Observers of Nigeria’s ongoing banking sector reform were further emboldened this past week by a statement released by the country’s central bank (CBN) indicating the increased likeliness that the Asset Management Corporation of Nigeria (AMCON) bill will indeed be passed and then signed into law. Having already been passed by the House, the Bill scaled its second reading at the Senate and has now been referred to the Senate Committee on Banking, Insurance and Other Financial Institutions, where a Committee on Capital Market and Finance will next conduct a public hearing and report back to the Senate within a prescribed four weeks period. Furthermore, pundits note that the bill would also have the credibility of Acting President Goodluck Jonathan’s support, though at the very least the peripheries of the country’s seemingly perpetual power struggle are still far from conclusively settled. AMCON, devised in response to the country’s own banking bubble that saw markets dip some 70% from their peaks, is described as “the principal vehicle for resolution of the solvency of asset quality problems that have risked the banking system in the last two years” in lieu of liquidation, and will seek to purchase non-performing loans (NPL) in order to help recapitalize troubled institutions and alleviate debt concerns. Specifically, per CBN governor Sanusi Lamido Sanusi, AMCON will purchase an estimated N1trillion to N1.2 trillion of toxic assets spread across eight to ten banks, effectively “cleansing” their respective balance sheets and pave the way for “fresh lending” while concurrently assuaging investors.
While seemingly extending its support, the Senate also made its disapproval apparent, warning the CBN “not to sell the troubled banks through the back door so that the interests of shareholders do not run into jeopardy.” At the same time, certain Senators “expressed concern about the mismanagement in the banks by their former managers, which they said was aided by the failure of the regulatory authorities to track them down before it (mismanagement) landed the banks in insolvency.” By and large, however, the response to AMCON’s imminent passage is one of relief. Nigeria’s equity markets, which have recovered nicely in the past two months and are up nearly 11% YTD, should continue their ascension from last year’s disastrous, post-bubble depths. As Silk Invest, a London-based frontier investment management company noted to investors this week, “needless to say, this development is very positive for [Nigeria’s] market as it locks up one of demons that has been pestering sentiment in the recent past.”