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NIGERIAN JOURNAL OF CONTEMPORARY PUBLIC POLICY

Year: 2015|   Volume No: 11|   ISSN: 0795-0330|   Page No: 10


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Title:  

ASSET MANAGEMENT CORPORATION OF NIGERIA AND BANKS NON-PERFORMING LOAN RESOLUTION

PETER P. NJIFORTI, DAMIAN B. LAWONG & DILTOKKA G. KEVIN;

DEPARTMENT OF ECONOMIC AHMADU BELLO UNIVERSITY ZARIA  

 

 

 

ABSTRACT

In Nigeria, the overconcentration of the banking sector loans to the oil and gas sector was responsible for the 2009 banking crisis. Central bank of Nigeria statistical data for 2009 revealed that as at the end of 2009, the deposit liabilities of all regulated deposit money banks in Nigeria, amounted to N9.15trillion. During this period, there was high growth of credit to the private sector as loans and advances of the same sector within the period under review amounted to N8.45trillion which is about 92.5% of total deposit liabilities. It is with regards to this that the paper sorts to evaluate the resolution mechanism used by AMCON in the purchase, management and disposal of NPLs of commercial banks in Nigeria. The study made use of content analysis to evaluate the mechanisms adopted in the resolution process. Three mechanisms of distress resolution were evaluated namely; Asset pricing methodology; Financing mechanism and Asset Restructuring. It was found that the mechanism used by the corporation such as bundling of non-performing assets into debt securities and debt restructuring have led to only a dismal resolution progress. The recovery performance showed a low total recovery of 28.76% and a fairly high cash recovery rate of 39.76%. This paper recommends that AMCON should have a strict profit maximizing goal and acts as a normal market participant in all its operations, and in this way it will serve as a mechanism that will not only resolve financial distress but ensure that banks channel their loans to other productive non-volatile sectors of the economy.  

SUMMARY:

An attempt has been made in this study to examine the effectiveness of financial distress resolution mechanism in the Nigerian financial system and explore complementary options for resolving systemic distress in the banking sector. The empirical findings are derived from the data generated for the study and the result of the findings shows that while the resolution (in terms of disposal) of transferred assets shows a high pace and progress of asset resolution with a 60% disposal rate, further findings suggest that on the basis of the broad and narrow measure, the mechanism has not been more impressive with a total and cash recoveries of 28.76% and 39.76% respectively. Moreover, a combination of low total and cash recovery performance of 28.94% and 17.11% respectively indicates some residual risk in the case of AMCON. The lower the recovery progress and recovery performance implies the less effective the resolution strategies.   

 

The content analysis shows that the mechanism used by the corporation is less effective given the low recovery performance. The mechanism for asset management and disposition though seems to be adequate; it however generated a low recovery performance despite the high resolution progress. It was found that while the resolution progress has been somewhat disappointing to date, the government’s commitment to maximizing and accelerating NPL recovery is strong, and bulk disposal activities, which require regulatory approval, have picked up considerably.  On the strength of findings from this study, the paper recommends that since no single model of Asset Management Company fit all countries circumstances and the optimal strategy could also vary over time, the focus for AMCON should not just be the timely disposal of non-performing asset of the banks but to ensure the maximization of both total as well as cash recoveries. Restructured loans should be seen to be performing and un-restructured ones should be fully recovered both in cash and non-cash. AMCON should have a strict profit-maximizing goal and should act as a normal market participant in all its operations. This goal should guide all its operational policies, including the valuation of assets, funding strategy, and speed of asset disposition. The corporation should consider debt factoring as a mechanism to be used in future resolution options in case of any distress  in the financial system 

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