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Wednesday, March 29, 2023

Banks Hit With N207.04 bn AMCON Charge in 9-Months

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The regulatory induced costs have become a burden to Nigerian banks that are reeling from a sluggish economy and coronavirus induced bad loans.

The largest lenders have collectively incurred N207.04 billion in Asset Management Corporation of Nigeria (AMCON) charges as at September 2020, which represents a 17.91 percent increase from 2019’s N175.59 billion, according to data compiled by MoneyCentral.

Interestingly, the charge is 18.04 percent of total operating expenses and 28.88 percent of other operating expenses, according to MoneyCentral Calculations.

AMCON was established to help buy bad loans and salvage the industry from collapse following the financial crisis of 2009, and is expected to wind up by 2023.

However it appears lenders will continue to be in perpetual pain as the regulator has announced new rules or the establishment of a sinking fund bank to replace AMCON.

The Federal Government through the central bank plans to start the fund that will operate as a bridge bank to help invigorate beleaguered companies.

Every lender will be required to make an annual contribution of 10 bases points of their total assets.

Access Bank’s AMCON charge increased by 56.49 percent to N35.43 billion as at September 2020 from N22.66 billion the previous year.

FBN Holdings plc’s regulatory induced cost was up 15.55 percent to N33.77 billion in the period under review from N29.23 billion the previous year.

Guaranty Trust Bank, the largest lender by market capitalization saw AMCON charges increase by 11.06 percent to N17.20 billion as at September 2020 from N15.48 billion the previous year.

While Nigeria’s biggest lenders have built strong buffers since the global financial crisis, some small- and medium-sized banks have struggled to ward off shocks arising from a 2016 economic contraction and the coronavirus pandemic. In 2018, Skye Bank Plc collapsed and the central bank established Polaris Bank, a bridge bank to take over its assets and liabilities.

Analysts say it is better for banks to bail themselves since they created the toxic assets, instead of using taxpayers’ money for such an exercise.

“It will be a burden on them if the new charges the government is planning to initiate is added to AMCON charge, but self-insurance is good,” said Wale Okunriboye, equity research analyst at Sigma Pensions Limited.

“When there is a crisis, the government will take money from the resolution pool and bail the banks out,” said Okunrinboye.

Analysts say the bridge bank will replace AMCON which has a N4 trillion liability in the central bank’s balance sheet, and they added that the Corporation doesn’t have the money to meet its obligation.

“The question we should be asking ourselves is “how do we reform the new bridge bank in such a way that it won’t be an encumbrance,” said Johnson Chukwu, managing director and CEO of Cowry Asset Management Limited.

“We have not seen any resolution and the liabilities are soaring,” said Chukwu.

In 2019, the government had set up a task force to recover about N5.5 trillion ($15 billion) of bad loans taken over during a banking crisis more than a decade ago.

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