AMCON purchases N2.04 trillion NPLs; meets December 31 deadline
Nigeria’s ‘bad’ bank - the Asset Management Corporation of Nigeria (AMCON) – has been hard at work despite the festive season, in an effort to meet the December 31, 2010 deadline it had set to acquire non-performing loans (NPLs) from Nigerian banks.
Today, AMCON has met that deadline by executing loan purchase and service agreements with 21 participating banks to acquire NPLs with a face value of N2.04 trillion for just under N800 billion. 92.5% of the purchased NPLs were from the 10 “intervened” banks with the balance 7.5% from other Nigerian banks.
AMCON issued 3-year ‘zero-coupon’ bonds with a yield of 10.125% as consideration for the purchased NPLs. The AMCON bonds have the full faith and guarantee of the Federal Government of Nigeria as set out in the AMCON Act 2010. These bonds also qualify as liquid assets for the banks but will not be tradable until AMCON swaps the initial bonds with registered tradable instruments in Q1-11.
We applaud the Mustafa Chike Obi-led AMCON management for keeping to the set deadline for the NPL purchases, which was felt to be somewhat ambitious. We regard this as a watershed in shoring up confidence in Nigeria’s banking system, restoring the much needed capital and liquidity to the banks as well as enhancing Nigeria’s sovereign credit rating.
AMCON’S PURCHASES REPRESENT 80% OF BANKING INDUSTRY NPLs
The non-performing loans purchased by AMCON represent, we estimate, about 80% of the banking industry NPLs.
While some economies around the world are still grappling with the impact of the global financial crisis, the establishment of AMCON by the Central Bank of Nigeria (CBN) and the Ministry of Finance (MoF), as well as the ongoing recapitalisation of the “intervened” banks, has brought a credible solution to Nigeria’s financial crisis and will help to restore financial system stability.
PROGRESS REPORT ON THE RECAPITALISATION OF THE “INTERVENED” BANKS
As at today, Wema Bank and Unity Bank have raised capital from recent offerings, which along with the capital release from their sold NPLs should restore them to solvency and minimum regulatory capital requirement by December 31, 2010.
Additionally, the six systemically important “intervened” banks – Union Bank, Intercontinental Bank, Oceanic Bank, Bank PHB, Afribank and FinBank - are understood to be in advanced negotiations with preferred investors, with some of these banks having made corporate announcements to that effect.
Spring Bank and Equatorial Trust Bank, who together account for over 1% of banking market share, remain in discussions with potential investor groups and we would expect these institutions also to find a solution in 2011.
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