The Asset Management company of Nigeria has announced a record N304.3 billion loss for the full year ended December 2015. The company revealed this after it released its 2015 full year results on Friday.
Nairametrics had reported on Thursday that the bank was set to release its full year reports which we opined could increase the tension in the financial services sector.
Highlights of the results
- Gross income for the year ended 2015 was N97.6 billion compared to N413.7 billion in 2014 (-74% YoY)
- AMCON reported a total interest income of about N97.6 billion compared to N162.4 billion in 2014 (-40% YoY)
- Interest expenses was N261.2 billion compared to N298.6 billion in 2014
- Net operating loss for the year was N234.7 billion compared to a net operating profit of N20.2 billion
- Credit losses and impairment for the year was about N72.8 billion
- AMCON’s accumulated losses is now about N4.5 trillion
- AMCON also has a total negative equity of about N3.78 trillion
- AMCON’s total assets stands at just over N1.2 trillion
The Executive Director of the corporation, Aminu Ismail gave reasons for the huge losses. According to Aminu, the bank recorded losses after it wrote down value of collaterals recovered from the purchase of bad loans from commercial banks. Some of these assets range from real estate, aircrafts, landed property, inventory, companies etc.
Mr Aminu also blames the losses on interest paid on a N3.8 trillion bond due to the central bank which it used to acquire the bad loans.
Implication for Nigerians
Bad bank going under?
As explained in our prior article, AMCON’s negative balance sheet of about N4 trillion renders the corporation officially insolvent thus threatening its going concern status. An insolvent AMCON could likely mean that the Central Bank and by extension Nigerian tax payers stand to lose trillions of naira used to buy bad loans from commercial banks between 2011 and 2014. AMCON claims it no longer buys bad loans and now focusses on recovery of its debts.
CBN to also report losses?
With AMCON now technically insolvent and unlikely to continue to service its loans, analysts believe this could also mean that the Central Bank will at some point also partially write down bonds owed to it by AMCON. CBN is owed over N3.8 trillion by AMCON with the bonds expected to be fully repaid in 2013. This results puts into question, the ability of the corporation to repay this debt.
Future of Nigerian Banking
The decision to create the Asset Management Company of Nigeria was hailed in by most experts as they believed its intervention helped save the financial sector from collapse after the banking crisis of 2009/2010. With the financial sector facing yet another major crisis triggered by the drop in oil prices and the depreciation of the naira, analysts believe it is unlikely that the government will embark on another round of asset buying. This perhaps explains the reason why Skye Bank was bailed out by CBN rater than allowed to be taken over by AMCON. The CBN is thus more likely to tighten the screw on prudential ratios of most banks than allow them create unbearable losses that can threaten the financial system.
The implication for banking is that, less risk will be taken by most banks starving critical sectors of the economy of cash required to expand their business.