Friday, 17 December 2010, Dr. Ogho Okiti

 

The Asset Management Company (AMCON) will as from the first quarter of next year, absorb about N500 billion of banks’ non performing loans that resulted from margin loans. Starting with the Central Bank of Nigeria (CBN) intervened banks, the process is expected to be completed by the end of March, 2011.

 

Mustafa Chike-Obi, managing director of AMCON said this at a meeting with bank chief executives and top management of the nation’s 24 banks in Lagos, yesterday.

 

Margin loans will be purchased at a 60 percent premium of their average 60-day prices as at November 15, 2010, while unsecured loans will be purchased at 5 percent of their original value, and not the book value, which may have increased because of default interest charges.

 

Chike-Obi reiterated at the meeting that the target and goal of the corporation is to help banks have a zero percent non performing loans (NPL), especially the CBN intervened banks.

 

The first step in this regard, according to him, is for the banks to submit all the valuations of NPLs on their books by the end of this month, with no possibility of any extension.

 

In exchange for the NPLs, the banks will receive bonds in the same value, while effectively taking the loans off the banks’ books. This is expected to have immediate effect on banks’ total non performing loans, and underlying provisions. Overtime, it is expected to have implications on the capacity of banks to give new loans. On the likely implications of the bonds driving the yields on bonds further, Chike-Obi expressed reservations on whether he thinks the bank chief executives will immediately try and sell these bonds in the secondary bonds market.

 

“AMCON will accept the valuation of banks in the first instance, and reserves the right to correct any valuation at a later date, if it does not eventually matches its own valuations,” he noted.

 

The corporation is especially keen to rid banks of their NPLs that resulted from margin loans.

 

According to him, “There are three categories of debtors in this regard. The first are those that have simply fallen into bad times and need help in restructuring their loans. The second are those that have genuine misunderstandings with their banks. And the third category are those that are simply recalcitrant and do not want to pay.”

 

Chike-Obi assured that the corporation is better placed to deal with recalcitrant debtors because it is not required to approach the courts for receivership, which the banks often do.

 

Source: Businessday