Asset Management Corporation of Nigeria (AMCON): Asset Management

AMCON’s mandate was broader than asset management. AMCON’s operations included the recapitalization of illiquid or insolvent banks (Ungersboeck and Runkel 2021; Makanjuola 2015). Many other countries split the asset management and recapitalization functions into different organizations. The government established AMCON after previous measures to strengthen the financial system, including the CBN’s purchase of ₦620 billion of subordinated debt in eight banks in 2009 failed to fully stabilize ailing banks (Cerruti and Neyens 2016).

A first draft of the AMCON Act was forwarded to the Senate in November 2004 as a part of the measures taken to strengthen the financial sector. At the time, the proposal encountered strong pushback from opponents of the banking consolidation agenda and did not gain the necessary traction. The idea was revived in 2009 following a special examination of Nigerian banks, focusing policymakers’ attention on the fragility of the domestic banking sector. A first public hearing on the bill was held at the House of Representatives on January 28, 2010. After a second reading, the House enacted the bill on March 10, 2010. The Nigerian Senate passed the bill on May 5, 2010. President Goodluck Jonathan signed the AMCON Act into law on July 19, 2010 (Makanjuola 2015).Among other functions, the Act empowered the agency to “acquire eligible bank assets [EBAs] from eligible financial institutions” (AMCON Act 2010).

The original act had provided powers to seize debtor collateral, freeze their funds, and apply to courts to take possession of a debtor’s property. AMCON could also petition courts to invoke bankruptcy proceedings regardless of the debtor’s solvency in an effort to recover assets from a debtor. To bolster AMCON’s rights, the Act (2010) imposed penalties on those who lied about loans and collateral owed to AMCON.

Nigeria’s legislature ultimately concluded these powers were insufficient. It passed amendments to the AMCON Act in 2015 and 2019 to enhance the agency’s legal powers and obtain payments from recalcitrant debtors (Berkeley Legal 2019). With the first amendment in 2015, AMCON’s power to seize assets was extended to enable it to seize any of a debtors’ assets. The initial act limited its ability to seize collateral pledged against an eligible bank asset (AMCON Act Amendment 2015). In 2019 a new amendment further expanded these special powers. Under the act, AMCON now had the power to access debtors’ bank information to gain access to all available funds. The agency was also empowered to publish the names of non-cooperative debtors (AAA Chambers 2019).

The AMCON Act charged the corporation to “obtain the best achievable financial returns on eligible bank assets” and to protect the value of those assets in the interest of AMCON (AMCON Act 2010). This could include investing in assets other than NPLs to support AMCON’s functions.

No documents indicated how AMCON designed or implemented its communication strategy. AMCON remained a focus of the press through at least its first 11 years (See, for example, Akinloye 2021; Benson 2020; Osae-Brown 2019; Wall 2014).

AMCON was fully owned by the federal government with its ₦10 billion capital split evenly between the Ministry of Finance and the CBN (Makanjuola 2015). The cash helped cover AMCON’s initial operating costs (Cerruti and Neyens 2016).

The AMCON-IC met on 6 occasions between May and August 2010. As many as 30 people attended meetings. During the first meeting, participants included management consultants and legal and financial advisers, experts from the Central Bank of Nigeria, Nigeria Deposit Insurance Corporation, Deutsche Bank, Stanbic IBTC Bank Plc, Chapel Hill Advisory Partners Limited, Olaniwun Ajayi LP, Kola Awodein & Co, and PricewaterhouseCoopers. Subsequent meetings saw the addition of participants representing various Nigerian and international institutions including the Ministry of Finance, the Debt Management Office (DMO), the [Nigerian] Securities and Exchange Commission (SEC), and the International Monetary Fund. The work plan devised by the committee included, among other items, staff recruitment, securing office locations, determining a valuation methodology for NPLs, and exploring funding options for AMCON. The draft bill establishing AMCON was modeled after Ireland’s National Asset Management Agency and Malaysia’s Danaharta. These agencies were mandated to acquire NPLs during the GFC and the Asian Financial Crisis, respectively (Makanjuola 2015).

AMCON’s board of directors consisted of four executive directors and six non-executive members (AMCON Act 20100). The Nigerian Senate approved the 10 nominees on November 3, 2010. The board was led by Mustafa Chike-Obi as AMCON’s CEO. The CBN had considerable power over the board, as it nominated all four executive directors, including the CEO, as well as two non-executive members, for a total of six nominations. The Ministry of Finance nominated three non-executive members, including the chairman of the board, while the last nominee was nominated by the NDIC (Makanjuola 2015; Cerruti and Neyens 2016). All directors were nominated for five-year terms with a possible reappointment to a second five-year term (Makanjuola 2015). The AMCON Act further specified that board members should have at least “10 years [of] cognate financial experience at a senior management level, . . . . have no conflict of interest with AMCON’s business, and disclose debt obligations and interest” (Makanjuola 2015; Cerruti and Neyens 2016; AMCON Act 2010).

No documents reviewed indicate that AMCON was subject to an upper limit on asset purchases. However, regulators encouraged a minimum level of AMCON purchases by requiring banks to reduce toxic assets. Since foreign participation in the banking sector was small, domestic banks faced few possible buyers other than AMCON.

The bonds were issued in five series between December 31, 2010 and December 28, 2011. Figure 4 provides an overview of AMCON’s bond issuances. AMCON first funded EBA purchases before issuing bonds for its recapitalization program. While AMCON managed to retire about a third of its bonds by 2014, the remainder were refinanced by the CBN. The arrangement provided that the CBN invested ₦3.6 trillion in AMCON bonds to refinance the agency’s exposure (Mazen 2013).^FNFurther details on the use of AMCON bonds in credit operations with the CBN can be found in the relevant guidelines issued by the CBN.

Then, in January 2011, the CBN and 24 Nigerian banks signed a Memorandum of Understanding (MoU) to create the Resolution Cost Fund (RCF). Initially, eligible financial institutions were required to make an annual contribution of 30 basis points of their assets. The contributions were estimated to generate ₦100 billion every year (Makanjuola 2015), and AMCON projected in 2011 that the RCF would produce the majority of AMCON revenues (AMCON 2012). To facilitate banking-sector contributions given liquidity constraints, the NDIC could decrease the insurance premium it charged banks. The CBN contributed ₦50 billion per year (Makanjuola 2015). Contributions were to be collected for a period of 10 years, with banking-sector and CBN contributions capped at ₦1 trillion and ₦500 billion, respectively, for a total fund size of ₦1.5 trillion (Cerruti and Neyens 2016).

The federal government guaranteed all losses incurred during AMCON’s operations that could not be covered by either the RCF or revenues from asset resolution. In the event that AMCON’s operations produced a surplus, it was to be shared on a pro-rata basis among banks contributing to the RCF (Makanjuola 2015).

In 2013 the IMF recommended that the RCF MoU be codified (Chew and Dijkman 2013). This was achieved in 2015 when the RCF was introduced into the AMCON Act through an amendment. The amendment formalized the bank levy and increased it from 30 to 50 basis points of total assets for each eligible financial institution. The CBN’s contribution was set to ₦50 billion as initially decided (AMCON Amendment 2015). The increase in banks’ contribution was justified by a desire to collect quickly in order to wind down AMCON’s operations (Wallace 2015). Regulators shared representation on the RCF’s board with a rotating slate of member banks (Makanjuola 2015).

Source: AMCON Audited Group Results Presentation 2011.

Any bank in Nigeria was eligible to participate in AMCON’s NPL transfer operations. In total, 22 banks sold some of their NPLs to AMCON. Individual banks’ contributions to the agency’s portfolio ranged from 0.13% to 14.62%. A comprehensive list of participating institutions and their contribution to the total portfolio is provided in Figure 3 (AMCON Guidelines 2010; AMCON n.d.).

The CBN mandated that institutions decrease to below 5% the fraction of assets held that were classified as eligible bank assets. Some of these institutions, including the largest participants in the asset purchase program, later received capital injections from AMCON. Per the guidelines, “no Eligible Financial Institutions shall hold on its books Eligible Bank Assets with an aggregate Book Value exceeding five percent of the Book Value of its existing loan portfolio”. The threshold was effective from February 16, 2011, three months after the entry into force of the guidelines. From then on, banks whose asset holdings did not comply with the guidelines had 30 days to submit an offer to sell to AMCON. The CBN mandated that such an offer to sell should include “a full listing of all Eligible Bank Assets of the Eligible Financial Institution and [their] corresponding book value” (AMCON Guidelines). It is not known whether any bank sold assets beyond those required to reduce their percentage of EBAs to less than 5%. Twenty-two institutions transferred at least some share of their NPLs to AMCON. These included 21 domestic banks and the foreign-owned Stanbic IBTC. While Stanbic IBTC initially avoided participation, it eventually transferred 12 loans to AMCON, representing 0.13% of the agency’s portfolio. Two other foreign-owned institutions, Citigroup and Standard Chartered Bank, avoided participation in the program, though their reasons were not publicized.

The “Guidelines for the Operation of Asset Management Corporation of Nigeria” issued for AMCON by the CBN laid out 5 categories of EBAs (AMCON Guidelines):

1. “Collateralized loans classified as substandard and below (secured NPLs);
2. Unsecured loans classified as substandard and below (unsecured NPLs);
3. Loans owed to eligible institutions whose banking license has been revoked by the CBN;
4. Collateral seized by an eligible institution while collecting on debt it is owed;
5. Loans that “pose significant risk to an eligible institution.”^FNSignificant risk was defined as a reasonable expectation that the loan will be reclassified as substandard or below within the next three months or may result in a loss at least equal to 1% of an institution’s total assets within the next six months (AMCON Guidelines, 7).

In practice, acquisitions mainly consisted of credit extended to the oil and gas sector, margin loans, and mortgage debt (AMCON n.d.). The energy-sector credit fell under the category of loans that posed significant risk without being classified as NPLs (Cerruti and Neyens 2016). AMCON declared that these loans, while classified as performing, “were too large given the lender’s capital base and could pose a systemic risk to the banking system” (Makanjuola 2015). The purchase appeared to critics to be a political gesture, “because one of the debtors was owned by the minister of power” (Cerruti and Neyens 2016). In addition to the asset categories mentioned, the CBN reserved the right to extend the definition to other types of assets.

Before an eligible institution entered into a transfer agreement with AMCON, either because it wanted to transfer eligible assets or because it was required to in order to meet the mandated threshold, it submitted a sale offer (AMCON Guidelines). In the offer, the selling bank included its eligible bank assets and credit information relevant to the assets (AMCON Act 2010). Following the asset valuation, the parties entered a sale and purchase agreement in writing (AMCON Guidelines; AMCON Act 2010).

The valuation of eligible assets was based on a set of guidelines issued by the CBN. Secured loans were valued based on collateral while unsecured loans were acquired at 5% of face value. The CBN provided detailed guidelines on three types of collateralized loans:

1. Loans secured by real estate:

The selling institution provided a good faith valuation of the forced-sale and open-market value of the property. The average of both values was adopted as acquisition price. This price was subject to a revaluation performed within 12 months of the purchase by a real estate appraiser jointly appointed by the seller and AMCON. In the case of an overvaluation, the seller was required to pay the difference and a penalty equal to 10% of the difference to AMCON. If the property was initially undervalued, the difference was paid to the seller without penalty. The revaluation option was abandoned for purchases occurring after February 16, 2011, as the initial price was directly determined by a jointly appointed third party.

2. Loans secured by listed shares:

These loans were valued at the 60-day moving average of the price of the security offered as collateral measured from November 15, 2010, and augmented by a 60% premium. If the resulting valuation was below 5% of the principal, the loan would be valued at 5% of the principal sum.

3. Loans secured by unlisted shares

The purchase price was based on the valuation of the unlisted share as estimated using the average of three different pricing methodologies and guided by the latest audited financials (AMCON Guidelines).^FNThe methodologies included (i) net asset value, (ii) comparing the average price-earnings ratio with ratios of shares in similar sectors or industry, and (iii) a valuation based on transactions in similar sectors or industries.

AMCON’s recovery efforts mainly focused on debt collection given that a large amount of the total debt owed to AMCON could be traced back to a small number of individuals (Osae-Brown 2019). AMCON also wielded its special right to name major non-cooperative debtors. This strategy built on previous attempts by Nigerian regulators to pressure debtors, such as the CBN’s prohibition on 113 companies from accessing credit lines in 2013 or its publication of 105 of AMCON’s biggest debtors in 2018 (TheCable 2018). The government augmented AMCON’s debt-collection powers because it and its debt recovery partners^FNThe AMCON Guidelines provide for the possibility of appointing third-party asset managers to assist the agency in the management of eligible bank assets (AMCON Guidelines). faced serious difficulties in the recovery process, specifically while liquidating properties. Major issues included debtors’ intervention to slow down the judicial process and prevent liquidation, AMCON’s inability to trace the property of debtors, and initial overvaluations of properties (Abasiekong and Oyewo 2019). An amendment to the AMCON Act that allowed AMCON to inspect and freeze debtor bank accounts worked to address these last critiques (AAA Chambers 2019). AMCON also pressured debtors by the seizure—and threat of seizure—of debtor collateral using powers granted by the 2015 amendment to the AMCON Act.

The 2015 amendment to the AMCON Act specified a 2019 end date for the corporation. However, the 2019 amendment lacked such specification. Nigerian media expected liquidation to come in 2023 or 2024 (Benson 2020), though the IMF (2019) refuted this idea, since AMCON had just issued 25-year bonds. The IMF criticized AMCON for its lack of an explicit exit strategy. The Fund recognized the agency’s contribution in restoring stability in the banking sector. However, it voiced concerns regarding the absence of a sunset provision for AMCON’s activities. In a 2012 report the Fund recommended that a “credible exit strategy [should be] devised to ensure a smooth winding up of its operations by end–2017.” An explicit sunset date was seen as “important to minimize fiscal risks and avoid potential moral hazard behavior by the banks” (IMF 2013). The Fund reiterated its criticism in a 2019 report claiming that “an exit strategy for the state-backed asset management company (AMCON) is urgently needed.” However, some of this concern was related to AMCON’s continued recapitalization efforts, such as injection into Skye Bank, which had participated in AMCON’s asset purchase program. The Fund recommended “that AMCON . . . formally sets a sunset to its existence, earmarks its cash flows to buy back bonds, sets annual disposal targets, implements a plan to divest AMCON’s interests in companies and banks, improves its legal power to recover assets, and is gradually phased out” (IMF 2019).