Back in 2009, the CBN published a list of names of companies owing Nigerian Banks. It was an unprecedented move by the Apex Bank and one that found many support amongst the populace. I was part of the very few who saw the move as a back door method of getting the borrowers to pay up their loans. It was a terrible move at the time as once the veil of uncertainty had been exposed fear is totally extinguished. The only fear they would have had was exposing their names on the pages of the news paper, a bait that the CBN failed to use to its advantage.The borrowers had no more incentive to pay up. The loans after all were secured or unsecured which by the way means the bank can at most only liquidate the companies and sell their assets as they committed no crime.
Following this trend Thisday Newspapers published the List of debtors owing Amcon following the transfer of toxic loans from banks to the quarantine that Amcon is. The entities contained in the list were borrowers who originally owed loans of over N5b which has either now beign negotiated lower or left to remain as is at the point of take over by AMCON. Amcon mostly takes over the loans from the banks at a discount that is dependent on the strength of security in lien for such assets. So how much are we talking about here? According to the list released the total amount of loans are taken over by AMCON is N1,094,321,906,032.72 (N1tr) out of a sum outstanding of N2,290,351,073,766.14 (N2.29tr) representing a 52% write down. One can simply then infer that the N1.1tr was written off balance sheet of most banks as a loss.
Since one man’s loss is another man’s profit who then profited from the N1.1tr loss that has now being written off by the banks. Its difficult to ascertain, however the senior management of banks, stock brokers, investors who pulled out early and all the foreign portfolio investors who poured in hot money that found its way out of the country after heating up the bubble that was the NSE at the time, represent a greater part of who the profiteers were. But that was the past, what about the future? What are the guarantees that AMCON will even recover these monies despite giving up such huge discount. The MD of AMCON has dared to declare there will be no more bank failures in Nigeria, thus insulating banks from bankruptcy that is always a risk for small businesses who see their business go bust everyday due to harsh economic climate mostly out of the high interest rates.
How many more bailouts needing bailouts do we expect to see going forward? It all depends on the restructuring deals AMCON is able to formulate. First of all, the agency must see itself as a Asset Management Company and not a new generation bank. It must give Investors with quality assets and employing hundreds of Nigerians option to convert some of their loans into equity. Surely, the model these companies use for their businesses offer them return on assets that is well below their borrowing cost. They also face serious financial constraints as their models are such that the business will always struggle to repay its loans no matter the tenor. There is a risk in for AMCON I agree as they in turn sold bonds to fund these loans. But it is a risk worth taken otherwise the Corporation itself will someday need a bailout, a situation associated with cataclysmic proportions for the Nigerian economy.