By Stanley Oronsaye, December 17, 2010

The Asset Management Corporation of Nigeria (AMCON) will buy up all non performing loans of the rescued banks by the end of the first quarter of next year.

 

Foluke Dosunmu, executive director finance, while briefing bank executives in Lagos yesterday said the rescued banks will enjoy two sets of funds injection: One is to buy their non performing loans and two to cater for their capital adequacy. Mrs Dosunmu said AMCON will issue the first set of bonds by the end of December.

 

She said bonds will be issued for a two year period which will be refinanced by issuing another set of bonds next year. “The bonds will be zero coupons, fixed or floating that will be tradeable and liquid and listed on the Nigerian Stock Exchange.” She added that the liquidity of the bonds will be enhanced as it will not only be held by banks but also fund managers, pension fund administrators, insurance companies, trustees and custodians. The bond will be guaranteed by the federal government.

 

On the valuation method, she said the non performing loans secured without underlying collateral will be bought at five per cent of the principal sum. “For the listed shares, it will be valued on a 60 days average on the NSE trading platform counting back from November 15 with a 60 per cent premium on the price.” She said unlisted assets will not be taken in the first tranche of bonds to be issued.

 

It is an asset swap

 

Mustafa Chike-Obi, managing director, AMCON explained that the issuance of the bonds will not overwhelm the market. “Look at it as an asset swap. We are taking a non productive illiquid asset and replacing it with a somewhat liquid asset.” Mr Chike-obi said the market will be liquid such that banks will not be under pressure to flood the market to sell off.

 

AMCON was set up in the aftermath of the N627 billion injections by the Central Bank of Nigeria into nine rescued banks last year.

 

The financial crisis revealed that banks in the country were carrying about N3 trillion in their books. The asset corporation is to buy up the bad debts in the banks’ books to enable them resume lending to the real sector.

 

Mr Chike-Obi, sounding optimistic about the prospect of the project, said banks are expected to be honest in the valuation of the bad loans in their books. “We will not play games with you and we do not expect gaming from anyone,” he told the lenders. “We must value the NPL by end of this year and issue bond by end of this year. This is an aggressive and ambitious schedule and I think we all should work towards it.” According to the AMCON law which is yet to be made public, the asset company can take over assets of debtors which are not charged as collateral while banks or customers found to have made false representation on valuation can attract a jail term of three years or fine of N5 million.

 

Source: 234Next