September 6, 2023/CSL Research

News reports citing the Finance and Coordinating Minister of the Economy Wale Edun say the federal government is working towards ensuring the Asset Management Corporation of Nigeria (AMCON) is wound down as soon as possible. The Minister, however, noted that the ability of the bad bank to be wound down after nearly thirteen years of operation would depend on its ability to offset its huge liabilities estimated at c.N3 trillion. As initially conceived, AMCON was not to remain in perpetuity but was to exist for only 10 years. However, the inability to recover loans bought has led to an extension of the tenor of existence of the corporation.

AMCON was established in 2010 to buy the Non-Performing Loans (NPLs) of Nigerian banks with a view to stabilising the banking system and is currently being funded by a combination of loan recoveries, contributions from the Central Bank of Nigeria (CBN), sale of assets pledged, and a sinking fund levied on the banks. Banks were initially mandated to contribute 0.3% of total assets to the sinking fund. This was further increased to 0.5% of total assets plus total off balance sheet assets. The AMCON 2010 Act was amended in 2021 to increase the tenor of the resolution cost fund and to give the corporation the power to take charge, manage, or sell off assets traced to debtors, even if such assets were not registered as security for the loan in default.

AMCON has made countless efforts to try to recover the bad loans acquired but has not been very successful. The bank had in December 2015 stated that a weak economy was hindering efforts to recover billions of dollars of loans and other assets it took on expected to be paid off in 10 years. The bank had applied several unconventional methods to recover these loans such as the naming and shaming of debtors, the establishment of a presidential inter-agency committee, and amendments to the initial law. While we struggle to see what can be done differently to recover these loans, we note that winding up AMCON would be a relief for banks as AMCON charge over the years has become a significant proportion of total operating expenses, making up an average of 17.4% of operating expenses as of FY 2022.

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