By Yemi Kolapo

Tuesday, 9 Nov 2010

The Asset Management Corporation of Nigeria on Monday approved the purchase of all the margin loans in the banking sector, including total non-performing loans of banks rescued by the Central Bank of Nigeria last year.

The corporation, which disclosed this after its first board meeting, held in Abuja, said the total loans to be purchased was in excess of N2.2tn.

Margin loans are the facilities banks grant to stock broking firms to purchase shares in the stock market.

It said in a statement, signed by its management, and made available to our correspondent, that, in line with the agreed valuation methodology, AMCON would value non-performing loans backed by shares of listed companies ”at an implied premium of approximately 60 per cent on the 60-day average of recent prices, ending November 15, 2010.”

It said, ”The underlying assumption is that a fair value to ascribe for the purposes of buying the NPLs will be two times (the) book value and this premium approximates that value.

”It should be noted that this valuation is solely for the purpose of buying the NPLs and not for recapitalisation of the banks.”

The corporation said, for non-performing loans backed by other perfected collateral, AMCON would accept the most current estimate of the loan value supplied by the institution.

It added that the estimate must be based on the current market analysis of the collateral and a written guarantee of good faith by the institution. Additionally, there must be a post-transaction adjustment agreement that allows AMCON to independently value the loan as at the transaction date of November 15, 2010, it said.

According to the statement, ”All unsecured loans or loans with ineligible collateral will be valued by AMCON at five per cent of the principal value.

“It is expected that AMCON will reach agreements with the selling institutions regarding pricing of the NPLs by November 15, 2010, and aims to settle these transactions on or before December 30, 2010.

”This will allow the institutions to obtain the necessary board and shareholder approval, whilst also giving AMCON the time to establish the necessary operational structures to settle these purchases.”

The statement said these transactions constituted an important first step, adding that AMCON would be addressing the issues of recapitalisation and the purchase of non-performing loans across all banks in the near future.

 

Source: Punch