Thursday, 4 April 2013

IMF Recommends AMCON Shutdown

IMFVENTURES AFRICA – The International Monetary Fund (IMF) has recommended that the operations of the Asset Management Company of Nigeria (AMCON) be shutdown to discourage banks from committing moral hazards and fiscal risks.

In Economics, moral hazard is the idea that, under certain circumstances, individuals will alter their behaviour and take more risks knowing that they would not feel the damages that could occur.
In the middle of a Central Bank of Nigeria (CBN) prosecution of reckless lending by 8 Nigerian bank chiefs in 2009, AMCON was set up in July 2010 by CBN to purchase the non-performing loans which almost crumbled the country’s financial sector.

AMCON has made considerable achievements in recovering major debts and stabilizing the financial sector.

The body has purchased bad loans of over 5 trillion naira ($32 billion) at the rate of over 2 trillion naira ($14 billion), which has freed most of the deposit banks to start lending again.

According to Business Day Nigeria, IMF directors “unanimously” agreed that the continued operations of AMCON may encourage banks to take unnecessary risks knowing AMCON would bear the burden if something went wrong.

The Nigerian media reported that the IMF “recommendation is contained in the Bretton Woods institution’s assessment of the country, after its 2012 Article IV consultations.”

However, Mr. Bismarck Rewane, Financial Derivatives Company Limited MD/CEO, has said the IMF recommendation was “absolutely unnecessary.”

Monday, AMCON MD/CEO, Mr. Mustapha Chike-Obi criticised responded to IMF’s recommendation.

He said: “They commended Nigeria for fixing the banking sector and said it should wind down AMCON. But I find it very surprising that an institution as serious as IMF will make such recommendation like that without telling us how to do it and in what time frame and what assistance they can offer for us to wind down.

“We are aware that IMF has its hands full on banking crisis all over the Euro zone that they have been struggling to resolve. Therefore, it is strange to hear such a comment in a country where the crisis has been resolved. It is part of our plan to slow down AMCON’s activities, but the comment they made is baffling.”

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