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Sunday, October 6, 2013

WHY AMCON SHOULD WIND DOWN ITS ACTIVITIES



     The Asset Management Corporation of Nigeria (AMCON), the otherwise toxic assets company have been in the news in recent months for no other reason than the purpose of its continue existence.The institution that came into being in 2010 to help rescue Nigerian financial system from total collapse, after Nigerian version of the global financial crisis nearly brought the Nigerian economy to a halt. It is now more than three years since its establishment on July 19th, 2010, which in the wording of AMCON was created to be "a key stabilizing and re-vitalizing tool established to revive the financial system by efficiently resolving the non-performing loan assets of the banks in the Nigerian economy". Whether the institution has achieved that or not is debatable, as well as the duration of time it should take the authorities to wind down it functions.

    The activities of AMCON has come under increasing political interference of recent, as to who should be pressured into quickly settling his debt with the institution or not. Now that elections are fast approaching and the political temperature is high those with debt in AMCON books have to be careful how they show their opposition to the current regime. Just like in the case of EFCC, AMCON is likely to be used in hunting political oppositions with debt up to their neck. The continue presence of AMCON  to me will only spur the springing up of next round of financial crisis as it guarantees the build up of bad loans by the existing banks who have the assume assurance of Nigerian government coming to their aid through AMCON. Like IMF have observed it continue operation may " wittingly and unwittingly increase instances of moral hazards and fiscal risks".

    I do not agree with Mr. Chike-Obi, the chief executive officer of the company, who in a recent interview with The Guardian said that AMCON should be allowed to operate for at least 10 years. The man is just trying to protect his job not mindful of the cost that single act will impose on the Nigerian banking sector vibrancy and strength of the economy. While i am not in support of rushing the winding down of the agency as that will affect the banking sector and the economy negatively, i agree with those analysts that suggest a life span of four to five years for AMCON to conclude it business. The huge after tax loss announced by AMCON recently is a clear indication of the huge cost of AMCON operations to the Nigerian economy. It continue existence in it present form will only maintain the memory of the 2008/09 crisis on the mind of the Nigerian public which in itself is not good for business.



   Remember the Asian financial crisis of 1997/98 that devastated the South East Asian economies. One of the measures taken as at then by these econmies to get their financial system out of that mess was the creation of asset management companies, just like in Nigeria. In Indonesia IBRA (Indonesian Bank Restructuring Agency) was created in January 1998 to protect and restructure the country's banking system within a five year period lifetime. One of its key success factors was rapid assets disposal in order to return assets to the real economy. Money recovered by IBRA was expected to be channelled into quick resolution of Indonesia's huge budget deficit. How far did our AMCON succeeded in channeling it recovered money into government budget is still open to some questions, at a period when Nigerian economy is in need of some cash injection not the usual resort to external borrowing that this government is keen on doing.

  Thai Assest Management Company (TAMC) of Thailand was established on June 8th 2000 as a state agency tasked with the responsibilities of restructuring business and returning debtors' business back to profitability. Although, TAMC has a time period longer than five years to wind down its functions there are clauses inserted in the documents establishing it that urgeed it to quickly bring it operations to an end.  In Malaysia, another South East Asian country, Malaysian Asset Management Corporation was created in June 1998 to remove non performing assets from the economy and manage them. It also has finite lifetime of five years to wind down it functions, at the end of it mandate in 2005 MAMC can be said to have performed reasonably well. It is therefore not justifiable that AMCON should take ten years or more to do what it can do in five years. If Mr Chike-Obi and his staffs are looking for job they should apply elsewhere at the end of their five year period.