October 29, 2017by Tope Fasua0

AMCON can no longer buy bad debts, we’re winding down already – Kuru, MD


Published October 28, 2017

The Managing Director, Asset Management Corporation of Nigeria, Mr. Ahmed Kuru

The Managing Director, Asset Management Corporation of Nigeria, Mr. Ahmed Kuru, speaks with TUNDE AJAJA on the activities of the corporation and the challenges being faced to recover its debts

Most of the humongous non-performing loans that AMCON has had to buy over are mainly from financial institutions. Is it possible to absolve the management of these banks from complicity because one would expect them to know better?

There are two issues here. Every bank has a credit policy that guides the process of approving loans. There are two situations where loans get bad; the first is where you have global economic crisis or national economic crisis. Under either of these situations, businesses suffer and obviously the incidences of non-performing loans would go up. The second one is insider-related issues, which is the bane of Nigeria’s non-performing loans, where banks do not adhere strictly to their internally agreed processes. Though there is no template that guarantees that a loan can’t go bad, if banks approve credit strictly on the basis of their credit policy, the possibility of that credit going bad is highly limited and very slim. And when we review some of the reports in this regard, we see quite a lot of classic internal abuses. Some of those loans were booked ab initio with the intention of them not to be paid. These are the two instances why you have incidences of non-performing loans.

But why would a bank deliberately give loans that are meant to be bad?

I would answer you with a question. You should also be worried why somebody should steal funds that have been kept under his custody. It’s the same situation. You are a public officer and you are entrusted with money for construction of roads, provision of water and building schools, and suddenly you wake up and then you decided to steal the money. There is sometimes a disconnect between the management and ownership of banks. For example, you are a manager, credit officer or branch manager somewhere in a remote place and you packaged a loan for someone. You come to the credit committee and you make the loan to look good; you try to justify it and you convince the credit committee to approve the loan, when you know that you have entered into an arrangement with the obligor. Six months to one year down the line, the loan is not performing and all you do is to make provision for it and then the loan is written off and you take it off profit. So, instead of declaring profit of N10bn, you declare N5bn because you have to provide for that bad debt, but nobody is charged to court for that. When you do that, everybody goes home and nobody is questioned. That is why there are more serious issues relating to non-performing loans than even fraud. And that is why, sometimes, the late Sani Abacha’s failed bank tribunal is very apt, because you need to put the operators of the system on the line. Let them prove that they have complied with all the provisions of their own credit policy. If they have complied with their own policy and the loan goes bad, then you don’t blame them. But where they have not complied with their own internal credit policy and they book a loan and the loan goes bad, I think somebody should be responsible for that.

With the volume of bad debt you have already taken over, at the moment, is it increasing or reducing since government said we are out of recession?

It’s increasing. We just came out of recession, and obviously, during the recession, businesses had issues and they are just picking up. If we go by what we are reading in the newspapers, the incidences of non-performing loans are increasing and we have not also addressed the issues of personalities that took those loans. We need to address that. However, I hasten to add that there is no any template that guarantees that a loan cannot go bad, but I can assure you that professionals would have seen the signals or elements that can make a loan bad. You just don’t wake up one day and the loan has gone bad. How were the loans secured? What were the collaterals? What was the cash flow used for? Was the credit policy followed? Unless and until you make the credit officers responsible, the incidences of bad loans would continue to be there with us, and I see how CBN is struggling and trying to ensure that it remains within the threshold of five per cent, and it’s possible but it’s difficult.

You have over N1tn assets that you could dispose to recover part of the bad debt you bought. How easy has it been disposing some of these assets?

Definitely, it’s not easy, for two reasons. Let us not forget the fact that some of these loans were really bad with the financial institutions before they were transferred to AMCON. We didn’t intervene just because we wanted to provide liquidity to those banks, we also intervened, taking over those bad loans. So, in an economy that was in recession or coming out of recession, obviously, the liquidity to purchase assets is a bit hampered. So, whatever property you put in the market, you find that the success factor is usually less than 20 to 30 per cent. The second reason is that, based on our structure, we are encouraged and compelled to sell our assets on the basis of competitive bid, and it’s always a problem for us to dispose properties. Just like if you put up your house for sale and you want to sell on the basis of open market value, it will not go overnight. Let’s assume that the building we are in is valued at N1.2bn, if you put it in the market today, if you are lucky, you get N500m or N600m. That is a problem, particularly in an environment that everybody is suspicious of everybody. So, there is always a problem with disposal of properties because the economy is just improving, people don’t have liquidity in terms of purchasing power to buy some of these assets and because we are insisting that we must get open or forced sale value as prescribed by the valuer, it’s always very difficult to dispose under those kinds of scenarios. Of course, we are preparing to make proposals to our supervisors so that things can improve, because in this kind of situation, that is the only way we can raise liquidity as we also have to settle our debt and dispose of properties we have been sitting on for years.

How many companies’ or people’s debts has AMCON taken over?

It’s in the circa of 14,000 companies and individuals, whose debts we have had to take over from financial institutions. It’s not a small operation.

What is the total worth of all the liabilities?

AMCON’s liability would be around N5.4tn, while the value of the assets that I’m holding may be around N1.5tn. But the assets backing the exposure that we have cannot cover all the debts we have today, even if we sell all of them. Best endeavour, maybe I would be able to adjust to maybe 35 per cent of our liabilities. Like we have pointed out, every day, the value of assets is depreciating, because some of them are not working assets. There are factories that have closed down maybe five to 10 years even before they were transferred to us. In some, the machines are obsolete, the factory buildings have collapsed, people have vandalised some and some businesses don’t exist anymore, maybe they have moved offices or some obligors have left Nigeria. So, all manners of assets, individuals and obligors are affected. However, only 350 obligors (Nigerians) account for more than 70 per cent of the whole AMCON’s liability (N5.4tn). So, if we can have a sharper legal framework that would target these 350, then we would be making very good progress, and these 350 are not ordinary people. No ordinary man would go and take N5bn from the bank as a loan, and no ordinary man would go and take N1bn from banks. These are people who are taking between N5bn to N140bn and they are people that everybody knows. Before anything, they rush to court and that is the major challenge that we have. So, if you are a law abiding corporation, there is nothing you can do, yet you see them on the street.

In this clime, people rush to court for almost everything, what is the volume of the court cases you have at the moment?

I have more than 3,000 court cases. People take us to court every day. Part of the challenge we have is the judicial system or judicial process. In other climes, if you are a debtor and the financial institution takes you to court, that case would last maybe one week. They would ask you; do you owe and is it true you took the money? It would be yes or no. So, banks foreclose very easily. In other climes, if you default in paying your mortgage by three months, nobody needs to tell you; you know you have lost that property. But here, somebody can take you to court, he knows he has taken the money, he knows he has not paid, but the constitution protects him, so he takes you to court and comes up with technicalities. He tells the court that he saw one N2,000 entry in his statement of account, and he wants it to be explained, meanwhile you are talking about a debt of N10bn. Now, you could argue for one to three months in the High Court. The person could disagree with the decision of the High Court and then go to the Appeal Court. From there, he could go to the Supreme Court; leaving the main issue behind. You have not even started talking about the payment of the debt; you are still talking about technicalities. AMCON is supposed to be an intervention agency for 10 years, so, people go to court deliberately to buy time, not that they know that they are right. To some of them, that gives them the window to come and talk to you and they continue to stretch it. So, every day they take me to court and I also take them to court, maybe for receivership, liquidation, recovery or sale. We are a law abiding corporation, so we have to follow the judicial process. There are some cases that we inherited from banks that have been going on for the last five to 10 years and the possibility of those cases finishing in the next five years is also very slim.

What major reform do you propose to tackle this challenge?

The major reform that would help the country is judicial reform. If we are able to make our courts very efficient and we put a system in place where we put the technicalities on the side, I think all other arms of government would fall in place. If you know that if they take you to court, it’s a matter of one week, the truth would be unveiled and it would be dealt with accordingly. That in itself would help to moderate behaviour. So, rule of law is very key. If you recall, before now, election tribunal sometimes took three years before judgment. But through some reform, they said you must finish it within three months, and by the grace of God they are doing that. So, we need to have that kind of reform. I pray that one day we would also wake up and make reforms such that certain cases should not go to Supreme Court so that we improve the efficiency of the judicial system. What has Supreme Court got to do with this house that belongs to me and not you? That should be terminated at the Appeal Court, where there are about five judges that would sit on it, so that the Supreme Court is left with constitutional issues. I can tell you the process is very cumbersome and frustrating now and for people that are fraudulent and people with bad intention, it is soothing them very well. So, I think they must sit down and look at a policy direction and see how to make the courts efficient. And I can tell you that our judicial officers are overworked. If you look at the cases each of our judges at the High Courts has to deal with, you need to be a superman to be very effective and this is a job that is very intellectual in nature.

Comparatively, what obtains in other climes?

In other climes, when the banks are transferring the liabilities and the assets to their own Asset Management corporation, like AMCON, they have changed the law to reflect that the legal ownership of those assets were transferred properly to AMCON. So, if you are an obligor, you can’t go anywhere because the law has already protected the corporation. You could only come to the corporation to say you want to buy the asset back, and the corporation can decide whether to sell it to you or another person with a better price. So, within six months to one year, they have finished their assignment. Here, for AMCON to be able to have ownership of that business, it has to go through the legal process again. Even when you have a legal mortgage where you have a right to sell and the obligor rushes to court before you, the court must hear him or her. So, these are issues that we, as a law abiding corporation, have to deal with, particularly when you have to deal with the elite. It’s not usually very easy.

What sectors account for most of these bad debts?

The major sector is oil and gas, which accounts for more than 26 per cent of our book balance. That sector is followed by real estate and then followed by financial services, in that manner. The financial crisis caught up with the oil and gas sector more than any other sector and then it boomeranged into the financial institutions. But gradually things are looking positive and they are picking up, but some of the assets require quite a lot of maintenance for them to be able to go back into operations. However, the oil and gas sector is stabilising and the reports that we receive are positive and that is why we feel that portfolio will pick up. It is recovering faster. The area that is having a lot of challenges is real estate because that trend mentality that I mentioned is still in people. People that were used to selling houses for N150m to N200m along the Lekki axis would not agree to the fact that for them to be in the market, they must be selling those assets at lesser amounts now. So, real estate is still very slow, because you need external liquidity to be able to make it move. But in oil and gas, you extract wealth, which makes it easier.

At the moment, how many moribund companies are included in the assets transferred to you?

They are more than 2,000. And most of the companies are not working. Any business that does not have capacity to pay its debts is not a business.

How many of the companies are working?

They are more than 100. And most of the companies go back to the owner when they start working. However, for the sake of emphasis, AMCON does not run any business. What AMCON does is that if we have any reason to intervene in a business, we do that and make sure that they are run by professionals, not AMCON staff, that are well experienced that the public can vouch for. I give you an example. Capt. Roy (Ilegbodu) that was appointed to run Arik Air is well known in the industry. If you go to Aero Contractors, Capt. Ado Sanusi is also well known. He was once the MD of Nigerian Airspace Management Agency.

But Capt. Sanusi’s appointment drew condemnation at that time because he was the Deputy Managing Director of Arik at the time AMCON took over the airline.

But people are now praising him, because he has turned around the airline. Today, he’s been able to get the first MRO (Maintenance, Repairs and Overhaul) certification and he has started doing C-check in Nigeria, which has not been done before. The same C-check airlines go to Europe to do with so much forex is now being done by Aero. It’s highly commendable. Also, Arik, today, is the most efficient and reliable airline in Nigeria. Don’t take my word for it. Find out yourself. That is courtesy of Capt. Roy and his team. So, AMCON doesn’t run businesses. They report to the Receiver Manager; they don’t report to AMCON. Any company we take over, we look for a known professional in that industry to run it. Some people can talk about some side issues which is normal, but the competence of that person won’t be in question. And these people don’t come to us. I don’t think I’ve met Ado more than once.

Perhaps people felt he was the Deputy Managing Director of an airline that had almost gone under before it was rescued by the same AMCON. Is that reservation not justified?

He wasn’t managing Arik. He was the deputy MD. If you want to set up a newspaper, what do you do? You go and get someone from established newspapers or players in the industry for a start. He (Sanusi) didn’t want to do it, but we compelled him to do it and he’s doing it excellently. You look for the best and then you give them free hand. What we do is that if you refuse to pay us our money, under receivership, we can appoint a receiver, whether for winding down or to encourage the business to continue because you believe that there is huge potential in that business. People should not forget that we took over some businesses that were dead. Out of the 14,000 I told you earlier, I can tell you that more than 60 per cent of them were inside incubators. Not that they were actually dead, it was as if the caskets were brought to us and when we opened the cover, it was all bones; no flesh. If the loans had worked out, the banks would not sell them and the assets to AMCON because banks want to make money and more than 60 per cent of incomes of banks are from interest earning.

Do you agree with those who say Nigerians don’t like to pay debts?

Generally, Nigerians, I mean most of our people, don’t like to pay debts. If your neighbour asks you to lend him money and you lend him N10,000, he might tell you he would pay when he receives salary by the end of the month. When it’s end of the month and you ask him, he might tell you ‘why are you embarrassing me, is it because of just N10,000 that you are disturbing me? AMCON didn’t lend money to anybody, we only purchased these loans from the banks, so nothing personal. But the trend I see is that when you push people to pay their debt, they make it personal. I always tell them that whether they like it or not, if I’m not the one in this office, whoever is here would still recover the money, because we didn’t create the figures. The figure would always be there. We recognise the fact that the capacity to come and give AMCON N10bn at a time is not easy, because of the economic situation, but we are saying please come and let us talk, so we can have an understanding of how to pay and even help in the process. We are not here to kill people but to recover money, basically. In that recovery process, there is an opportunity to help your business. We are ever willing to do that, but you can’t run away from us and then try to pretend that there is nothing to recover. Like I said, whether now or tomorrow, certainly, they have to pay back this money. You cannot run away from that obligation, even if you go to court for five years or 10 years. I tell some of them that I relate with very well that I would not be there in 10 years, but that they or their child or children or successor would be there. So, the earlier you come and sit down with us and let us have a resolution, the better, particularly now that everybody knows the economy is struggling, which could make people to be more sympathetic, because we are also sensitive.

Does it mean AMCON does some debt forgiveness?

A lot. We do that every day. In every transaction, there is an element of debt forgiveness inside. I mean every transaction. In our situation, you have to forgive some elements of those debts.

Is it possible for AMCON to recover all its debts?

It is not possible to recover all, because some people have died, some businesses have collapsed totally, some of the people that ran those businesses have died, and some of the businesses, when you meet the people responsible, they don’t even have assets worth N100,000 anymore and you want them to pay N1bn. So, the worst type of deception is self-deception. Is it possible for AMCON to recover all its debts? No. Is it possible for AMCON to wind down its operations? Yes, because there are various schemes and programmes that you can come up with to wrap up your operations. I say this with every sense of responsibility that AMCON should not be an organisation that should be there perpetually. It shouldn’t. In the next five years if we cannot clear all these gray areas, I think AMCON should fold up and they should create a product out of the leftover. If in the next five years, you have not been able to recover some of these debts, that means you have been pursuing a non-performing loan for about 15 to 20 years. That tells you there is a problem. You need to change your strategy, analyse all the accounts one by one, analyse the obligors behind them and go after them and create another law that would give you an edge to reach them through other ways and means, not only through this. In the next one or two weeks, we are going to work on this so that there shouldn’t be perpetuity about what we do here. I don’t think it’s in anybody’s interest.

There was a report sometime ago that there is a Dubai company that wants to buy the debt of Arik, one of the companies you took over. Is it true?

I read the report also, just the way you read it. If you investigate and you find the details, please come and share it with me.

Is it also true that AMCON wants to hands off Arik by February 2018?

That one I have not read, but the only thing that I know is that at a certain point in time, we have to divest our interest out of Arik. We have to. We didn’t enter into Arik to sit there. We entered Arik to recover our money and Arik has stabilised. So, we have started the process of divestment. Before, Arik was owing almost N149bn, now we have gone through the court process and taken over the business, and the business is doing very well, in spite of the fact that Arik is not our primary responsibility.

Can you tell us about the divestment plan for Arik?

No, I can’t, because it is the receiver manager that is handling that. I don’t want to run foul of the law. But I know we have told them that government’s intention for intervention is to ensure that Arik continues to operate as a viable airline and we have proved that Arik is a viable airline.

But is it that the divestment plan won’t take effect until you have recovered your debt?

The recovery of the debt is part of the plan. AMCON’s exposure to Arik is about N149bn today, while N300bn is its financial obligation, including other banks. I don’t believe there is any person that would come and give me N149bn cheque because there is no N149bn asset to support that cheque. So, it’s a process. But my interest is that the airline continues to operate. Nothing should happen to Arik airlines.

There were also reports that AMCON wanted to make Arik the national carrier. Is that true?

No, that is not true. If government had intended to make Arik the national carrier, I would have strongly advised against that because you don’t create a national carrier from a crisis. A company that had debt in excess of N300bn, how do you make a national carrier out of it? In airline business like that, the assets belong to third parties, not Arik. Government can go and get 20 aircraft for their national carrier, not starting off in crisis. So, that never came up.

Are local airlines patronising the C-check set up by Aero?

They are. In fact, they couldn’t even meet the demand. Airlines would be able to save their foreign exchange because most of them go abroad and they have to queue for the C-checks. But now, the service is here and they would pay in Naira, which is cheaper. So, it’s good. I’m believing that by the time they stabilise in the next six months, they would increase their capacity in terms of how many aircraft they can check at the same time. So, they are being patronised and the reports we get are positive.

With your already high liability, do you have some other properties you are hoping to take over soon?

No, we are not into that anymore. We are not taking any more bad loan. We are on a winding down mode now. We are looking for liquidity to meet our own obligations. So, if there is an AMCON II, I would invite them to come and take over my assets because I’m also looking for liquidity. If there is any organisation that wants to take over bad loans, they should first visit me so that I can sell mine to them before they go to financial institutions. I have loans, backed by assets, to sell. If you know any, let me know (laughs).

By 2024 when AMCON is expected to wind down, what happens to outstanding debts as of that date?

We will tell you when that time comes. Like I said earlier, we are working on so many schemes to see that by that time we able to conclude. However, the law allows for extension; the National Assembly has the discretion to extend it, but I’m sure we will go and convince them not to extend it for us.

by Tope Fasua

Tope Kolade Fasua is a Nigerian ex-banker, entrepreneur, economist and writer with 28 years of work, business and policy analysis experience. He is the founder and CEO of Global Analytics Consulting Limited, an international consulting firm with its headquarters in Abuja, Nigeria, and footprints in the United Kingdom, USA and United Arab Emirates. Fasua has authored numerous columns on newspapers and six books. He currently keeps regular columns on policy analysis issues with Premium Times and Daily Trust newspapers.

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