A pending proposal to adopt a private sector-led ‘bad debt’ company is raising concerns on sustainability, cost management and social concerns. This comes in the wake of the worsening non-performing loans (NPLs) in the banking industry aided by the prevailing recession in the country.
The fears are heightened by faltering financial plans in public and corporate establishments and anticipated unveiling of modalities for the commencement of the second phase of the Asset Management Company of Nigeria (AMCON).
This is because, AMCON as it is can only bark but not bite, as the enabling law does not permit it to acquire the assets of debtor companies, unlike its peers in other climes where they are empowered from day one to take over such assets.
If AMCON transforms from a public to a private sector-led company, it is believed that companies will be more alert and responsive to their debts’ responsibilities, as their assets will be immediately taken over unlike the present scenario where it is being financed by public funds, which many see as a “national cake.”
On the rationale behind the new move, the Nigerian Deposit Insurance Corporation (NDIC) said it is to forestall in the future a situation whereby public funds are deployed to salvage failed institutions.
The Managing Director and Chief Executive Officer of NDIC, Alhaji Umar Ibrahim, who also confirmed the commission of a study in conjunction with the Central Bank of Nigeria (CBN) in this respect, noted that the proposed arrangement is in tune with global best practice. He added that the new plan is further necessitated by the need to streamline AMCON according to its initial concept of a joint venture between the private and public sectors.
As at December last year, 25 deposit money banks (DMBs) had a total loan portfolio of N18.53 trillion, out of which N1.85 trillion or 10 per cent were NPLs, a figure far above the regulatory threshold of five per cent.
Also, of the 978 micro finance banks (MFBs) with total deposit liabilities of N158 billion and total loans and advances amounting to N195 billion, about N87.75 billion was NPLs.
Again, N51.7 billion were dormant loans, total deposit liabilities of N69 billion and total loan portfolio of N94 billion belonging to the 42 primary mortgage banks (PMBs) during the period under review.
But Ibrahim indicated that more than 40 per cent of this category of loan resulted from insider abuse and poor corporate governance, harping on the imperativeness of a robust debt recovery system.
The Executive Director, Finance, BGL Capital, Femi Ademola, confirmed that AMCON was scripted to run as a private business with a mix of economic and social objectives.
His words: “The idea of AMCON II may be a good one, especially if it can be solely private sector-led, with a little of government support to make investment attractive.”
He, however, warned that the framework must take into cognisance the failings of the past and enthrone a fresh vista where the new entity could professionally be run without political interference.
The Lead Director, Centre for Social Justice, Eze Onyekpere, said the move would lighten the burden on the public. But he raised the concern that private sector funds are mostly driven by a profit motive.
He said: “Any such proposal should weigh the cost of funds and how it affects the entire exercise in terms of achieving its purpose.” Also, an Abuja-based development consultant, Jide Ojo, commended the arrangement, adding that the current one had only recorded a limited success.
According to him, the legal framework to facilitate the smooth run of the new phase and convince the private sector to key into the scheme remains a major challenge. He urged detailed background checks to ensure that requisite managerial ability, funding and overall competence are not compromised.
In his remarks, a Director at Union Capital Markets Limited, Egie Akpata, acknowledged that the banking system had been seriously weighed down by tax and provisioning, advising that any measure to lessen the burden should be carefully considered.
He went on: “It is worth noting that the current AMCON is being repaid by tax on assets of banks. So, the current operations are partly funded by the private sector in effect.”
Meanwhile, the Federal Government has initiated an Asset Tracking and Management Project (ATM Project) to enable it to locate, identify, assess and evaluate all of its moveable and immoveable assets.
The Minister of Finance, Mrs. Kemi Adeosun, who made the disclosure in Abuja, said a central asset register would be opened in her ministry to record actual quantity, value, condition and location of all government’s capital assets.
The move is coming on the heels of a series of discovery of government’s assets held and/or converted by former public officers. Under the International Public Sector Reporting Standard (IPSAS), government is to record both its assets and liabilities.
Source: The Guardian
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