…… N280 billion in interest to the Central Bank of Nigeria (CBN) on a monthly basis….
The AMCON sinking fund was set up in 2013 to enable the corporation meet its obligations arising from debt securities. The fund also known as the Resolution Cost Fund saw the Central Bank of Nigeria (CBN) contributing N50 billion for its initial take-off while other banks in the country would contribute N50 billion based on their total assets annually.
Managing Director and Chief Executive at the Asset Management Corporation of Nigeria (AMCON),Ahmed Kuru, at the weekend disclosed that the Sinking Fund facility set up by the Federal Government to complement its efforts in distress resolution in the banking industry has grown to about N913billion at the end of 2016 an increase of N813billion representing 813 percent.
It was intended to assist AMCON to meet its goals and also ensure that government will not bear the cost of financial crisis in future. Each bank is required to contribute 0.5 percent of total assets and 0.5 percent of 33 percent of their off balance sheet items to the sinking fund.
Kuru who spoke in Lagos while unveiling the firm’s financial performance for the 2016 financial year, noted that the adverse trends in the nation’s economy affected the banking industry’s contribution last year to a mere N136billion in contrast to about N285billion expected from an industry that targeted about 20 per cent growth.
“Banks contributed only N136billion in 2016 as against N285billion expected for the year because we had expected the industry to grow by about 20 per cent. But this never happened due to the economic challenges most of them faced last year. We are hopeful that 2017 will be better for the banks and even debtors so we expect more recoveries,” Kuru said.
This was even as he clarified on speculations that the Federal Government was contemplating converting the two leading private airlines into a national carrier.
Kuru said it would be suicidal for the Federal Government to contemplate converting the two ailing airlines into a national carrier due to huge legacy issues associated with the project.
He warned the litigation that would arise from such an exercise as well as the huge debt being owed by the two airlines could give the government a bloody nose if it ventures into such a project.
He explained that although the bad bank was set up debt recovery and business support services instead of profit making mandate, it has nevertheless pursued its various objectives vigorously to the extent that it was able to recover over N134billion in a year of economic recession when most of the obligors found debt repayment an Herculean task.
“AMCON was not set up to make profit; AMCON is a resolution company, a resolution vehicle that was set up in 2008, 2009 to provide liquidity to commercial banks by purchasing non-performing loans, so that it could jump start the economy,” Kuru said.
The AMCON boss said the bad debt in the bank is expected to pay as much as N280 billion in interest to the Central Bank of Nigeria (CBN) on a monthly basis, but believes this can be reduced if the apex bank restructures the interest element in the days ahead.
Kuru added the CBN has been extremely supportive with the six percent interest rate granted to the bank, but the mass of debt acquired by the bad bank makes interest sizeable.
AMCON is in discussions with the Central Bank to reduce interest rate, even if by just two percent as this will go a long way in reducing both interest and principal loans in its books.
“Every month averagely, our interest obligation to the CBN is N280 billion, interest only. Sinking fund projection of maybe N288 billion, we only receive N136 billion,” he said.
“There was this assumption at that time that the economy will grow at a rate of six percent year in, year out. The banking sector is not even growing at the rate of five percent.
He said the management is working on fulfilling its mandate within the 10-year period stipulated in the AMCON act, but admits that there is a possibility of an extension.