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  • Rewane, others list growth options for insurance sector

    Rewane, others list growth options for insurance sector

    The need to grow the insurance business in Nigeria and boost the economy is receiving greater attention with operators. Experts have, however, proffered solutions for growth opportunities in the insurance sector. Omobola Tolu-Kusimo writes.

    Growth in the insurance sector may remain positive and will likely be driven by automotive policy, oil and gas and the housing sector with opportunities estimated at $105.24 billion.

    Experts said the estimate is possible if the sector grows at par with South Africa’s 12 per cent of GDP in the next four years.

    Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, at an insurance conference in Abuja, listed other sectors that will drive growth as agric, telecom, financial services and manufacturing.

    He said, according to Ernst & Young, diminishing economic growth will likely affect demand for life and non–life insurance products, while stronger capital requirements will act as catalyst for consolidation of smaller insurers.

    He said changing regulatory environment will encourage investment in real estate with cross border sales expected to commence in January, 2016.

    Rewane said the collective investment scheme will expand further, resulting in improvement in data controls, prompted by newer and stricter regulations.

    He listed critical events to watch out for as the Monetary Policy Committee (MPC) meeting in July and September, the likely shake up in regulatory appointments, passage of a supplementary budget and the World Bank meeting in Peru.

    He said with inflation rate at 9.2 per cent from 8.7 per cent, the insurance industry in Nigeria has underperformed in terms of economic growth, adding that its profitability and size has been suboptimal.

    He said: “Relative to the financial services industry and global peers, the industry has been subject of new capital requirements and capacity rules.

    “The insurance industry in Nigeria has underperformed the economy in its growth, while its profitability and size has been suboptimal. High inflation increases the cost of future claims on current policies and erodes asset values, while increased inflation makes higher interest rates more likely. This implies that value of total assets under management could drop. In the 2008 financial crisis, insurance companies were some of the biggest losers,” he said, pointing out that sensitivity of interest rate risk varies by line of business and market.

    “For life insurers, it affects savings products where investment returns are major sources of profit, while higher interest rate encourages savings.

    “For non-life insurers, if interest rates reduce, they could react by raising premiums to maintain profitability.”

    On exchange rate risk, Rewane said a devaluation increases the risk that the assured will face higher replacement cost, increases the risk of non-payment of future premiums as disposable income falls, while premium on foreign re-insurance will become higher.

    Citing an example with the Singapore insurance sector, he pointed out that the country is one of the most developed insurance markets in Asia with 161 registered insurers and reinsurers.

    He listed Singapore’s insurance challenges as “regulatory, addressing insurer solvency, capital and risk management have been changed, new rules could swamp the industry with costs and compliance, longstanding strategic positions maybe altered and costs, prices and returns could soon become unsustainable if changes are mismanaged”.

    “Global insurance challenges in 2015 according to Ernst & Young are rising competition, soft pricing conditions, tight profit margins, low interest rates will make savings product difficult to manage, Cyber-crime, data insecurity and lack of experienced talent due to higher mobility and increased competition. According to Ernst and Young, the focus of insurers in 2015 is technology”, he added.

    Swiss Re’s Chief Executive Officer for the Middle East and Africa, Frank O’Neill while speaking on how to increase the contribution of insurance to the economy, said education and tailored products, ie takaful will be of great help. He said tailored products and distribution channels (mobile, micro), capacity building: expertise building, supervision, industry action, regulators, education.

    “Many factors drive demand and supply of insurance. These include economic growth, wealth, trust in insurance, price of insurance religion; culture, education, property rights; legal certainty among others.

    “Foreign reinsurers can help to develop the insurance sector in emerging economies”.

    Managing Director, LASACO Insurance Plc, Olusola Ladipo-Ajayi on his part said insurers need to do a lot more to bring some of the provisions of the law in line with international best practices and strengthen the market.

    He said that the six compulsory insurance namely; Motor Thirty party liability; Employers Liability; Employers Compensation; Occupiers Liability; Builders liability and the Lagos state Building Control Law 2010 and Health Care Professional indemnity Act all exist on paper.

    He noted that NAICOM has tried to harness these in the Market Development and Restructuring Initiative (MDRI) and made it compulsory.

    The Commission, however, is not in a position to effectively to enforce the laws as is common in developed countries. It is left to the industry to take up the challenge from here, he said.

  • Reps to IGP: reopen Dele Giwa, Ige, Rewane, other killings

    Reps to IGP: reopen Dele Giwa, Ige, Rewane, other killings

    House of Representatives yesterday directed the Inspector-General of Police (IGP) Mr. Solomon Arase to reopen investigations into unresolved cases of high profile political and extra-judicial killings in the country.

    The purpose of the reopening, according to the House, was to bring the culprits of the unresolved killings to justice.

    The resolution of the House was sequel to the adoption of the prayers of a motion by a member, Kingsley ChindaIn, entitled: “Need to Undertake Further Investigations into Cases of Extra-Judicial Killings and Other High Profile Murders”.

    When the Speaker, Yakubu Dogara, called for a vote, the motion which was overwhelmingly supported by members and consequently adopted by the House, was referred to the committees on Police Affairs, Public Safety and National Security (when constituted).

    The committees are to monitor the investigations of the cases and present an interim report to the House within four weeks.

    Chinda, while presenting the motion, noted that the extrajudicial killings were allegedly being carried out by men of the police and personnel of some other security agencies as well as unknown gunmen.

    The lawmaker urged the police to be more alive to their responsibilities in the prevention of crimes and proper investigation.

    Chinda expressed concern that the efforts of successive governments in tackling the problem of extrajudicial and other high-profile killings had largely been ineffectual and short of the expectations of Nigerians.

    According to him, people now live in fear and despair because the trend had continued unabated.

    Chinda said the several cases of extra-judicial and unsolved killings in the country included the killings of Dele Giwa, Alfred Rewane, Bola Ige and Funso Williams as well as some traders at Apo (popularly known as Apo Six), invasion by mobile policemen and armed soldiers of Ogoni land and Odi community in Bayelsa and others.

  • Rising inflation will not hurt equities market, says Rewane

    Rising inflation may not significantly influence the performance of the Nigerian stock market, managing director, Financial Derivatives Company (FDC), Mr Bismarck Rewane has said.

    Many analysts expected the inflation rate to rise in the next computation. Rewane’s FDC has predicted that inflation rate will likely increase marginally again to 8.3 per cent.

    According to FDC, the inflation forecast was based on the regression model of its analysts. If this forecast increase in inflation takes place, it will be the fifth monthly consecutive increase in the price level this year.

    In its latest economic bulletin, FDC said the projection of a further increase in the headline inflation figure would not hurt investors’ confidence in the equities market.

    According to the report, investor confidence in the stock market will remain unchanged because the status quo on monetary policy has not influenced a significant movement in the fixed income market.

    The report pointed out that the current investors’ sentiment and profit-taking transactions are possible incentives to drive the stock market performance in the near term.

    “The stock market in 2014 has only gained 1.65 per cent. In spite of earnings growth decline, the price earnings ratio has declined to 29.56 times from as high as 31 times. This means that there are a few bargains out there. The inflation numbers are unlikely to scare yield hungry investors from bargain hunting,” FDC stated.

    However, the report noted that while the increase in inflation rate might be marginal, the cumulative increase could become a cause for monetary policy concern given that in February 2014, the year on year retail price inflation was 7.7 per cent and will now peak at 8.3 per cent, up by 0.6 per cen.

    According to FDC, even though inflation rate is within the six to nine per cent target range, it will only be 0.7 per cent lower than the ceiling, a trend that should give the Central Bank of Nigeria (CBN)’s Governor a reason to look at the close relationship between M2 growth and the consumer price index (CPI).

    The CBN Governor is also expected to decompose money supply into the high powered component and other aggregates as the rate of inflation is already becoming part of the political agenda in what is likely to be a keenly contested election.

    “The Central Bank is watching the inflation rate closely because of the fact that rising inflation will seriously undermine the key objective of maintaining the value of the naira at current levels. The new CBN Governor has staked his reputation on his mission to bring down interest rates and thus impact employment indirectly. An increase in the inflation rate is likely to make the reduction of interest rates less imperative,” FDC stated.

    Notwithstanding, the report indicated that the exchange rate would remain stable as increased foreign reserves has placed the apex bank in better position to defend the currency.

    ‘’We do not expect any significant impact of the projected increase in inflation rate on the interbank market in August. However, it will make portfolio managers become jittery, since an increase in rates will de-press bond prices and could lead to diminution in value of their portfolios. But irrespective of the inflation numbers, we do not expect increased volatility in the money markets as our projection remains within the target band of the CBN,” the report stated.

  • Pension most regulated, says Rewane

    Pension most regulated, says Rewane

    The cumulative contribution of N4 trillion pension recorded by the National Pension Commission (PenCom) since its existence nine years ago, is contributing significantly towards the economic development of the country, Managing Director, Financial Derivatives Company Limited, Mr. Bismark Rewane, has said.

    He said the industry is one of the best and most regulated industries in the country, adding that the amount is remarkable.

    He said: “We have N4trillion as pension funds, and this is remarkable in terms of the growth rate. It is important to note that in spite of the financial crisis in 2008, the pension fund did not lose any money. There was a market crisis and none of the Pension Fund Administrators (PFAs) lost money.

    “The pension industry is one of the best regulated in the country today, and it is contributing significantly towards economic development in the country,” he said.

    On whether the contributors are getting good investment returns on their contributions, Rewane said the limitations on investment as provided by the Pension Reform Act is good enough to ensure that the workers and retirees pensions are safe.

    He said if contributors want higher returns, then they must be ready to accept higher risk.

    The PFAs are limited in terms of investments, but they like it because the regulations prevent and protect them from going to take risky bets. You don’t bet with people’s money, he added.

    The Regulations on Investment of Pension Fund Assets under the PRA Act states that PFAs shall invest pension fund assets with the objectives of ensuring safety and maintenance of fair returns.

    He continued: “PFAs shall recruit and retain highly skilled personnel in their investment departments, shall not invest Pension Fund Assets in instruments that are subject to any type of prohibitions, or limitations on the sale or purchase of such instrument, except for open, close-end or hybrid funds and specialist investment funds allowed by this Regulation.

    “PFAs shall not trade on margin accounts with pension fund assets. A PFA shall not engage in borrowing or lending of pension fund assets; shall not trade in financial instruments with pension fund assets at prices that are prejudicial to the pension fund assets.’’

    He added: “When investing in eligible bonds or debt instruments issued by state or local governments and corporate entities, pension fund assets shall be invested only in eligible bonds, or debt instruments issued by states or local governments and corporate entities that have fully implemented the Contributory Pension Scheme (CPS).

    “The Commission shall provide periodic lists of compliant state or local governments and corporate entities. PFAs are to ensure that appropriate legal and financial due diligence are undertaken on all prospectus, or offer documents of eligible bonds or debt securities and other allowable instruments prior to investment.

    “All primary market investments by PFAs in ordinary or preference shares of eligible corporate entities shall only be through public offerings approved by the Securities and Exchange Commission.”

  • CBN may depreciate naira, tighten CRR, says Rewane

    CBN may depreciate naira, tighten CRR, says Rewane

    THE Central Bank of Nigeria (CBN) may adopt a mixed bag of depreciation of the naira and further tightening of the Cash Reserve Requirement (CRR) on public deposits at its March 17 meeting to stabilise the monetary system, Managing Director, Financial Derivatives Company (FDC) Limited, Mr Bismarck Rewane has said.

    In a preview of the financial and economic outlook in the weeks ahead, Rewane said the CBN is in between a rock and a hard place as the options for the Acting CBN Governor, Mrs Sarah Alade are narrow and hard.

    He indicated that the correction at the stock market would continue in the weeks ahead. The Nigerian Stock Exchange (NSE) is trailing with a year-to-date return of -5.22 per cent.

    According to him, the Monetary Policy Committee (MPC) of the CBN will have to adopt a mixed bag this month, including allowing the naira to slide by three per cent and pushing up the CRR on public deposits from 75 per cent to 100 per cent.

    Rewane noted that the apex bank is faced with two scenarios for stable naira and external reserves, adding that all options would remain unattainable if the oil revenue leakages continue.

    Under the first scenario, the MPC could increase the Monetary Policy Rate (MPR) from 12 per cent to 13 per cent, increase the private sector CRR from 12 per cent to 15 per cent, increase the public sector CRR to 100 per cent and then leave an option to increase liquidity ratio in May.

    Under the second option, which Rewane singled out as possible, the apex bank will allow the naira to depreciate by N5 or three per cent to N162 while increasing public sector CRR to 100 per cent.

    “She may have to depreciate the currency by approximately five per cent at the March 17 meeting,” Rewane said referring to acting CBN Governor.

    According to him, with external reserves at $39 billion and likely to decline further, options are narrow and choices are hard.

    Rewane described the suspension of the CBN Governor, Mallam Sanusi Lamido Sanusi as a “bizarre move” and a pyrrhic victory with such “devastating cost that it is tantamount to defeat”.

    He said the suspension was politically motivated and was “designed to send a signal of political machoism to opponents”.

     

  • Rebasing to boost Nigeria’s $283b GDP, says Rewane

    Rebasing of Nigeria’s Gross Domestic Product (GDP) expected by year-end would take the figure from $283 billion to $400 billion, the Managing Director, Financial Derivatives (FDC) Limited, Bismarck Rewane, has said.

    He said the telecoms and entertainment industries are key sectors that would be added to the GDP when the rebasing exercise is done.

    He explained that Nigeria has a total debt portfolio of $53.42 billion (N8.3 trillion) as at September 30th, according to the debt management office (DMO), adding that the total debt to GDP ratio is estimated at 19.3 per cent according to the Economic Intelligence Unit (EIU) and is projected to decrease to 13 to 14 per cent with a rebased GDP.

    An FDC Economic Report for November released at the weekend said rebasing will entail changing GDP’s mode of calculating growth in output and using a more recent base year of 2010 from 1990 prices.

    This, Rewane explained, was meant to portray a better picture of the size and composition of the economy, by taking into account new sectors such as telecoms and the movie industry that have emerged over the years.

    He said GDP rebasing has been done by several countries such as Ghana, South Africa and Malaysia, and has significant implications on the structure of an economy.

    Nigeria, with a five-year average annual growth rate of seven per cent, has been using a 1990 base year to calculate the growth of its real GDP. “In nominal terms, this is estimated to be $283 billion in 2013, according to the Economist Intelligence Unit (EIU).

    Nigeria has a young and growing populace, estimated at 170 million, who have a per capita annual income of $1,624. Based on the above, Nigeria can be classified as a low-income economy that is heavily dependent on oil,” he said.

    Citing the World Bank, he said Nigeria falls within the category of lower middle-income economies based on certain criteria such as the GDP and GNI per capita. Similar countries in this cadre include Senegal, Cote d‘Ivoire, Ghana and Cameroon.

    He said one of the aspirations of the Federal Government of Nigeria (FGN) is for the country to become one of the top 20 economies by 2020 (Vision 20:20). Rebasing its GDP, he added, base year brings it one step closer to this goal.

     

  • Govt needs $350b to fix infrastructure, says Rewane

    The Federal Government requires $350 billion to fix in-frastructure, Managing Director, Financial Derivatives Company (FDC) Limited Bismarck Rewane, has said.

    According to FDC’s Economic Report, Nigeria’s debt to Gross Domestic Product (GDP) ratio stands at 35 per cent. The figure, the report said, had renewed the argument of optimal debt level.

    Rewane said for Nigeria that has an infrastructure deficit of $360 billion, according to the African Development Bank (AfDB), a 40 per cent debt cap is insufficient in getting the job done.

    “An overhaul of the infrastructure gap would cost approximately $350 billion for an economy with an estimated GDP of $282 billion and an annual GDP growth rate of approximately 6.8 per cent,” he said.

    The Fiscal Responsibility Act of 2007, he said, set a 40 per cent ceiling for Nigeria’s public debt to GDP, while the International Monetary Fund (IMF) raised the threshold to 56 per cent this year.

    Rewane argued that the establishment of a debt ceiling is arbitrary at best, since there are many variables that should determine optimal debt level that are not included in determining the ceiling.

    He pointed out that two crucial and often missed points, are the causation of increase in debt/GDP ratio and the use of debt raised.

    “Since the economic well-being of a country should be seen through the prism of a sound business entity, there ought to be a distinction between “bad debt run up” and “good debt build up,” he said.

    In addition, the old practice of using the debt/GDP ratio as a measure of the health of an economy is questionable. It is a tool designed for advanced countries and not developing economies.

    He advised that instead of focusing on the rate of increase in debt to GDP ratio in Nigeria, what should be of utmost concern is the direction of the naira. Since most of the recent debt issuance is foreign currency denominated, depreciation of the naira would prove costly, and if sustained, threat of default becomes imminent therefore jeopardising Nigeria’s strong BB-rating.

    South Africa gross debt, he said, would balloon to 48 per cent of GDP in the year through March 2017 from an estimated 43 per cent last year.

    He said South Africa’s debt levels compares with 80 per cent in Hungary, 59 per cent in Brazil and 36 per cent in Mexico. “The increase in debt levels is not a problem if you compare South Africa with some other countries,” Johann Els, an economist at Old Mutual Investment Group of South Africa, said adding: “The fact that the deficit is getting smaller means we are putting a damper on the growth in debt.”

    South Africa’s reliance on foreign investors to finance the budget deficit has increased in recent months, adding to the nation’s economic risks, according to the Treasury.

    He said Nigerian oil and gas sector remains a challenging environment to operate in. “In order to improve the outlook for this sector, the government has to ensure consistency in policies, address security issues and double down on initiatives to improve innovation for increased efficiency in the sector,” he said.

    Rewane explained that Nigeria remains a net importer of innovation and hence, must make the necessary investments in training institutions to provide capable human capital and innovation to meet the needs of the sector.

    For the nation to realise production levels at its 2.5mbpd capacity, these deficiencies have to be met. “The long-awaited Petroleum Industry Bill (PIB) presents an opportunity to address some of the issues ailing the industry, but even that suffers setbacks at every turn. The initial draft, introduced in 2008, was expected to restructure the hydrocarbon sector and increase government stake and local con-tent requirements,” he said.

     

  • CBN and medical tourism; Kudirat Abiola and Rewane murders: Al Mustapha free?

    Apparently NHIS is recruiting Accenture to assist it in‘re-strategising’. NHIS should note that Accenture will be paid up-front and well, something the NHIS does not do with its partners. Accenture should ask why NHIS delays payment of bills from doctors by up to six months with the attendant opportunities for ‘I-beg-pay-me-now’ chop-chop corruption. Accenture should recommend that NHIS pays within one month of bill receipt. Accenture should recommend that even if there is a dispute on the bills of one or two patients then the rest of the bill should be paid immediately while the disputed bills are being sorted. Doctors, clinics and hospitals cannot survive if their money is ‘NHIS Withheld’ and getting finder’s fee bank interest for someone. Accenture should investigate the approved poor fees chargeable by the medical teams for services rendered. Good services cost good money. That is why NHIS has recruited Accenture. Accenture should recommend that NHIS extends the act and pays its medical [practitioners better.

    Back to the issue of medical tourism. To pay for a N4.8m medical machine we must divide by N1,500/patient = 3,200 patients, a few years work, at a scan charge of N1,500/patient without adding salaries, rent, generator, taxes or Nigeria’s ‘Anti-inflation’ interest rates of 21-25% per annum. The cost of a similar scan per patient in USA is $200 or N30,000 ie. 160 patients would cover the machine cost – a few weeks work. As 7Up says, ‘the difference is clear’-ly against us –Nigerian doctors and professionals. Not every doctor practices in Abuja, or Ikoyi/VI.

    How many times have soldiers used ‘hospitals are mere consulting clinics’ as an excuse for coup plots? Do you know what the sign ‘O/S’? It means ‘out of stock’ and it could mean suffering and death for the patient. How can a hospital not have oxygen at midnight when your child is gasping? The ‘happiest people’ in the world are also the ‘most foolish’- swallowing suffering so easily! Doctors did not create the scenario of medical tourism and doctors cannot solve it. They suffer mentally and are as much victims as the citizen who cannot afford to travel abroad for treatment and has inferior treatment from outofstockitis of the good quality drugs and equipment.

    Do you know the doctor’s pain of knowing what to do and knowing how to do it but being prevented from doing it by a lack of equipment? Even worse is to be told to ‘manage’ with obsolete facilities – a waste of skill. Doctors did not cause medical tourism but they know who did cause it and doctors can diagnose the problem and offer simple treatment. Listen to the professionals’ needs. Those who did cause medical tourism are the self-serving civil servants and politicians who cut and cancel medical budgets for Nigerian citizens and are themselves on frequent medical tourism trips abroad sometimes disguised as official government trips –someone has to pay! Those who cause medical tourism in Nigeria are sitting in CBN making base interbank interest rates –MPR- 12% and approving 21-25% interest rates for commercial banks. Doctors and other medical professionals are often trying their best and failing. Bankers ‘make it’ in Nigeria even as they refuse medical loans. Doctors need tools as the new 21st Century medicine is high-tech and machines are upgraded or changed every few years -except in Nigeria where second hand equipment is mostly our lot. Nigeria usually gets the leftovers, as usual! We do not even fund or carry out adequate research into malaria-our major killer.

    If only Sanusi had announced a new CBN ‘Anti-Medical Tourism Plan’ with special entrepreneurship ‘self-development/self-recognition’ loans and even medical practice development long term 4-5 year 2-5% interest loans to professionals across capital-intensive disciplines professions including Medicine. This would allow doctors in and out of government hospitals and other medical professionals to acquire the life-changing cutting-edge equipment needed to deliver high quality services. Only then will we face the medical and other tourism threats on equal footing– with quality equipment and services at home.

    Remember, every patient would travel if the opportunity arose. This confirms a lack of faith in the system- a systemic failure, not a doctor failure! The Nigerian professional is at an all-round disadvantage –financially, access to new equipment and even professionally as it takes money to travel abroad to train on new equipment –money that is not easily recovered from an NHIS which wants to pay minimally for services rendered and does not countenance or take full cognisance of the changing and rising cost involved in providing those medical services in the field. Add the necessary acquisition of second hand, often rubbish, equipment because medical establishments often cannot afford the newest and the best. This is the long established tokunbo-isation of medical equipment and medicine.

    So Al Mustapha is acquitted, free and riding high in Kano. Will Kudirat Abiola, Alfred Rewane and other Abacha-era victims also be freed and resurrect from their graves so their loved ones can also welcome them with parades, parties and prayers. Will they be reinstated in their own ‘armies? Will the Abacha-era death games begin again? Will the bloodshed during the Abacha regime ever be explained, avenged or apologised for? So who killed them or did they kill themselves? Those who think political murder is an acceptable ‘joke’ or legitimate game plan will pay some way, no matter how many millions have been secreted away.

  • 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.

     

  • 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.