THE recent increase in levy on the nation’s deposit money banks as part of the contributions to the sinking fund dedicated for bad debts in the industry may hit a record high of N143 billion by the end of the year.
The levy imposed on the banks by the Central Bank of Nigeria in conjunction with the bad debt company- Asset Management Company of Nigeria (AMCON), increased by approximately 76 per cent from N54.6 billion in 2012 to N96 billion in 2013, thus constituting a chunk of the banking industry’s operating expenses.
This however, has put pressure on the net earnings of banks and increased their scramble for earnings and maintaining stability, with many of them also struggling to maintain their regulatory Capital Adequacy Ratio.
But the increased contribution to the sinking fund, on the other hand, has been a complementary source of funding in AMCON’s cashflows, which is applied towards the redemption of AMCON bonds.
AMCON’s full year 2013 audited results- its first publication under the International Financial Reporting Standards, showed improvements across top and bottom lines, despite its role as an intervention vehicle to absorb Non Performing Loans (NPLs) from banks and recapitalize weak banks.
Analysts at Afrinvest said that AMCON has continued to chart its course with vigor in 2013, growing its top line impressively although the bottom line is still deep in negative territory as expected.
The Corporation’s top line grew by a significant 50 per cent from N182.7 billion in full year 2012 operations to N274.9 billion in 2013, with the bottom line improving only by 10.3 per cent from negative N702.4 billion in 2012 to negative N630 billion in 2013.
“The improvement in top and bottom lines were both driven by 21.9 per cent increase in interest income to N181.3 billion in 2013 from N148.7 billion in 2012. Non-interest income also contributed to the growth in topline, increasing 15.9 per cent to N16.3 billion in 2013 from N14.0 billion in 2012.
“Interest expense came in at N556.8 billion in 2013, representing 1.9 per cent higher than N546.3 billion sustained by the inclusion of financing cost, which constituted 65.2 per cent of the total cost.
“We expect AMCON’s financing cost to moderate over the years as it pays down its bond exposure to the CBN and the Banks. Nonetheless, the management will need to be inventive in designing strategies that focus on driving this cost item down to quicken the recovery process.
“Similarly, the corporation managed to tame its operating expense at N121.2 billion in 2013, a 159.1 per cent decline from N205 billion in 2012. This underscores the Corporation’s commitment towards ensuring that AMCON recovers the cost of its intervention over time,” the analysts said.
NPL exposure within the economy in 2011 revealed a skewed distribution of loans to the oil and gas sector by 27.2 per cent, followed by the general commerce sector, 18.5 per cent, while capital market, manufacturing and finance and insurance contributed 17.9 per cent, 6.2 per cent and 5.5 per cent, respectively.
Additionally, AMCON’s portfolio revealed a total of 12,383 loans made up of individuals, corporates and government entities. Approximately 6.7 per cent of the total loans acquired were loans valued at N10 million downward.
Another group was made up of 1,992 loans of N100 million to N1 billion in size, representing 16 per cent of the total portfolio value, while 433 loans of between N1 billion to N10 billion in size account for 36 per cent of the portfolio, with only 65 loans made up of debts in excess of N10 billion representing 41.5 per cent of the total portfolio.
According to analysts, the establishment of AMCON has brought a mixture of benefits and handicaps for Nigerian banks.
For example, the eventual signing of the Trust Funds Deed between AMCON and the banks in August 2013, has officially institutionalized the contribution of 0.5 per cent of assets and 0.3 per cent of off-balance sheet items into the sinking fund.