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AMCON’s lingering loans and impending sunset

By Editorial Board
22 May 2023   |   3:55 am
All things, either good or bad, must come to an end in due season. The fate of the Asset Management Corporation of Nigeria (AMCON) is no exception.

Managing Director, AMCON, Ahmed Kuru. Photo/FinancialNigeria

All things, either good or bad, must come to an end in due season. The fate of the Asset Management Corporation of Nigeria (AMCON) is no exception. As AMCON continues to lament its inability to recover debts of over N4 trillion from recalcitrant wealthy debtors, reflecting another dimension of Nigeria’s dysfunctional institutions and state capture, there are concerns about the Corporation’s exit plan and who inherits the debts. The AMCON debt conundrum aptly highlights the huge burden the economy and the taxpayer bear, because the state cannot enforce its laws against the rich and influential. It is important the Federal Government unleashes all the powers of the state within the law and recover these bad debts to plug the gaping fiscal hole.

The Asset Management Corporation of Nigeria Act, 2010 “empowers AMCON to purchase toxic assets or non-performing loans from Nigerian banks, so that these banks could improve their balance sheet and liquidity, with a view to avoiding the risk of failure, which would have adverse effects on the Nigerian economy. Thus, AMCON was that timeous measure which saved the financial sector, the Nigerian economy, as well as citizens and their businesses from the full impact of the global financial crisis. Objectives of AMCON include, assisting eligible financial institutions to efficiently dispose appropriate bank assets in accordance with the provisions of the AMCON Act; efficiently manage and dispose eligible bank assets acquired by the Corporation in accordance with the provisions of this Act; obtain the best achievable financial returns on eligible bank assets and other assets acquired by it…”

AMCON operates by acquiring the Non-Performing Loans (NPLs) and security assets from banks (usually at a discount), then steps into their shoes as creditors and proceeds to recover these NPLs from the debtors. The timeframe set for the existence of AMCON has since passed, yet the SPV has not been wound up. It has now become a permanent crisis resolution mechanism and a sinking fund for the banking industry. Although the company claims a recovery rate of roughly 70 per cent, it is an enormous shame that the unrecovered debts still stand at almost N4 trillion as it prepares to wind down 13 years later.

Not less than 20 debtors, according to records, are responsible for 67 per cent of the entire AMCON debt. In Nigeria, unlike in other countries, major debtors may live lavish lives and avoid paying their debts without facing repercussions. Managing Director and Chief Executive of AMCON, Ahmed Kuru, forewarned that if AMCON is unable to pay off its enormous debt, it would unavoidably fall on the Federal Government and ultimately the taxpayers. The consequence, he said, is that the general public will be held accountable for the carelessness of a small number of people, who continue to use legal loopholes to evade their moral and legal responsibility to pay back their debts. We don’t want to do it illegally, but we shouldn’t let a few people get away with our commonwealth.

Already, some banks and shareholders are complaining of unending contributions of AMCON sinking fund, despite accessing very little funds from the Corporation. Indeed, seven commercial banks paid a total of N95.68 billion in the first quarter (Q1) of this year as a levy to AMCON. This is just as shareholders are demanding transparency from AMCON as regards its operations. Seven years after AMCON also took over distressed airlines, it has not only failed to upturn the fortune of the airlines, but also from their ashes birthed a stillbirth carrier, and fresh chaos in the industry.

For instance, AMCON took over Arik in February 2017 as part of measures to “save” the airline from “imminent collapse,” having cited gross mismanagement by the owners of Arik, and NPLs of over N300 billion. Inherited in the lot is the sum of N9.6 billion and $2.3 million (totalling N10.85 billion), being five per cent ticket and cargo sales charge that Arik owed to aviation agencies before AMCON took over, and yet unpaid till date.

Six years down the line, Arik remains a hard sell, given the level of rot, debt and hard-to-recover liquidity, which AMCON pumped in to keep the carrier on life support. Buoyed by what to do with the airline, the Federal Government, through AMCON, decided on a new carrier, NG Eagle, from some viable assets of Arik. About four Boeing 737 airplanes that once belonged to Arik have been stripped, and rebranded into NG Eagle’s livery as of 2021.

If upturning Arik’s fortunes was difficult, flying NG Eagle could only be harder. AMCON’s controversial exit strategy from the operations of embattled Arik ran into a conflict of interest, with the National Assembly (NASS) ordering the Nigerian Civil Aviation Authority (NCAA) to withhold its air operator certificate (AOC). The consequence is attendant losses on three grounded aircraft, insurance premium, staff salaries and other operating costs. Aviation stakeholders rued the estimated loss of $53 million (N22.06 billion) of national resources and called for a probe of both the business decision and lawmakers’ meddling in strict regulatory affairs of local aviation.

AMCON running the acquired businesses rather than disposing them off to recover debts remains one of the undoing of the corporation. AMCON has about N1.7 trillion worth of assets currently under litigation across the country and this could rise even further, as more NPLs are acquired and become the subject of litigation. This necessitated the move to amend the AMCON Act. On July 29, 2019, the AMCON (Amendment No. 2) Act, 2019 was enacted to fortify and further enhance the powers of AMCON. Amendment No. 2 comprises 24 sections, which amended existing sections of the Act as well as introduced new provisions.

Amendment No. 2 is anchored on eight main features, which include: tracing and tracking of debtors’ hidden funds; holding Eligible Financial Institutions (EFIs) to their loan sale obligations; checkmating debtors’ legal gymnastics and their manipulative use of legal technicalities to frustrate the recovery of assets; fast tracking the hearing and determination of AMCON cases; enhancing AMCON’s rights over collateral which secure Eligible Bank Assets (EBAs); refining AMCON’s already existing special powers; naming & shaming of recalcitrant debtors and making one of the conditions for contracting with the Nigerian Government subject to good standing with AMCON; and prescribing a sunset date (i.e. the dissolution and winding up of AMCON).

A notable section of Amendment No. 2 also checks debtors’ numerous antics and their exploitation of legal technicalities. “Major challenges facing the recovery process relate to the antics of local lawyers to frustrate the smooth and speedy determination of cases by introducing technicalities that slow down the judicial process”. A lot of times, debtors, resort to challenging AMCON’s acquisition of their debt, applying for an injunction, stay of execution, injunction pending appeal, defence of statute bar, among others, all in a bid to stall an enforcement or recovery action.

AMCON has trillions of naira worth of assets that need to be recovered. AMCON also is not a corporation designed to exist for all time. Necessity resulted in its establishment, and it shall only be seen to have fulfilled its mission when it recovers a high percentage of its current Eligible Bank Asset (EBA) portfolio. It is, therefore, only expected that one of the amendments introduced should focus on the fast-track hearing and determination of AMCON cases.

The new Section 53(1) – (6) of the Act compulsorily requires the heads of the respective courts to designate “one or more courts exclusively for hearing and determining” AMCON-related matters. Where this is done, the designated AMCON Judges shall over time, improve their knowledge and specialisation in the area of debt recovery and with the knowledge at their fingertips, would be more willing to deliver bench rulings, instead of having to adjourn in order to conduct further research, prior to delivering a ruling.

AMCON wields so much power with the amended Act but appears to have done very little with it going by the volume of unrecovered funds. As calls intensify for the dissolution of the Corporation, there are concerns that the Corporation may end up leaving Nigerians more indebted than before its existence. Amendment No. 2 refers to a “dissolution date” which mollifies the anxiety and moral hazard pertaining to a perpetual existence of AMCON. The new Section 47(1) of the Act states as follows: “At dissolution date, the Corporation shall stand dissolved and the Corporation’s Board of Directors shall appoint, upon such terms as it deems fit, one or more liquidators to wind up the affairs of the Corporation, realise all assets of the Corporation to be dealt with and distributed in accordance with … this Act.” No dissolution date or wind-down date for the Corporation is specified. This omission also occurred in the AMCON Act 2010.

Therefore, it remains unclear, at this point, when AMCON shall be liquidated, amid speculations. Either way, it is pertinent to let the government know that the interest of Nigerians should be safeguarded, and the few holding on to the nation’s commonwealth by the way of debt be dealt with and loans recovered.