterprise Bank, by AMCON

    The lean and clean structure of Enterprise Bank Limited offers the best platform to initiate the divestment transactions of its three wholly-owned banks, the Asset Management Corporation of Nigeria (AMCON) has said.

    AMCON’s Managing Director, Mr.  Mustafa Chike-Obi, at the weekend offered insights into the decision of the Corporation to start the sale of its three banks, describing Enterprise Bank as the best step forward for a successful divestment programme.

    AMCON recently announced the beginning of the final process for the sale of its wholly-owned bridge banks, indicating it would start with the sale of Enterprise Bank, followed by the other two – Keystone and Mainstreet Banks. AMCON expects to complete the sale of the three banks by September next year.

    Explaining the preference for Enterprise, the AMCON boss said Enterprise Bank is the smallest in terms of size and cleanest of the three banks and thus makes a good starting point in terms of attractiveness to investors and less probability of complications in the complex transaction process.

    He said while the clean structure of the bank would entice investors and motivate strong rallying start for the entire divestment transactions, the size of Enterprise Bank presents it as a learning curve for AMCON to guard against possible mistakes in the sale of the other two.

    He said there are more than 20 bidders that have indicated interests in the purchase of Enterprise Bank, which not only underscored the attractiveness of the bank but justified the decision of the Corporation to start with the bank.

    The AMCON boss noted that the existence of several expressions of interests provides for competitive valuation and would enable the Corporation to achieve the best bargain in the disposal process.

    “In a complex transaction like the sale of a bank, you have to take it from the less complicated so that it will serve as learning point to correct any unintended consequences. “This will provide you with the opportunity to avoid such mistakes when you are handling bigger and much more complex transactions,” Chike-Obi said.

    He said the three banks have been restructured and stabilised for growth, adding that the large sizes, spread and structures of Keystone Bank and Mainstreet Bank have also been the main attractions for bidders looking for big impact and wider entry strategy such as FirstRand.

    Latest audited report and accounts of Enterprise Bank for the year ended December 31, 2012 showed remarkable growths across key performance indicators as the lender rebounded from a five-month loss of N5.2 billion in 2011 with a profit before tax of N11.3 billion in 2012. Enterprise Bank was incorporated and commenced operations immediately in August 2011 to take over the assets and liabilities of the defunct Spring Bank Plc.

    The report showed that gross earnings increased significantly to N40.4 billion in 2012 as against N10.5 billion recorded in 2011. Deposit base rose from N162.6billion to N208.4 billion while total assets increased from N198.5 billion to N261.1 billion.

     

  • Refinancing AMCON won’t have adverse effect, says Rewane

    The plan by the Asset Management Corporation of Nigeria (AMCON) to redeem and refinance N5.7 trillion of its bonds, equivalent to 37 per cent of money supply, in a bilateral agreement with Central Bank of Nigeria (CBN) may not necessarily lead to any potent inflationary or currency depreciation contrary to fears in some quarters.

    The Nigeria Economic Summit Group (NESG) had yesterday noted that theN5.7 trillion refinancing would triple money supply this year and could lead to negative consequences for the economy.

    According to NESG, the implications of the refinancing is that money supply could grow by three times the projected rate in 2013 while monetary policy would remain tight towards the first quarter of 2014. Besides, it said that the government would have an “actual” debt to GDP ratio of 27 per cent versus the limit of 30 per cent stated by the President.

    But some financial experts have allayed fears of any large unintended consequences. Managing Director, Financial Derivatives Company (FDC) Limited, Mr. Bismarck Rewane, said the fears of inflationary and currency declines were mostly misplaced and grossly exaggerated.

    The expert said while there is the orthodox correlation between money supply growth and inflation, the fact that a substantial portion of these bonds have already been monetised in repurchase agreements by some banks reduces the potency of this threat and any possible fallout.

    The national headline inflation rate is annually around 9.1 per cent and the Naira has been stable within a three-year range of N150 –N160. Some analysts had raised concerns that the refinancing could truncate the relative stability.

    Analysts had expressed fears that the plan will have the unintended consequence of the transmission effect usually associated with high powered money.

    But Rewane said the effect of the refinancing may be muted given the previous repurchase agreements that had substantially reduced the underlying size.

    In a report titled: “AMCON: The Cost of Financial Stability,” the NESG had stated that the debt refinancing was a major challenge for AMCON in the short-term. AMCON is billed to retire about N2 trillion of its bonds in 2013 and refinance approximately N3.6 trillion, which matures in 2014.

    The amount of money in supply is about N15 trillion, which has been growing annually at 13 per cent. The group noted that AMCON’s plan would liquidate 35 per cent – about N2 trillion of its bond liabilities on one hand, while the remainder 65 per cent – about N3.6 trillion would be refinanced through the CBN.

    The NESG said that on the surface, the plan would solve AMCON’s short term challenge but will also extend the associated risks into the medium to long-term.

    It said the three per cent narrow debt window left to explore would continue to crowd out the private sector. The NESG said that from a ‘fiscal risk’ perspective, a future write-off of AMCON’s debt could cost the economy about nine per cent of GDP, which is equal to the GDP contribution of the entire telecoms sector.

    “Overall, AMCON’s refinancing plan is a clear case of ‘Bailing out the Bailer.’ The morality and prudence of this bailout are both questionable,” it said.

    An Economist, who elected not to be quoted, said he cannot understand the logic behind the NESG’s conclusion that the amount of money in supply would triple.

    “I disagree entirely with the NESG. Don’t forget that neither its Director-General nor its Chairman is an Economist,” he said.

     

  • ‘Ignore IMF call to scrap AMCON’

    The National Association of Aircraft Pilots and Engineers (NAAPE) has asked the Federal Government to ignore calls by the International Monetary Fund (IMF) to scrap the Assets Management Corporation of Nigeria (AMCON).

    The body disagreed with IMF’s position that AMCON encourages the accumulation of bad debts, noting that the reason is not cogent enough to call for its scrapping by government.

    According to NAAPE National President, Balami Isaac, the reason given is not only flimsy, but unacceptable, because AMCON has been performing in line with the dictates of its enabling law.

    He said: “AMCON is a special purpose intervention instrument which has been very diligent and most discerning in its assignment, so much so that its activities have been flawless up to date, unlike what we are used to in this part of the world. Secondly, AMCON as we know it, is not a debt forgiveness instrument, but a means of debt re-working. Therefore it would appear that the IMF is crying wolf where there is none.”

    The call by IMF, he maintained, failed to recognise the huge success that AMCON has recorded and the tremendous, almost magical, positive impact it has had on the Nigerian economy.

    “We cannot forget in a hurry how AMCON’s intervention enabled Mainstreet Bank, Keystone Bank and Enterprise Bank to successfully undergo an otherwise painful liquidation exercise, yet have remained in business, even without significant loss of jobs – a novel seamless transition” he said.

    He noted that NAAPE was aware that AMCON has successfully navigated over 200 interventions of debt buy-over across all sectors of the economy.

    Balami pointed out that in the aviation sector, AMCON has spread its operations across 12 airlines with over N132 billion financial involvement, adding that some of these transactions are on-going.

  • AMCON to retire N2tr bonds

    AMCON to retire N2tr bonds

    The Asset Management Company of Nigeria plans to retire 2 trillion naira worth of its 5.7 trillion naira of bonds this year and next from bad loan recoveries and refinance what’s left with the central bank, it said on Monday.

    AMCON said it had made “great progress” on recovering bad loans and that after the refinancing, the CBN will be the sole holder of its bonds.

    It said retiring the 2 trillion naira worth of bonds will cut its liabilities by 35 percent.

    Reuters reports that AMCON will also start divesting its shares in three lenders nationalised by the CBN in the next 30 days, starting with Enterprise bank.

  • AMCON has added value to banks, say experts

    AMCON has added value to banks, say experts

    The intervention of the Assets Management Company of Nigeria (AMCON) in banks has impacted positively on their growth and earnings in the equities and fixed-income market, experts have said.

    According to them, the decision of the corporation to buy more than N5 trillion non-performing loans of banks has helped in cleansing the balance sheets of the lenders, improving their businesses, bottom lines, earnings and that of investors who traded in bonds and shares. They said the huge profit declared by the banks in the 2012 financial year was the lenders are no longer burdened by non-performing loans, which they have to make provisions for.

    The immediate past Chairman, Guaranty Trust Bank Plc, Mr Oluwole Oduyemi, said the growth in profits and earnings recorded by banks could be directly linked to AMCON’s intervention in the industry. He said the corporation’s intervention has also translated to good earnings for investors in equities among other traded instruments.

    He said: “The successful cleansing of bank’s balance sheets through the sale of non-performing loans to the AMCON gave most banks the wherewithal to refocus their energies on driving growth, engaging in stiff competition for deposit liabilities, and engendering a more competitive environment for all players.”

    Also, the Managing Director, BGL Securites Limited, Mr Sunday Adebola, said the capital gains investors are making are direct consequences of AMCON’s intervention. He said there was spontaneous and positive reactions from investors immediately the banks returned to profitability. This, he said, resulted in increased patronage and earnings from banking stocks.

    He said investors are focusing on banking stocks because that is where they can get capital appreciation.

    “Many investors have recorded an average 100 per cent gains from bank stocks in recent times. Few days to the release of the International Financial Reporting Standards (IFRS) complaint audited reports of banks, many investors entered the market and exited as the Annual General Meetings (AGM) are approaching. They are making money through capital appreciation and dividends. This is the period of picking of earnings. Investors would continue to pick earnings from stocks of banks as long as they are free of toxic assets. This could not have been possible if the banks are still weighted down by huge non-performing loans.”

    He said though extraneous factors, such as interest on domestic and foreign portfolio investors accounted for the growth of the banking subsector, the Central Bank of Nigeria (CBN) and AMCON-induced reforms played major roles.

    “Though the banking sector contributes over 50 per cent of market capitalisation, the fact is that investors are looking for safer and highly rewarding investment. The confidence engendered by AMCON made investors to buy banks-owned stocks in expectation of good returns,” he added.

    According to him, corporate bonds especially those issued by banks are embraced by investors because they derive values from them.

    “The rate of defaults in banks’ bond is zero. Investors know banks are making money and, therefore, cannot default by way of paying them interest on bonds. They are convinced that that they would get returns when they exit at the point of maturity. Had it been that the banks are still facing serious liquidity challenge as evident by the debts sighted in their accounts after the audited test of 2009, nobody would take a look at their products. But the reverse is the case as banks are increasing their deposits and lending to some sectors.

  • Banks’profits may fall over revised charges, AMCON levy

    Banks’ earnings may fall this year following the implementation of the revised Guide to Bank charges by the Central Bank of Nigeria (CBN).

    The implementation of the policy, which has been in the pipeline since 2004, began last week.

    The policy slashed Commission on Turnover (COT) from N5 to N3; by 2016, no COT will be charged. It also reduced some of the high charges collected by banks. The offshore Automated Teller Machine (ATM) fees was cut from N1,000 to N240, among others. These are expected to eat into the banks’ profits.

    Also likely to affect banks’ earnings is the increase in the levy paid to the Asset Management Corporation of Nigeria (AMCON). The raise from 0.3 per cent to 0.5 per cent represents about three to four per cent increase in banks’ total operating costs. These factors, analysts said, will make it difficult for interest rates to be reduced from current 12 per cent within the year.

    Renaissance Capital (RenCap), an investment and research firm, in a report, said despite these hitches, the year started off on a strong note for banks, especially in terms of share-price performance. It projected a stronger Gross Domestic Product (GDP) growth of 7.1 per cent in 2013, from an estimated 6.6 per cent in 2012. It said inflation will moderate to 10 to 11 per cent this year.

    The firm also forecast a relatively stable naira, with an average exchange rate of N158 to a dollar, owing to a stronger external sector. However, it expects the cash reserve requirement (CRR) for the banks to be maintained at 12 per cent, which could continue to hold back loan growth. This, according to the firm, is also another minus for increased earnings.

    On loan growth, it said in the absence of developments in the power sector or upstream oil and gas projects, Tier-one banks are likely to see similar levels of loan growth to those they achieved last year. However, it said power projects could propel growth into the 15 to 20 per cent range, and with expectation that the Tier-two banks could grow faster.

    RenCap said analysis on Net interest margins (NIM) showed that, as yields doubled between 2011 and 2012 and have retreated about halfway, banks are unlikely to give up all their NIM gains.

    Meanwhile, Guaranty Trust Bank full-year 2012 profit jumped 69 per cent as loans and deposits grew. Profit after tax and income from discontinued operations, rose to N87.2 billion through December from N51.7 billion a year earlier. Revenue advanced 22 per cent to N221.9 billion as loans and advances increased 11 per cent to N783.9 billion. Deposits grew 10 per cent to N1.17 trillion.

    Also, Zenith Bank Plc’s Net income rose to N100.68 billion in 2012 from N48.7 billion a year earlier, as its cost-to-income ratio fell to 54 per cent from 63 per cent. “Zenith’s operating efficiency showed material improvement” driving earnings higher, Muyiwa Oni and Rele Adesina, Lagos-based analysts at Stanbic IBTC Holding Co said.

    Access Bank Plc said full-year profit more than doubled as customer deposits increased. Net income advanced to N38.6 billion in 2012 from N14.5 billion a year earlier. Revenue rose 54 per cent to N208.3 billion as loans and advances to customers climbed five per cent to N604 billion. Deposits grew nine per cent to N1.2 trillion.

     

  • Rewane faults IMF’s advice on AMCON

    Rewane faults IMF’s advice on AMCON

    • Defends Corporation’s role on economy

     

    THE recommendation by the International Monetary Fund (IMF) that the operations of the Asset Management Corporation of Nigeria (AMCON) be wound down has been faulted by the Managing Director, Financial Derivatives Company Limited, Bismark Rewane.

    The Fund had in its Article IV Consultation published last week advised the Federal Government to halt the operations of the corporation to curb moral hazard and fiscal risks.

    But Rewane said AMCON was set up to revive and stabilise the banking industry through the purchase of non-performing loans (NPLs) from the lenders.

    He said the corporation has so far acquired over 10,000 NPLs worth N3.5 trillion, adding that before its formation, NPLs ratio in the banking industry was in excess of 35 per cent.

    “As of December 31, 2011 the NPL ratio had fallen to five per cent, enabling the banks to focus on lending. In addition, AMCON injected fresh capital into eight banks, five of which have entered into successful mergers. As a result of the recapitalisation of banks, it owns Mainstreet Bank, Enterprise Bank and Keystone Bank. The establishment of AMCON has also averted a potential financial disaster,” he said.

    Rewane said apart from the resolution of manifested risks and toxic assets roughly estimated at N4 trillion, AMCON was also considered an essential part of the institutional framework for preventing and developing early response to isolated pockets of risks that could easily become contagious or viral.

    He said: “The question of a moral hazard arises, when the cost of an alternative resolution option is less expensive to the system and tax payer.” He added that it also becomes a problem if the defaulting operators pay a less than punitive price which encourages deviant behaviour in the future.

    Rewane said the price at which AMCON is purchasing toxic assets is so punitive that no rationale banker or operator will sell assets to it except as a last resort, adding that the stigma of being an AMCON client in the domestic and international business community is both a fiscal and social burden.

    He admitted that the IMF Article IV Consultation and review is important and extremely useful tool for IMF member-countries and market analysts.

    Rewane admitted that the process is objective and dispassionate, thus almost ensuring that the outcome is consistent with the process.

    He said almost all bad banks have become profitable over a period of time. This is because the toxic assets are purchased at steep discounts and are sold back into the market after a recovery, he added. He said Nigerian banks are bearing the funding costs of the exercise, paying 0.5 per cent of their total assets as a levy. The financial burden of the Treasury and taxpayer is minimized by the banks agreeing to pay a levy for 10 years.

     

  • AMCON to reduce N1.7tr debt this year, says MD

    AMCON to reduce N1.7tr debt this year, says MD

    A significant portion of the N1.7 trillion refinancing debt of the Asset Management Corporation of Nigeria (AMCON) will be paid before the end of this year, the Managing Director of the ‘bad bank’, Mustapha Chike-Obi, said yesterday.

    The corporation had issued a total of N1.7 trillion in bonds to buy non-performing loans which were valued at N2.2 trillion during the bank bailout.

    Speaking with The Nation last night, Chike-Obi said AMCON was working on paying a major chunk of its debt through debt recoveries and ‘other means.’

    He, however, refused to disclose the debt to be paid by the Corporation because a board approval would be needed to make such disclosure.

    He said: “AMCON will be in a position to pay down a significant amount of the debt through better recoveries and other means. I can assure you that.”

    In a related development, the AMCON mchief said the Corporation has stopped buying bad loans from the banking sector.

    The move, he explined, is aimed at discouraging a excessive risk-taking by lenders to prevent a reoccurrence of the 2009 financial crisis.

    Chike-Obi told Reuters that AMCON would no longer serve as a lifeline to banks with bad loans.

    AMCON was established in 2010 to clean up the banking system following a N620 billion injected to rescue nine banks that came close to collapse.

    Before the Corporation acquired the banks’ bad loans, they made up about half of all loans but the Central Bank of Nigeria (CBN) said the bad loans have since fallen to within its target of five per cent.

    The International Monetary Fund (IMF) in its latest report praised Nigeria’s success in stabilising its banking sector but recommended that AMCON winds down its operations to curb “moral hazard”, whereby a party is more willing to take a risk, knowing that the potential cost of taking such a risk will be borne by others.

    Chike-Obi declined to comment on IMF’s recommendation. He told Reuters that banks now bear the full risk of loans that turn bad. They must make full provision on their balance sheets or sell bad loans to a third party,” he said.

    “We are not buying any more non-performing loans,” Chike-Obi said, adding that the bank had not done so for six months.

    “We have cleaned up the banking system, bad loans are under 5 per cent and we want to make sure that everybody adheres to the prudential guidelines.”

    The AMCON chief said last year that the Corporation to gradually reduce its operations and rationalise staff in the next five years, as a full banking recovery makes it no longer needed.

    AMCON is seeking foreign investors, help to refinance its sovereign-guaranteed debt of about N5 trillion naira . At a non-deal road show last week, the Corporation managers floated the idea of a dollar-denominated bond to achieve this.

  • AMCON has stopped buying bad loans – Chike-Obi

    AMCON has stopped buying bad loans – Chike-Obi

     

    The Asset Management Company of Nigeria has stopped buying bad loans from the banking sector, its chief executive said on Tuesday, a move aimed at discouraging excessive risk-taking in Africa’s second biggest economy after a 2009 financial crisis.

    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, but AMCON Chief Executive Officer, Mustapha Chike-Obi told Reuters it would no longer serve as a lifeline to banks with bad loans.

    Before AMCON took on Nigeria’s bad loans, they made up about half of all loans, the central bank says, but have since fallen to within its target of five percent.

    The International Monetary Fund (IMF) in its latest report commended Nigeria’s success in stabilising its banking sector but recommended AMCON wind down its operations to curb “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.

    Chike-Obi declined to comment on IMF’s recommendation, but he said banks now bear the full risk of loans that turn bad. They must make full provision on their balance sheets or sell bad loans to a third party, he said