By Chinedu Ibeabuchi
Chief Economist and Head, Group Market Risk Management, Access Bank, Dr Emmanuel Moore Abolo, has said that the proposed Asset Management Company is critical to the recovery of the banking sector and the economy.
Abolo, who was guest lecturer at the February Public Discourse of Finance Correspondents Association of Nigeria (FICAN) held last week said the key purpose of the company is to assist banks in improving their capital base and liquidity positions by removingÂ troubled assets and bad loans from the banks.
In his speech on â€œFinancial crisis, CBN Reforms and the prospects of an Asset Management Companyâ€, Abolo said the initial scope of Asset Management Company of Nigeria (AMCON) will be to acquire equity-related exposures, that is, only loans with proven liens on shares.
This, according to him, will help fuel the recovery of the capital markets and will be used in parallel with other options that are being currently explored by the CBN to restore financial stability in the economy.
Abolo recalledÂ that when the CBN carried out the first bank audit, it discovered a combined total loan portfolio of N2.8trn (39.9 per cent of total loans in the banking sector) and aggregate non-performing loans of N1.14trn (40.8 per cent of the total loans in the affected banks) while margin loans accounted for N456.2bn in the five affected banks and exposure to oil and gas sector stood at N487bn.
This caused under-capitalization in the affected banksâ€™ levels of operation due to capital impairment and liquidity stresses in their balance sheets.
â€œAfter auditing all the banks, the CBN embarked on some reforms to restructure the financial system. This include: lender of last resort functions, deposit insurance schemes, strengthening soundness requirements, creation and reinforcement of financial supervisory systems, public money injection scheme and the establishment of asset management companies.â€
According to him, the AMCON which is still going through regulatory framework will have other benefits which include: greater control over tax payerâ€™s funds directed towards resolution of the crisis, increasing the likelihood of achieving the governmentâ€™s desired outcome; promotes recovery of the capital markets – businesses will be able to raise capital, increase capacity, jobs etc.
Others are greater access to international funding markets for domestic banks from improved perceptions by international investors and rating agencies;
Focussing AMCON on equity-linked loans assists the revival of equity capital markets as the banks focus on growth once more, reduces chances of systemic risk and thus promotes greater level of confidence between banks, among others.
Concluding, he urge the CBN to ehance the AMCON to come live soonest to clean the financial system of toxic assets and restore public confidence.