Operators warn against another banking crisis

While the financial market awaits the issuance of the first series of bonds by the Asset Management Corporation of Nigeria (AMCON), the focus is on how the banking industry will fare after the bad debts are taken off their books. Financial market operators spoke of a situation where the regulators still need to keep close watch on the market in order to prevent a reoccurrence.

The target date of the first AMCON bond issuance is December 31 or shortly thereafter, with a N500mn issuance in the first instance.Mike Itegboje, president of the Chartered Institute of Stockbrokers said the establishment of AMCON is not a guaranty that a similar crisis will not beset the banking sector in future. “Let us move forward in this direction so that it doesn’t happen again,” Mr. Itegboje said.

“Whatever the CBN (Central Bank of Nigeria) is doing, there is no way we will say it can never happen again. Some of the banks that were liquidated some years ago, what lessons have we learnt from them.” He said there may be need to set up a panel of enquiry in order to know the involvement of individuals in the banking crisis in order to guard against a reoccurrence in future. “I pray whatever panel that is set up will not end up like Oputa Panel report.” He said with the lending and borrowing aspect of the bad debt management function of AMCON, there is optimism that the firm will do well.

Non-performing loans

AMCON management last week met with bankers and stockbrokers on the way to address the current credit crunch in the economy. By the arrangement reached by the parties, banks are under obligation to hand over non performing loans (NPL) above five percent of their total loan portfolio to AMCON. Also, NPL acquired by AMCON, including the contentious margin facilities from the stock market, on which there are misunderstandings will be resolved on individual basis. AMCON will also accept unquoted shares which are products of private placements that have yet to be listed on the floor of the Nigerian Stock exchange.

Mustafa Chike-Obi, managing director of AMCON said recently that the corporation expects to buy up to N2.5 trillion bad loans from eligible financial institutions and the pricing of the loans will be driven by the value of the underlying collateral. Mr. Chike-Obi said AMCON will engage every borrower of an acquired bad loan with the intention of properly managing the assets and this involves re-performing, restructuring, forbearance, forgiveness and other resolution options.

Sonnie Ayere, chief executive officer of Dunn Loren Merrifield, a Lagos based investment firm, said there is need to build capacity in the industry in order for ensure that banks play financial intermediation role in the economy. He said taking the burden off the banks will not necessarily ensure good management by the banks.

On the effect on the stock market, Victor Ogiemwonyi, managing director of Partnership Investment, a financial services firm, said AMCON will be a boost to the market. “The 60 per cent premium for stock market portfolios that AMCON is offering will be priced into the market in the coming weeks. AMCON’s intervention will relieve the economy of debt overhand that is slowing down the market.”

Source:http://234next.com/csp/cms/sites/Next/Home/5644017-146/operators_warn_against_another_banking_crisis.csp