By Babajide Komolafe
LAGOS—The Central Bank of Nigeria, CBN, yesterday, announced exposure draft framework for the creation of the second version of the Asset Management Company of Nigeria, AMCON, known as AMCON 2, to tackle the over N2 trillion non-performing loans in the banking sector.
However, unlike the first AMCON, which is public sector funded and managed, AMCON 2 comprises private sector funded and managed companies known as Private Asset Management Companies, PAMC.
Among other things, the draft framework set a minimum capital base of N10 billion for PAMCs, and allows them to purchase non-performing loans and performing loans from banks and other financial institutions.
Signed by the Director of Financial Policy and Regulation Department, CBN, Mr. Kevin Amugo, the draft framework was entitled: “Exposure draft of the framework for licensing, regulation, and supervision of Private Asset Management Companies in Nigeria.”
The framework stated: “The dynamic developments in the management of risk assets in the Nigerian banking system necessitated the establishment of the Asset Management Company of Nigeria, AMCON, in 2010. The prime objective of AMCON was to manage the toxic assets of the system, which was exacerbated by the global financial crisis.
“Given the ever evolving developments in the industry, the decline in international commodity prices with its consequent impact on risk assets in the industry, it has become expedient to proactively widen the space for the management of non-performing loans through the establishment of Private Asset Management Companies, PAMCs. This is in line with CBN’s core mandate for promoting a sound and stable financial system.”
According to the draft framework, PAMCs can perform any of the following functions: Buying off non-performing and performing loans off banks and other financial institutions and disposing them. Asides this, they will also provide consultancy and advisory services to banks and other financial institutions for the purpose of restructuring receivables and other assets including sale of such assets to third parties.
However, PAMCs are not allowed to operate as banks by taking deposits nor granting loans neither would they be able to obtain credit from banks and other financial institutions in the county.
On risk management, the framework requires that PAMCs develop an enterprise risk management framework which will serve as a guide in the identification, measurement monitoring and control risk. “The ERM framework should be approved by the board of directors and cover the different forms of risks to which a PAMC may be exposed. Such risks include liquidity, credit, operational market, legal and compliance risks.”