Over the years our financial institutions have come under various policies and diverse regulations in the quest to revive and secure well-established systems and to allow for efficiency in resolving financial issues. This has also led to a substantial trust in the banking and other financial establishments in the country. One of these is the formation of AMCON.
What is AMCON?
AMCON, short for Asset Management Corporation of Nigeria, was established as a governmental agency in 2010, in direct response to both the global financial crisis and the subsequent banking crisis that gripped Nigeria. The central mission of AMCON is to foster stability within the Nigerian banking sector by addressing the issue of non-performing loans (NPLs) held by banks.
This article explains why AMCON was created, its role and functions, and more.
The formation of the Asset Management Corporation of Nigeria (AMCON) was facilitated through legislation passed by the National Assembly of Nigeria in July 2010, with an initially planned duration of 10 years. This initiative was inspired by the successful models of the National Asset Management Agency in the Republic of Ireland and Malaysia’s Pengurusan Danaharta.
In its role, AMCON acted as a designated entity to acquire banks on behalf of the Nigerian Government, effectively taking over the burden of non-performing loans (NPLs). The original value of these NPLs was ₦4.02 trillion, but AMCON acquired them for ₦1.76 trillion, accompanied by the issuance of Zero Bonds to cover the acquired NPLs.
The origin and purpose
The backdrop to the creation of AMCON lies in the aftermath of the global financial crisis of 2008, which had severe repercussions for Nigerian banks. Their vulnerability was exposed due to their significant exposure to high-risk assets and the simultaneous collapse of oil prices. This combination of factors led to a surge in non-performing loans – loans that borrowers were failing to repay according to the agreed terms. This dire situation posed a direct threat to the stability of the Nigerian banking sector and, by extension, to the broader national economy.
Responding to crisis
In a proactive response, the Nigerian government took action in 2010 by enacting the Asset Management Corporation of Nigeria Act. The primary objective of this legislation was to empower AMCON to take over non-performing loans from banks. This strategic move was intended to alleviate banks of their distressed assets, effectively cleansing their balance sheets and enabling them to re-engage in lending activities from a more stable position.
Functions of Asset Management Corporation of Nigeria (AMCON)
This article explores the functions of the Asset Management Company of Nigeria (AMCON), established as a pivotal tool for stabilizing and revitalizing Nigeria’s financial landscape by addressing non-performing loan assets.
The creation of AMCON was prompted by the persistent increase in non-performing loans within certain Nigerian banks. Alongside solvency and liquidity challenges, the need to mitigate these issues and facilitate the restructuring of the Nigerian banking system led to the establishment of AMCON.
The prevalence of non-performing loans within Nigerian banks was concerning, prompting the Central Bank of Nigeria to intervene and bridge the gap in non-performing loan management. To achieve this, certain prerequisites were identified to ensure the effective functioning of the system. These included a robust legal framework, sound corporate governance structure, operational autonomy, and an efficient judicial process.
The operational mechanisms of the Asset Management Company of Nigeria are delineated in the Establishing Act. This legislation outlines the company’s functions and responsibilities explicitly. AMCON has been assigned numerous functions aimed at facilitating the accomplishment of its objectives. This article will explore several of these functions comprehensively.
1. Assists eligible financial institutions
The Asset Management Company of Nigeria is recognized for its role in supporting qualifying financial institutions with their responsibilities. The primary mandate of the Asset Management Company of Nigeria involves overseeing the proper execution of functions by these financial entities, ensuring the realization of their goals and objectives.
One of the key responsibilities carried out by the Asset Management Company of Nigeria is aiding in the orderly disposal of qualified assets held by Nigerian banks. This task is undertaken in strict accordance with the stipulations outlined in the legislation that formally established the Asset Management Company of Nigeria.
2. Manages and disposes of eligible bank assets
Furthermore, the Asset Management Company of Nigeria is engaged in the proficient management of qualifying assets originating from Nigerian banks.
In addition to the adept management of these assets assumed by the company, it also undertakes the task of disposing of these eligible assets from the banks with a strong adherence to the guidelines enshrined in the legislation that instituted the Asset Management Company of Nigeria.
3. Obtains achievable financial returns
One of the core responsibilities of the Asset Management Company of Nigeria is to secure the optimal attainable financial returns from eligible assets held by banks. In the pursuit of this function, the company’s role extends beyond realizing achievable returns solely from qualifying banks.
The Asset Management Company actively seeks returns from additional acquired assets as long as the actions align with the guidelines established in the legislation that instituted the Asset Management Company of Nigeria.
4. Acquires eligible bank assets
Another crucial function performed by the Asset Management Company of Nigeria involves the procurement of assets from qualifying financial establishments. It’s important to emphasize the significance of both “eligible financial institutions” and “eligible assets” in this context.
The Asset Management Company of Nigeria bears the responsibility of confirming the eligibility of the assets being acquired and ensuring that these assets are sourced from financial institutions that meet the criteria for eligibility. This acquisition process must be executed in full compliance with the stipulations outlined in the governing legislation.
5. Invests in eligible financial institutions
Investment constitutes a fundamental aspect of the functions carried out by the asset management corporation of Nigeria. The company has the authority to either acquire or invest in eligible financial institutions according to its discretion.
These terms and conditions for investment are subject to the judgment of the Asset Management Company of Nigeria, and such decisions necessitate the endorsement of the Central Bank of Nigeria.
6. Collects interest principal and capital due
The Asset Management Company of Nigeria engages in the activities of holding, managing, and subsequently divesting eligible assets held by banks. Within this scope of operation, the company assumes the responsibility of gathering both the interest on the principal and the due capital for the duration of the transactions.
Furthermore, the Asset Management Company is tasked with the obligation of assuming control over the collateral that was utilized to secure these assets. However, this process must be carried out in strict accordance with the guidelines established in the legislation that formalized the establishment of the Asset Management Company of Nigeria.
7. Pays coupon on bonds and redeems at maturity
The Asset Management Company of Nigeria is actively engaged in the disbursement of bond coupons, extending this responsibility to cover debt securities issued by the company itself. Furthermore, the Asset Management Company holds the responsibility of guaranteeing the timely redemption of these coupons upon their maturity.
In fulfilling these obligations, the Asset Management Company is compelled to adhere rigorously to the regulations outlined in the legislation that formally established its operations.
8. Performs other functions related to management
The Asset Management Company of Nigeria undertakes all tasks associated with its management, particularly those directly linked to its operations.
The primary objective of the Asset Management Company of Nigeria is to ensure the effective management and orderly disposal of eligible bank assets that it has acquired. Additionally, the company is responsible for proficiently overseeing the proceeds generated from the management and divestment of these acquired eligible assets.
9. Realizes the value of eligible bank assets
The Asset Management Company of Nigeria also assumes the responsibility of implementing strategic measures it deems essential for safeguarding the value of eligible bank assets acquired by the company.
In addition to this value preservation role, the company is entrusted with the task of actively facilitating the augmentation of the realization of these eligible assets from banks.
The establishment of the Asset Management Company of Nigeria stemmed from a combination of factors. These factors encompassed the persistent rise of non-performing loans in specific banks within the Nigerian framework, coupled with challenges related to solvency and liquidity. These circumstances highlighted the need for implementing effective measures to facilitate the execution of the policy aimed at restructuring the Nigerian banking system.