From Kunle Akogun in Abuja and Emele Onu in Lagos, 06.25.2010

 

The Federal Government and the Central Bank of Nigeria (CBN) are to lose an estimated N878 billion of the N1.35 trillion they plan to inject into the purchase of the non- performing loans of ailing banks through the planned Asset Management Corporation of Nigeria (AMCON).

 

 

The Director-General of the Debt Management Office (DMO), Abraham Nwankwo, made this known in Lagos yesterday at a seminar on the Review of the 2010 Budget organised by the Nigerian Economic Society (NES) and the Chartered Institute of Bankers of Nigeria (CIBN).He said: “From the experience of other countries, the recovery from such non-performing assets when they are eventually disposed by the asset management company is about 35 per cent to 40 per cent.”

 

 

This, he explained, suggests an estimated “loss of about 65 per cent to 70 per cent of the N1.35 trillion to be shared between the Ministry of Finance and the CBN.Meanwhile, the Senate Wednesday passed the  Asset Management Corpo-ration of Nigeria (AMCON) Establishment Bill. This followed the unanimous approval of the report of the conference committee, which harmonised the versions of the Bill earlier passed by the two chambers of the National Assembly. The House of Representatives had earlier adopted the harmonised bill.

 

 

The bill is expected to be submitted to President Goodluck Jonathan for his assent after which it becomes an Act of the National Assembly. This will pave way for the formal establishment of the Corporation which is the principal vehicle for recapitalization of distressed banks.It may be recalled that the AMCON bill is an executive bill and, therefore, an expedited assent is expected.The bill, spearheaded by CBN on the heels of the distress in the banking sector and the N620 billion bailout of the affected banks by the banking watchdog, seeks to assist banks in efficient management and disposal of their toxic assets.

 

 

The rescued banks whose managements were removed and new ones appointed last year by are Bank PHB Plc, Spring Bank Plc, Equitorial Trust Bank, Intercontinental Bank Plc, FinBank Plc, Afribank Plc and Oceanic International Bank Plc, Union Bank of Nigeria Plc.The DMO DG, who presented a paper on “Management of Domestic and External Debt and Early Warning Signals,” pointed out that issues surrounding the bailout of banks and the setting up of AMCON constitute part of the challenges and early warning signals for DMO.

 

 

“The AMCON will need start-up equity of N250 billion to be shared between the Ministry of Finance and CBN in the ratio 10:90. It is considered that although the ailing banks are being offered for mergers and acquisitions after the transactions, there could be a residual capitalisation gap estimated at N400 billion to be shared by Ministry of Finance and CBN in the ratio of 10:90. Total non-performing assets to be taken over from the ailing banks by the AMC are estimated at N1.35 trillion,” Nwankwo said.

 

 

Besides, he said: “In addition to indications from the Annual Debt Sustainability Analysis (DSA), Signs of approaching Crisis in any Sector of the Economy, including the Private Sector, should constitute early warning signals for Debt Management.”The Director-General, Budget Office of the Federation, Dr Bright Okogu, said government is aware of the economic challenges facing the country and is determined to use the budget instrument to improve on the situation.

 

 

He pointed out that partial budget implementation and leakages constitute about the greatest challenges to budgeting in the country, stressing that government is committed to correcting errors made in the past. “The revision of both fiscal framework and budget became necessary to reflect present revenue and expenditure realities of the country,” he said.

 

 

He listed the efforts made by government to plug revenue leakages in the country to include audit of the NNPC, audit of all revenue-generating entities, the strengthening of pre-shipment inspection for crude oil as well as some expenditure cuts in overheads and capital.

 

(Source:ThisDay)