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AMCON, the most important weapon set up to avert economic collapse, says Ahmed Kuru

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Managing Director, AMCON, Ahmed Kuru

With more than N3.7trillion depositors’ money under threats, in addition to over 14,000 jobs while 12 banks were on the brink of total collapse, the Asset Management Corporation of Nigeria (AMCON), was set up to come to the rescue and stabilise the economy. But with about six years winding down, there are concerns about the Corporation’s ability to achieve its mandate to fully recover about N5.4trillion in debts obligations purchased from commercial banks. AMCON’s Managing Director, Ahmed Kuru, in this interview with The Guardian Business Editor, Clara Nwachukwu, expressed the hope that the three arms of government will appreciate its predicament and help it to successfully wind down, while absorbing its staff in other public organisations.

Excerpt:
What do you think would have become of the Nigerian economy if there was no AMCON given the quantum of debts hanging out there?

Honestly, that is left to our imagination, but all I can say is that I will create a scenario for you; during the 2008 and 2009 global financial crisis, which was not common to Nigeria, there was this need for government intervention to be able to support the economy.

This was because the crisis could hit strongly the private sector in Nigeria, as you already know the financial infrastructure rest with the banks so the economy rests with the banks. Now if anything is wrong with the banks, automatically something would be wrong with the economy.

So if AMCON had not intervened, as a direct consequence, we would have lost more than 12 banks; we would have lost more than 15,000 employments, and depositors would have lost more than N3.7trillion. These were direct consequences.

Nobody has measured what the impact could have been for other businesses that otherwise couldn’t have benefited from AMCON support because quite a lot of these banks that we supported had customers ranging from one million to three million customers, so we are supporting them by ensuring that the banks continue to stand.

Presupposing that the underlining businesses also are supportive because the whole concept of AMCON is to provide liquidity to the commercial banks so that they can jump start the economy.

What AMCON did was to buy all the Non-Performing Loans (NPLs), and then provide cash to the banks so that they can on-lend some of the money given to some of those businesses to jumpstart the economy.

You can imagine what could have happened, because I think the intervention was the single most potent weapon against the financial crisis of 2008/2009.

It was the single most important potent weapon because it addresses the issues of the economy directly, because government cannot go on the streets and start distributing envelops, and it has to be in a structured manner.

The most establish structure to help the economy is the financial system, which means the banks. Like I said in the opening remarks, the implications could have just been better imagined if we had allowed the whole system to collapse.

You know our system is not very strong, and to build is usually more difficult, so it was good to protect it from collapsing, and I think that was what AMCON did in the first instance.

You acquired over N1.7trillion from the eligible bank assets (EBAs). How much of this has been paid?

In percentage terms, we’ve been able to recover more than 35 per cent of what have been purchased under the eligible assets.

But it’s still a work in progress because what people fail to realise sometimes is that some of those loans that we purchased were already dead with the commercial banks and they have been provided for.

For some of them, there is nothing you can do to revive them; and the only thing you can do is to recover, which means you now have recourse to the underlining collaterals.

Our recovery effort also is heavily dependent on the law that governs us, because we just took the position of the financial institutions.

This means that for us to recover, we will still have to go through legal and judicial process for us to be able to do that otherwise, the recovery rate would have been much higher than this, if at the point of exchange, we were able to own legally all those assets that were transferred to us.

But so far, we have recovered up to 35 per cent of the amount that was used in purchasing those loans.

Would you say this level of recovery is responsible for your declaration of a loss in the 2016 financial year, and if so, how did the Corporation fare in 2017?

The framework of AMCON is not supposed to be a profit making entity. It is an intervention vehicle, and just like all entities that are not profit making you could have surplus, which you may want to declare as profit.

But we are an institution that has used funds to buy credits, to buy assets, and to buy loans.

Now, it presupposes that if you don’t recover those loans, they will still be sitting on your books. Your ability to have surplus and end up with what you call profit is dependent on the quantum of recovery you are able to record.

If I’m able to recover 35 per cent of the debts, what it states is that, I still have 65 per cent that is still sitting as a debt in our books, which I’m paying interest on the debts. Now I may have some challenges, some vandalised and some abandoned assets supporting those studies.

They are not earning anything, but meanwhile I’m sitting with a liability which I’m paying interest, and the only way I’m going to reduce those liabilities is if I’m able to either recover or be able to sell some of those assets.

Let’s also not forget that the market very recently has not been very responsive to assets sales because of the liquidity situation. On one hand, you are not able to recover because business is dead and the obligor is not in a position to pay, on the other hand, the obligor has forfeited an asset to you, and you have not been able to sell those assets.

Meanwhile your debt profile is constant; it has not reduced, which means that you are paying a fixed interest on that so automatically, it affects the surplus that you would have envisaged to get.

If at the beginning, I’m able to recover 50 per cent or 60 per cent, and I pay my debts, you will see that the charges that I may need to be paying would definitely have drastically reduced.

Yes, there is a direct correlation between my profitability and my recovery the more I recover, in terms of cash recovery and not assets recovery, because if it is assets recovery, you will still have your loan running … because you can’t and… unless you sell the assets, you might not be able to reduce the liability.

So your ability to reduce your interest expense is dependent on your ability to recover cash or to convert some of the assets into cash pay your debts in the future. We are not worried to tell you we made a loss, because we were not set up to be profitable.

However, by the time our 2017 account is out, you will see that we have substantially, almost up to 85 per cent, covered all our past losses. The amount that will be outstanding in terms of what we call loss will be very negligible, which is a direct reflection of our efforts in the last couple of years.

AMCON has always said its job was made more difficult because of the economic situation, and now we are out of recession. Would you then say the fortunes of AMCON are changing?

There are two things – one is, when you say you have come out of recession, you should know that recession is not a line that once you cross it, you are out of it; so many things are involved in it.

Firstly, our performance is to a greater extent dependent on the ability of obligors to respond, and the ability of our obligors to respond to a greater extent is dependent on economic activities.

If you have more economic activities, it presupposes that the obligor now will have much to do, which means that their businesses will be up and then they will be able meet their obligations.

From our own point of view, we’ve seen some traction in terms of people that now willingly come to ask because things are now easing for them, and they are now telling us how they intend to pay over a period, if the tempo that they have witnessed now continues to play out.

But I can tell you that the performance and the ability of obligors to meet their responsibility are heavily dependent on their attitude, because if you want to directly link their ability to pay to the economic performance, then you will be deceiving yourself.

If those people that said in the past administration, there was a lot of economic activity, nobody was paying.

Some of them were doing very well, they had private jets, they had mansions, and they had this and that, but nobody was paying.

Your ability to pay or to recover or to insist that people pay is measured by your determination to ensure that people meet their obligations much more than what the economic situation is, because generally speaking, the template is all around disposal of assets.

If you are not able to pay me my money, what I have taken from the bank in exchange for the money is an asset; I will have recourse to sell the assets.

I will sell the assets because I also work with the assumption that not every business will be able to come back, so I should be able to convert some of those assets to cash because that is part of the model.

Part of the model is that there are some businesses that you would be able to support and they will come back, and there are some other businesses that are already dead, so what I’m buying are just assets.

I should be able to sell the assets, but my ability to sell those assets depends on the state of the economy, and that is where the state of the economy comes in, and that is why we have started seeing some traction because the state of the economy is picking up, and people are now responding to some of our adverts to buy some of our properties.

Talking about the assets sales, based on available information, you have many properties scattered around the country that have been put up for sale. What has been the response so far?

We have quite a lot of properties, and the response is very slow I can tell you. There are two major reasons; one is the state of the economy.

It’s just picking up. Most people don’t have much liquidity to put in the assets, but also the most fundamental issue is the prices we put on those properties, because most people that come to AMCON always want to come and have a deal, or to pay for our properties below what the market offers so that they can resell.

However, the policy and the approval that we have says we must sell competitively, which means that we advertise and we sell to the highest bidder on the basis of adequate valuation, and really that demotivates quite a lot of people because there is no motivation for people to come to AMCON and buy.

If one is looking for a just competitive market, all they have to do is to open The Guardian at least they are number one in properties or any of the newspapers on the days they advertise for properties, and they will find the properties that they want.

So our valuation mechanism and our insistence that people must pay competitively has drastically affected how fast that we are able to sell the properties, and sometimes we also try to be fair to the obligors.

This building (AMCON office) today, if you want to value it, someone will tell you that it is about N2billion, and if an obligor comes and you want to do a settlement with him; he will tell you that his property is N2billion but if you want to sell this property, if you are lucky, you will get someone that will pay you N700million because that is the reality in the market.

But the person giving you the property will give you the property based on valuation because the value of the property is N2billion. They will say I’m supposed to pay you N2billion now take this property at N2billion.

Now when you take the property to the market, the market now responds at N700million and then there is a gap of N1.3billion, who takes care of that gap?

This has been a challenge for us on how to balance those issues. We have told some of our obligors that we have to adopt real market valuation.

We are taking your property in exchange of cash, regardless of what value your property is, if you don’t have cash to give me, I will only take a property on the basis of what I can get if I decide to sell it today, not on the basis of the valuation of what the property is, because that will not give me my money.

You are giving me your property as an exchange for cash, so it must reflect the real market, which is the street market valuation, and not the capital replacement valuation. We have had engagements with our valuers and any obligor that is interested in assets forfeiture must agree to the fact that whatever I’m taking must be subject to what I’m taking from the market.

Otherwise, if you are insisting on N2billion for example, then go and sell it and bring the N2billion to me, else there is no bargain.

Still on the assets, you opened expression of interest for the sale of 93 per cent of equity in Consolidated Discount Limited, and that ended September last year. What is the outcome of that bid?

It’s still ongoing. You selling a discount house is like selling a bank. It’s a very long process. I think we are at the stage of evaluating those that have indicated interest.

We are not handling it directly because we have appointed advisers to help us in the process. Now they are evaluating the EY receipts and that would take us to the next level.

We have been communicating with the regulators and updating them about how far we have gone because it’s a very difficult process given the fact that AMCON’s investment in that business is far in excess of what is the value of that business. We hope that we should be out of it in the next three months.

Your bid to sell some of your assets has not gone without scandals. In fact, a whole lot of scandals have trailed them. You have the Kanu Nwankwo’s case and others like that. There is one house on my street with AMCON’s caveat and nothing has happened in it for years. How are you resolving these issues?

Let me explain to you how it works. You know because of our special powers; we have power for temporary processing order. Now if you are my obligor and you take me to court, and you want to contest your debt, I have powers to process the underlining assets pending the determination of the case.

Because the judiciary process sometimes may take 10 years, I have the powers to hold on to those assets. Just like the one you are talking about and EFCC kept off; they can’t sell those houses because the houses are still under investigation, but we have the order and powers to take possession.

We normally go to court. Based on the law, it gives us power to process those assets, and once we process them, the assets remain in our custody until the final determination of the matter in court.

If you see any AMCON sign on a building, it does not mean it is a proprietary asset, which means an asset that we can sell. What we are doing is to ensure that we hold the assets so that the obligor will not go and dispose or sell it or vandalise the property, so that by the time the judgement is achieved, there is nothing to hold.

The law allows us to hold those assets; just like Hardley Apartments, it’s not a question that somebody has borrowed money, because the records are all there.

Other disagreements with business partners have nothing to do with AMCON, and we are law abiding citizens. We go to court and the court give us processing order on an asset, we hold that asset until the court finally decides what needs to be done before we can release those assets. You know in Nigeria people try to change the narratives.

There is one big case that concerns one agency, not us actually, somebody went and forged documents to collect money from a bank. He was called to come and account for it, and he suddenly has become the victim because he has changed the narrative in the press, and that they are harassing him.

Nobody has sat down to look at the records because most government agencies at least I can speak for AMCON, we don’t do anything illegal, because what interest will I serve if I go on and take your property? Nothing will come to me personally.

If we are not a law abiding Corporation, AMCON would have gone to sell the house you talked about, but we know we don’t have such powers. It is only the court that can give us the power to sell.

But, the court has given us power to process and hold until final determination of the matter. We are now waiting for the final determination of the matter and all order cases, and then based on the court judgement we will do whatever is stated.

But with those obligors that are very difficult, they try to twist the narrative; but honestly for us, we are not bothered one bit, I can tell you because we know that we are on the side of the law, and we will continue to abide by the law.

I always tell my people that we should be guarded by three things in whatever we do here – one is that we should have the fear of God whether you are a CEO, manager, or driver; ultimately, you will answer to God one day.

Number two is, is it of national interest because we are a government agency? Anything that is of national interest, we can go to any extent regardless of what is involved.

The third is the rule of law. If you have the fear of God, automatically the rule of law becomes number one, because you can’t go outside the rule of law, which is the guiding principle. Looking at this, we have no concern regarding our activities because we have more than 3,000 cases.

On the basis of merit, hardly do we lose a case ordinarily. They can delay and delay on technicalities but ultimately, the truth will prevail because it’s a simple question. Do you owe, yes or no?

These documents, did you sign it, yes or no? It is as simple as that. All the properties you have seen or all the scandals, those are normal things when you want to do things that are not usually pleasant. Recovery is one of the most difficult jobs you can do.

Talking about the rule of law, you talked about on how the enabling AMCON Act did not really give you the permission to bite, and you can only bark, and over time, you have been fraternising with the National Assembly with a view to enhancing or reviewing that legislation.

Are you satisfied with the support from them in terms of legislation, when you compare it to other climes where the assets manager acquires everything from day one unlike what we have here in Nigeria?

Honestly, first of all I have to place it on record that the National Assembly has been of tremendous support to us. They are the backbone of what we are doing here, because they are representing the people, so they feel the pulse almost immediately.

They have been focusing with us on the issue of recovery, and they are always ever ready within the dictates of the Constitution to continuously amend, because in a recovery process, you continue to see new things, new challenges, and the need to re-sharpen your tools.

Soon, we are going to have a retreat to look at things and how to continuously rebuild some of our enabling laws to make us more effective.

Part of the challenges based on some of your earlier assumption is that in other climes, what happened is that at the point of exchange or purchasing the EBAs, the underlying assets were automatically transferred to the asset management corporation. What happens is that if I purchased your loan, you only come to me if you want to buy back that loan.

I don’t come to you to come and pay back that loan. If I purchased the loan from the bank, and there is a house that collaterised the loan and I have purchased that loan, the ownership of the loan and the business automatically comes to me.

Now, if you are the owner of that loan what you can do is that if you are interested, you can only come to me, and make an offer to repurchase the loan or house.

But it’s the other way round here, and what happens is that if we purchased your loan, I’m only taking the position of the bank, and I still have to go and chase you, but the Malaysian model is that once they purchase the assets, they are transferred automatically to the asset management company and the corporation can decide not to sell the house to you again.

It’s their choice because it’s their assets now. But here it’s different, we have to still pursue you, and if you go to court, then you will lock me in there for 10 years.

So it makes things very difficult especially when you are dealing with individuals that are very cantankerous and don’t want to pay. They continue to engage you on technicalities and it makes it very frustrating and very difficult because we have to be law abiding.

Sometimes we hang around there for 10 years, and there is nothing you can do because most of those loans were bad even before they were sold to AMCON.

With the support of the National Assembly, we are always looking at Act, because some of the amendments that will give us the edge that we are talking about unfortunately may need to touch on the Constitution, which guarantees the right for everybody to go to court and be heard.

Unless you find a way of dealing with AMCON issue, which I feel we should, because AMCON is a child of necessity, and it has a sunset day. We must treat it uniquely different to make sure that on the sunset day we wouldn’t be talking about the same grammar that we have been talking about since 2011.

This calls for a different approach, unless we just want to terminate it in the next 10 years then we can continue to play the politics. I believe that for AMCON, even if it means temporarily or some section of the Constitution makes sure that the organisation winds down by the sunset period.

I think it needs to be looked at because this organisation has done so much to stabilise the economy from 2008, 2009 financial crisis, and it shouldn’t be allowed to continue palpitating. A certain point in time, it should be dealt with in line with the law.

AMCON has not been all gloom and doom, there have been quite a number of success cases like in the aviation industry, you have Arik, and Aero, in automobile, PAN, in manufacturing and in many other sectors of the economy.

Now, what is responsible for these success stories that you did not do with the others that are not so successful?

There are two issues – firstly, the whole concept here is, let us buy the loans and let us see businesses that we can support. From the beginning, when AMCON took off in 2011, they have supported businesses substantially. They have invested more than N300billion in the businesses at the beginning.

However, we shouldn’t forget the fact that quite a lot of those businesses were dead before they were transferred to AMCON. Now, we have also come to realise that there are certain sectors that are very strategic and because of the strategic nature of those sectors, there is a need for individuals, for government agencies, for AMCON to see what they can do as part of the economic growth strategy to support those businesses.

That is why our intervention in the aviation industry is different; we have more strategies there.

We have invested in the steel industry, former Delta Steel now called Premium Steel is the first integrated steel in Nigeria today. They are back on stream with our support. Of course the automobile industry also, and some other manufacturing outfits.

Sometimes we don’t like to claim the credits because we want the obligors to feel that it is their efforts, because once they believe it is their efforts, it is easier for AMCON to walk away.


In this article:
Ahmed KuruAMCON
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