Managing Director, Asset Management Corporation of Nigeria, Mr. Mustafa Chike-Obi, in this interview with Festus Akanbi, lists the clean bill of health given to the Nigerian banking industry following the cleaning of all the toxic assets and the recapitalisation of a number of banks as part of the achievements of AMCON so far?
Can you give an update on your loan restructuring and recovery efforts?
I have to give you some background. Many of these loans were loans that had been deemed lost or irrecoverable by the banks. The recovery rate of non-performing loans everywhere in the world takes a very long time. The best we have seen is 57 per cent achieved by the Malaysians. I gave you the background so that you can know how difficult the job is. In setting up an asset management corporation, the idea is to take those loans out of the banks and put them where they will be managed for a very long period of time. For instance, in the case of the United States of America, after the Resolution Trust Company of America bought loans from the SMEs, after the five-year period, all those loans were transferred to Deposit Insurance Corporation and many of those loans still exist. These things take a long time. So, I don't want anybody in Nigeria to believe that there is a magic bullet in AMCON Act that is going to make them recover these loans in any kind of magical way. So far today, measured against other such companies in the world, AMCON has made a significant progress. This progress is made possible because the National Assembly gave us a very strong law to set up the company particularly when it gave us the privilege for the chief judge of the Federal High Court to appoint judges for AMCON. Since then, our cases have been moving along smoothly. We currently have close to a thousand cases in court and being a law abiding institution, we proceed according to the law and so these things will take time.
Having said all that, we have restructured over 50 per cent of non-performing loans we got in terms of value. The implied recovery rate of the restructured loans is over a 100 per cent, so we are getting back the money. We are aiming for a target of about 80 per cent, which is the highest recovery rate so far anywhere in the world but it will take time. In the next two to three years we will probably be close to 80 or 90 per cent done.
You were quoted as telling the National Assembly earlier in the year that the current outstanding AMCON bonds were yet to receive guarantee from the Federal Ministry of Finance. What is the position of things now?
The law obligates the Federal government to guarantee AMCON bonds that are issued in pursuance of its functions as defined in the AMCON Act. The outstanding bonds today have not yet received explicit guarantee of the Federal Government but the law implies that there is a guarantee. So, while there is no explicit guarantee, the law obligates the federal government to guarantee those bonds.
Why has it been difficult for the Federal Government to issue the guarantee?
I think much of the delay is caused by process, and that in due course, that guarantee will be granted. In any case, by the end of this year, the only holder of AMCON's bond will be the Central Bank of Nigeria. So the urgency of the guarantee will not matter much since CBN, which is also part of the federal government, will soon become the only holder. So the urgency of guarantee will be removed.
What is the latest on the move to amend AMCON Act to accommodate the codification of the Sinking Fund?
It is very important that the AMCON Act is amended to include the Sinking Fund-that is, the contributions from the banks. As it is normal in every human being, after a bad event of the past, we tend to forget .We may have forgotten that these banks were in serious jeopardy and it was the creation of AMCON and other interventions of Nigerians that rescued these banks and gave them a sound footing. They are now making the highest profits they have ever made in their history. Yes, they agreed at the height of the crisis to contribute certain amount of money and we believe them. They are honourable people and they will certainly live up to their obligations. However, it is better if it is codified in the law so that a new MD of a bank or a new CBN Governor who was removed from the crisis is not tempted to say well, the crisis is over, there is no need to contribute such money again. So it is good. The law reminds us all that when banks are collectively irresponsible, then they should be collectively responsible for the cleaning of the mess.
Has all the bad debts been cleared?
Banking continues and there is a guideline from the CBN that no bank should have more than five per cent of non-performing loans and I think that will keep a ceiling of non-performing loan any bank can have. I think it is a very good guideline.
How will you react to the fear that the current challenges being faced by investors in the power sector in terms of performance and revenue generation could raise another prospect of loan defaults in banks?
As a Nigerian, I'm worried if it is true. I don't pray that it is true but as a Nigerian, I'm worried about it. I'm worried on two fronts. First, we need power and I'm worried also that if it is true that these loans are bad then we will create a problem for the banking sector but let me be very clear AMCON is not authorised to buy any loan unless it is designated so by the CBN. So if the CBN wants to do that, it has to be in consultation with the Ministry of Finance. AMCON cannot go and buy any non-performing loan without the guideline from the CBN in consultation with the Ministry of Finance. I think the mood in the country right now is for AMCON not to buy any more loans and as far as we are concerned, we are not buying any more loans. So, it will be very unfortunate if the scenario you painted comes about but people should not look to AMCON's direction if that crisis should come up.
Will the change of baton at the CBN affect your activities and dealings with the apex bank?
It is a good thing that we have a new leadership at the CBN because before now, we were in a period of uncertainty. So we welcome the new governor and wish him well. What AMCON is doing was designed for the good of the nation and the good of the economy. I believe that the new governor has some experience in dealing with AMCON for about two or three years. He has a sense of what AMCON is all about. I think that Zenith Bank benefited from intervention of AMCON as well. It is on the basis of what good AMCON can do for the nation that we expect his support and so we are not demanding it, we are not taking it for granted but we believe that he himself is one of those that are seeing the necessity of AMCON.
Will you say Nigerian banks have learnt their lessons as far as toxic assets are concerned? I think that the risk management of banks today is far better than it used to be. I think the supervision of the CBN is far better than it used to be. I think the capital base of the banks is better than it used to be. So those three things prevent any major crisis from happening or reduce the chances of crisis that may happen in the future but I think we are all growing. I think the banks, and AMCON have learnt some lessons from the past.
Can you give an update on the privatisation of Enterprise Bank and Mainstreet Bank? We will complete the divestment from Enterprise Bank and Mainstreet Bank by September 15 of this year. Those divestments are necessary for us. I like it when people say we are in a hurry to divest from these banks. From the minute those banks were bridged, I have been saying it repeatedly that we would divest from those banks as soon as practicable. Left to me, we would have done so sooner than now, but it is also very amusing and mischievous when people take out a section of a process that is seven months plus, and complain that that is just only nine days and it is too short. The process of divesting from Mainstreet Bank started in February by the selection of the advisers and several other steps. After the selection of advisers, we did Expression of Interest; we did a shortlist and later we invited people over for more detailed discussion; then due diligence; then a binding offer and the offer is narrowed to two to three names which were sent to the CBN. The whole process takes about six to seven months. Everybody said it is being rushed and I think getting investors into any bank in seven months is plenty of time. We will be done by September 15, we will do it transparently and properly, we will get the best combination of price, income and the best managers that will build the banks in the future.
There was an advertorial in virtually all the major newspapers by the management of Mainstreet Bank assuring depositors of the safety of their money, what informed this?
I have not read the papers today so, I haven't seen the advertorial. But there has been some noise since we began our divestment process from Mainstreet Bank and I think it is important that the depositors were reassured that this is just a divestment from a public institution to a private institution that is better geared to grow the bank and take the bank into the future. That is not AMCON's strength. AMCON's strength is not to own and run businesses. Any business you see AMCON involved in is for the shortest practicable time and they will divest of all businesses they are involved in as much as we can.
Can you give us an overview of AMCON's activities so far?
AMCON was created for three things. The first was to relieve the banks of their non-performing loans and this allows people to focus on their jobs. We have done that absolutely perfectly. There is no bank today that is burdened by non-performing loans. The second thing was to recapitalise the banking system and we did that and every bank in Nigeria is properly capitalised, certainly, up to regulatory standards. The third thing which we are supposed to do, which we are in the process of doing is to do all of these at the minimum possible cost. That requires maximising recoveries, minimising expenses and maximising disposal of assets acquired. That is what we are doing. We want to retire all our obligations. So that is what is taking time. Banks are strong, banks can lend. It is the banking industry that was able to lend to power industry. Without AMCON's intervention, that would have never happened. Planes are flying, economy is growing, AMCON was a big part of it. So we have done that.
And people should continue to watch us and ask how well are they doing in minimising the cost of intervention. We run a lean organisation. We have about 300 people managing about 11,000 loans. That is unheard of. We have a very low expense-asset ratio; we are well ahead of our target in terms of recovery. Just imagine how easy it is to manage a thousand cases. We are doing that with probably 15 lawyers with the help of external lawyers. So, we will try to keep minimising cost, we will try to maximise revenues, but that is the job that is left. But if you read the AMCON Act, it says it is for the purpose of efficiently resolving the non-performing loans of banks in Nigeria and related matters. That was what we have in the title of the act and we have done that. So when people say AMCON has not fulfilled its mandate, we refer them to the title of the act for the purpose for which it was set up. And we can say definitely that we have done just that.