Yes, Nigeria’s banking sector was embroiled in bad debt – or their more fashionable name of nonperforming loans (NPLs) — back in the calamitous period of 2008-2009. Then, not only this nation but other nations of the world were submerged in the deluge of the infamous financial tsunami called meltdown, with the epicenter traced to US mortgage re-financing marketplace.
Nigeria’s response was quite innovative — the establishment of Asset Management Corporation of Nigeria (AMCON) with mandate to mop up the NPLs from the banks and stabilize the economy in 2010. It is used it as a vehicle for stabilizing the economy.
But, evidence that the root cause has not been adequately addressed is provided by the fact that NPLs are now on the rise again at an alarming rate.
At the risk of encouraging growth of bad loans, AMCON has stopped taking in fresh NPLs from around 2013. Doing otherwise would amount to a reversal of the raison d’être for its establishment. But bank loans are the lifeline of modern business financing. They are inevitable and inversely a part of the many challenges AMCON is facing in executing its mandate.
Another challenge is the spiraling interest on NPLs, which is making the whole work of AMCON a more daunting task — the case of shifting the goal post in the course of a match! But the key challenge of fighting bad debts remains the attitude of the obligors and the sluggish judicial processes. Added to our not so rosy economic situation, the bleak picture of the task of recovering the bad debt as onerous task is complete.
The attitudinal dimensions to fighting bad debts were brought to the fore by AMCON Managing Director and Chief Executive Officer, Ahmed Lawal-Kuru, during a recent interview with the press. Hear him: “The challenges that we currently have are in two folds: the first has to do with willingness and ability; the second has to do with the state of the economy.”The former borders on attitude of the obligors and, before them, that of the bank directors and management, who allow infractions to subsist; the latter has to do with our economy and all its vulnerability to global market price fluctuations. The two infractions that always lead to NPLs are insider dealings (bank directors approving loans for themselves) and poor structuring of the loan facilities in the first instance.
Psychologists define attitudes as a complex combination of things we tend to call personality, beliefs, values, behaviors, and motivations.
As for the two infractions we highlighted above, our bank managements need to encourage risk management training, which will help staff responsible for negotiating facilities do a good job of professionally structuring the facilities so that nothing goes wrong when it comes to recovery. The tendency to promote only the staff members bringing in the fattest accounts to the bank to the detriment of those in the risk assessment department, for example, tends to stack the top hierarchy of our banks with people not well grounded in risk assessment to professionally structure facilities that goes out of the banks.
It is the height of corruption for directors to take loans from their own banks. AMCON’s Kuru’s opinion on this matter is thus: “For good corporate governance, you should not take a credit from an institution that you sit on its board. You cannot give yourself contract from the agency that you superintend. It is simple logic and that is best practice. Before, when things were okay, we said the only requirement was to declare an interest. But we should go farther than that — you should not even take. If you are a director and responsible and you believe in the viability of your project, go and market it to another financial institution as there are many around but not the one you superintend over.”
Despite all these challenges, the management of AMCON headed by Ahmed Lawal-Kuru is surging ahead. A humble leader, Kuru has decided to make his actions speak louder than voice. With about N300billion in debt recovery so far, the Kuru is bringing to bear his vast experience as a risk management expert. Back at the defunct Bank PHB, risk management, compliance, commercial banking, public sector financing, and multilateral Agencies of the bank were under his purview as an Executive Director.
With three years to go out of the 10 years target period given to AMCON to achieve its key objectives, nothing short of a miracle will see it accomplish them. But Kuru is not about to give up. Instead, he is trying his best to churn out strategies that will help AMCON meets it mandate. For example, this year, the corporation’s focus is to create relationships so that it can package related businesses and attract foreign investors as well as discuss with them how to take over some businesses, especially in the areas of power, oil and gas. The plan is to repackage these businesses and assets so as to attract third party interests. The MD/CEO is cashing on the silver lining appearing on the horizon now; our foreign reserve is going up, foreign exchange is stabilizing, and other indicators are becoming more positive for investors to come in. And the targeted investors Lawal-Kuru is eying are those long-term vision and objective and he confessed to the press that “quite a number of them has shown interest; we are currently working on how we can partner with them.”
It is on record that, as an institution, AMCON has taken acquisition of over 13,774 NPLs worth N3.6 trillion from 22 commercial banks in Nigeria and provided financial accommodation of N2.2billion. It has protected about N4.7trillion worth of depositors’ funds and interbank takings, as well as saved approximately 14,000 jobs. Of course, no one can deny the fact that, through the efforts of AMCON and other strategic stakeholders, the Federal Government has successfully managed our debt crises and saved our banking system from imminent systemic collapse. But this achievement will not be complete until bad debts are recovered in the interest of the public, whose taxes were used to purchase them.
In all these the attitudes of obligors, bank managers and our judicial officers need to significantly change for Nigeria to become investors’ destination in Africa.
Hassan is a financial analyst based in Abuja