CASE STUDIES FROM AFRICA

As part of the final resolution of the banking system crisis which emanated from the global
financial crisis in 2008/9, the CBN and the federal Ministry of Finance spearheaded the
establishment of the Asset Management Corporation of Nigeria (AMCON) to purchase nonperforming
loans from deposit money banks and recapitalise the affected banks. AMCON,
whose Act of Parliament was signed in 2010, is a special purpose vehicle aimed at
addressing the problem of non-performing loans in the Nigerian banking industry, among
others. It was created to be a key stabilising and revitalising tool established to resuscitate
the financial system. Other specific objectives of AMCON include:
Provision of liquidity to intervention banks and other banks that have huge nonperforming
assets which have been provided for
Provision of capital to the intervention banks and the remaining banks
Facilitation of merger and acquisition transactions, strategic partnerships, and to
attract institutional investors
To increase confidence in the banks’ balance sheets and thereby increase credit
creation
To increase access to restructuring/refinancing opportunities for borrowers.
Accordingly, AMCON acquired non-performing assets of some banks worth over N1.7
trillion (US$ 10.7 billion) to boost their liquidity and enhance their safety and soundness.
This intervention has significantly reduced the banking industry’s ratio of non-performing
loans to total credit from 34.4% in November 2010 to less than 5.0% as at December 2012. 41
New regulatory requirements established at the end of the abolition of universal banking are
summarised in Table 9. The regulatory requirements with respect to shareholders’ fund vary
according to whether the proposed bank is regional, national or non-interest bank.
Commercial banks can operate at national, regional, and international levels with paid up
share capital of N 25 billion, N 10 billion, and N 50 billion respectively, whilst merchant
banks are required to provide a paid-up share capital of N 15 billion.
Table 9: Regulatory Requirements for Nigerian Banks
Capital
Requirements
Liquidity
Requirements
Shareholders’ fund of a - Banks are obliged to
minimum of:
hold at least 30% of
N 10 billion for regional their deposits as liquid
bank;
assets (i.e., cash and
N 25 billion for a national near-cash items).
bank;
- At least one-third of
N 50 billion for an
liquid assets must be
international bank;
held in Treasury Bills.
N 5 billion for a noninterest
- CRR is currently 8%
bank regional of deposits. This is in
license;
addition to the 30%
N 10 billion for a national liquidity ratio.
non-interest bank;
N 15 billion for a merchant
bank
Source: First Securities Discount House, 2011.
Prudential
Regulations
- Loans are
classified as
specialised and
non-specialised
loans.
- Interest income
on nonperforming
assets
is recognised on a
cash basis and not
on an accrual
basis.
Lending
Limits
- A single obligor limit is 20% of
shareholders’ fund for all banks
- A bank cannot lend out more
than 10 times its adjusted capital
- A holding company and its
subsidiaries (related parties) are
classified as a single obligor
- 33.5% of off-balance sheet
engagements are used to determine
the single obligor limit
- Total off-balance sheet lending
cannot exceed 150% of
shareholders’ fund
41
Alade, 2012.
98