Investigating Nigeria's asset management corporation : a case study of a bad banking solution to banking crises
Master Thesis
2015
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University of Cape Town
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This paper provides an assessment of Africa's first "bad bank", the Asset Management Corporation of Nigeria (AMCON) and its role in resolving non-performing loans (NPLs) in the aftermath of the 2008 financial crisis. It is a case study that primarily investigates the effectiveness of AMCON in addressing the banking crisis in Nigeria based on evidence from different sources ranging from economic indicators to media reports and newspaper interviews. The establishment of AMCON in 2010 helped to resolve the non-performing loans crisis in Nigerian banks, through a transparent removal of toxic assets and by providing the affected banks with a fresh start, while eliciting a minimal moral hazard effect as far as financial institutions were concerned . Other African countries such as Ghana are now considering adopting a similar "bad bank" solution. However, the AMCON solution has been at a considerable cost to the Nigerian taxpayers as AMCON has been running at a huge loss, partly funded by the taxpayer through the government. Data analysed in the study cover the period from 2008 to 2013. The analysis showed that the AMCON solution was successful as the balance - sheet sanitization effort helped to neutralize many of the banking sector 's n on - performing loans, and spurred improvements in the sector's aggregate loan book quality with in its first two years . As at December 2012, AMCON had purchased more than 95% of the banking sector's NPLs, leaving the industry's NPLs at less than 5%. This offered banks a fresh start and the leeway to concentrate on building new and sustainable lending models. This outcome of this study supports prior empirical work which only examined bad banks in developed economies (the US A and Europe) and in the Asia Pacific. It should be noted that the "bad bank" concept is new to Africa and so there is very little empirical work on this topic. This study contributes to the discussion by its exposition on the overall positive trends in Nigeria's banking sector post - crisis and the impressive growth in bank credit , GDP and the equity market after the financial crisis.
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Ajewole, O. 2015. Investigating Nigeria's asset management corporation : a case study of a bad banking solution to banking crises. University of Cape Town.