Sustainable Investment: Is Nigeria Getting It Right with AMCON?

Author ~ Bekeme Masade-Olowola

Nigeria and other developing nations have long been ridiculed with the rhetorical question: “Can any good thing come from Nazareth?” This was why when the federal government, through the Central Bank of Nigeria (CBN), established the Asset Management Corporation of Nigeria (AMCON) in July 19, 2010, many groaned in despair – or crowed with sarcasm, whichever way you may look at it – in the belief that Nigeria did not have the modern capital market infrastructure needed to successfully drive AMCON’s stated goals.  Hardly did anyone suspect that this singular act would facilitate prevention of the looming financial crisis in the country, and go beyond to pursue the path of integrating sustainability into risk and asset management and setting a tone for other nations to emulate.

Generally, the sustainability risk and asset managers encourage ethical business practices and responsible corporate governance that are not only made to satisfy the needs of the present society, but have the capacity for a long-term existence that extends economic benefits to the future generation. When businesses are helped to build the needed strength to withstand or absolve external shocks, not only will shareholders benefit but these businesses will contribute towards economic vitality of the nation where more jobs are created, the Gross Domestic Product (GDP) is improved, and people’s lives are lifted to better standard of living.

During the global financial crisis, AMCON as a risk and asset manager, became a key modern stabilising and re-vitalising tool that carried Nigeria’s financial system by providing opportunity for banks to sell off Non-Performing Loans (NPLs) to the corporation, and offering money to failing banks in order to prevent the cascading consequences that may arise from their downfall. This acted as a much needed shock absorber to Nigeria’s economy during the unprecedented global financial crises.

One of the first things the corporation did was identify 10 banks facing crisis in system asset and responded by injecting ₦736 billion into them.  The NPLs were acquired at the price of ₦1.76trillion from its original book value of ₦4.02trillion, and this helped the banks to free up resources for more profitable activities and improve capital position.

When three of the 10 banks, such as the erstwhile BankPHB, still couldn’t meet up with its obligations following AMCON’s intervention, AMCON assumed 100% ownership of the assets and some liabilities of the now defunct Bank PHB on August 5, 2011. To continue operations on a fresh note, Bank PHB was renamed Keystone Bank Limited (Keystone Bank) and became incorporated by the Nigeria Deposit Insurance Company (NDIC), with AMCON subsequently capitalising the bank and appointing a fresh board of directors and executive management team to lead the Bank. As at April 2016, Keystone Bank maintained a staff strength of 1,753 employees, network of 154 branches, 9 cash centres and 315 Automated Teller Machines that continue to contribute to the socio-economic development in Nigeria. The other two banks were Mainstreet Bank (formerly Afribank Nigeria, now Skye Bank) and Enterprise Bank (formerly Spring Bank).

The mandate to turn the bank around preparatory to sale was successfully accomplished in March, 2017, when AMCON announced Sigma Golf Nigeria Limited and Riverbank Investment Resources Limited (the Sigma Golf – Riverbank consortium) as the new investors who acquired the entire issued and fully paid up ordinary shares of Keystone Bank. AMCON has pushed for all affected financial institutions to institute best practice risk and asset management procedures and stricter corporate governance, in order to negate the malpractices that led to the initial collapse.

AMCON’s intervention led to an improvement in NPL ratio from a high of 34.3% in 2009 to 5.5% in 2015, and helped recoup the estimated N9.1trilion of assets that would have been wiped out if the corporation did not intervene at the time it did.

Peer Countries Comparison

Proshare, a leading niche news and analysis service, carried out a peer country review evaluating the performance of AMCON as a macro-economic stabiliser compared to four other countries in three continents.

Source: Proshare

According to the indices used, with a score range of 1 to 5, the highest possible score is 1 while 5 is the lowest. In addition, the lowest possible cumulative score to lead is 8, while the highest possible cumulative is 40.

Based on this evaluation grid, AMCON was tied in 1^st place with Malaysia with a cumulative of 15, Sweden was 3^rd, the United States of America came in 4^th and Ireland placed 5^th. The major contribution to the success of AMCON is in the reduction of NPL in Nigeria and prevention of businesses from bankruptcy.

Adequate Planning for the Long Term?

Despite its success stories, there is concern that AMCON may incur debts and losses that may become a national burden before the expiration of the body in 2023, and that these debts may be borne indirectly by tax payers in the near future. There is also the fear of the moral hazard of absorbing these toxic debts, as it may encourage some irresponsible bank executives to undertake unarticulated risks with the hope that the potential costs of such risks will be borne by AMCON.  These concerns need to be given adequate attention and systematically managed to save the nation from potential economic loss.

However, as is, it is arguable that such potential financial loss may not be commensurate with the economic benefits that AMCON has infused into our national socio-economy; where livelihoods have been saved, shareholders guaranteed of returns of on investments, and a lifeline extended to improve lifespan and capacity of Nigerian businesses to serve the needs of the future generations.

Retrospect

1. Home Grown Manufacturers that Have Rocked Our World – Part II. Bekeme Masade-Olowola (Nov 11^th, 2017)
2. Towards the Bleak Future of Crude Oil: What Nigeria Should Do Now. Bekeme Masade-Olowola (Aug 12^th, 2017)
3. The Reality of Nigeria’s Recession Exit: Between GDP Growth and Sustainable Development. Bekeme Masade-Olowola (Sep 16^th, 2017)
4. Why Extractive-Based Nations Fail: Between Resource and Knowledge-Based Economies. Bekeme Masade-Olowola (Sep 23^rd, 2017)

Reference

1. AMCON: Leading Stabilizer amongst Peer Countries. An idea of What’s Next. Proshare
2. AMCON-ANNOUNCES-NEW-INVESTOR-FOR-KEYSTONE-BANK. AMCON
3. AMCON (Amendment) Act 2015
4. The Impacts AMCON Nigerian Capital Market. Adesina Odesina, 20 January, 2011, CPAFRICA
5. AMCON: Financial Loss but Economic Profit. Proshare