AMCON sees risk management results below expectations
Effective risk management culture and practices have consistently dominated the strategic plans of the players in the nation’s finance sector but seem to be short-lived, as the overall results have been sub-optimal, the Asset Management Corporation of Nigeria (AMCON) has noted.
But experts have put the blames on hasty decisions, taken by players in efforts to develop lofty risk management frameworks, but lack the discipline and commitment to follow-through to realise the set goals.
This has continued to facilitate the rise of Non-Performing Loans (NPLs) in the industry, as it is on records that AMCON, since December 2010, has continued to intervene in the country’s financial sector to stabilise the industry and provide liquidity to the banks.
From data made available to The Guardian by AMCON, the organisation has so far injected N1.78 trillion in the acquisition of bad debts from the eligible banks and additional N2.3 trillion financial accommodations for eight challenged banks.
Speaking at a breakfast session organised by CIBN Centre For Financial Studies on Toxic Assets: Effective Risk Management and Resolution Strategies for the Finance Sector, in Lagos, the Managing Director/Chief Executive Officer, AMCON, Ahmed Kuru, said the belief held by some people that Nigeria is peculiar and as such, strategies that work in other climes might not work in the country is not rational.
He maintained that the risk management strategies in other climes work, simply because they carry out proper planning, strict regulation, and oversight, and are very accountable.
His words: “In other climes, their planning is methodical, their operations are process-driven, their execution is system driven and of course, there is a consequence management policy across the board.
“In September 2018, AMCON also intervened in Skye Bank (now Polaris Bank Ltd.) and provided financial accommodation of N898 billion. Recently, there are recent reports of liquidity and capital deficiency in some Nigerian banks.”
However, Kuru said the result from the restructuring strategy has been dismal, as over 90 per cent of the restructured accounts failed, while the fresh funds injected were lost and the equity in the businesses diminished significantly.
“From our observations, along the line, due processes were breached, critical conditions and covenants were waived, and required oversight at all level was a lapse. We must not pay lip service to risk management practices and expect improvement in our risk assets quality,” he added.
He lauded the Chartered Institute of Bankers of Nigeria (CIBN), for its continued role in setting the desired standard for the finance sector and in the development of broad-based curriculum and events that have helped maintain the desired standard for the finance sector.
The Director, CIBN Centre For Financial Studies, Prof. Olalekan Asikhia, said the issue of toxic assets has increasingly become a matter of concern for banks and regulators in Nigeria.
According to him, data from the Census and Economic Information Center (CEIC) showed that Nigeria’s NPL ratio stood at 11.4 per cent, approximately N2 trillion in December 2018, which is high relative to countries like Kenya at 10 per cent and South Africa at four per cent.
He noted that the high rate of toxic assets led to the 2008/2009 global financial crisis where banks, in addition to weak risk management framework, offered badly functioned subprime mortgage loans to companies and individuals with high credit risk.
“The establishment of AMCON has resulted in a significant reduction in toxic assets, as current reports show that the organisation has recovered N1.22 trillion out of the debt owed. Also, the Central Bank of Nigeria (CBN) confirms that the NPL of banks fell by six per cent from 15 per cent in June 2017 to nine per cent in May 2019.”
Speaking further, Asikhia maintained that though these achievements are commendable, several efforts still need to be put in place as banks still grapple with the high rate of NPL and such high rates may not only affect the banks’ bottom line but the efficient functioning of the financial system in the country.
He said the introduction of the International Financial Reporting Standard (IFRS) 9, where banks are expected to make provisions for existing loan losses as well as potential ones that might occur in the future is likely to worsen the NPL position of banks in Nigeria.