The CBNs policies since the Sanusi era, from the controversial stress test for banks and the attempt to sell the banks, up to the present arbitrary revocation sent a strong message to the public that the regulation of the Nigerian banking system is not based on legal principles, logic or reason but by sheer dictatorship and unquenchable avarice to consume the hitherto gains Nigerians had enjoyed from the sector and enrich pockets of the oligarchic few in the economic echelon of this country.
According to the Centre for Social Justice: [1]
This cannot be the economic democracy we longed for. CBN needs a leadership that understands the role of the banks in the economy and the political economy of the underdevelopment of Nigeria. It does not need a leadership with a score and a grudge to settle, experimenting with people's lives and livelihoods. CSJ calls on the President and the National Assembly to review this take-over in the national interest. The CBN leadership has shown a lack of capacity to properly regulate the banking sector, a sector which is so vital to social and economic development. It should either be made to change its ways or leave the podium for more informed and experienced personnel. [2]
As Sanusi's rampaging approach to banking reforms continues, the reality, however, is that the banking sub-sector would continue to operate in an environment of uncertainty. This, no doubt, is bad for foreign direct investment because the impression being created is that the sector must anticipate an operating environment based on the mood swings of the CBN Governor.
The CBN intervention and subsequent creation of the AMCON has been criticized as there are tell tale signs that the AMCON Management may not as yet have fully familiarized itself with the Nigeria banking legal and regulatory environment. According to Eyieyien of the Vanguard Newspaper: [3]
The AMCON Managing Director obviously did not realize that the Nigeria Deposit Insurance Corporation (NDIC) is actually the only government agency empowered by law via sections 38 and 39 of the NDIC Act 2006 to do what AMCON is being asked to do. Rather than face its primary objective of managing the non-performing assets of failed and failing banks it is being led by the CBN/NDIC on a misadventure which it has no competence or experience to handle.
Continuing on the above line of argument, Eyieyien noted as follows:
In response to his assertion that AMCON had been 'very thorough' in the way it has gone about appointing the new management teams, I raised the issue that the evidence was to the contrary and cited the appointment as an Executive Director of an ex-staff of Nigeria International Bank (now Citibank Nigeria) who committed a fraud in 1991 and was sacked by the bank. I refrained from mentioning the person's name. Chike-Obi's response was to say AMCON 'is not perfect' and that 'it was a mistake'. To his credit, he owned up to the blunder and offered apologies to the nation there on live television. If AMCON could make that kind of blunder about an issue as simple as the appointment of credible Executive Directors and its MD/CEO was compelled to acknowledge error and apologize to Nigerians on national television, then what other 'mistakes' might have already been made but of which we are yet unaware? [4]
This paper warns that we have real problems in the banking industry and the CBN, NDIC and AMCON are clearly not on top of their game in addressing them. The statutory functions of NDIC and AMCON are very explicit and unambiguous. AMCON is not the agency saddled with the power to 'own' a failed bank; that is NDIC's role which is spelt out in sections 38 and 39 of the NDIC Act 2006. The NDIC set up bridge banks on Friday, 5th August, 2011, and 'sold' them to AMCON on Saturday, 6th August, 2011. The following day, AMCON announced new management teams and even released the new bank logos. [5]
What uncommon surgical inefficiency! What was the haste all about? Why intervene 50 clear days before the CBN self-imposed dead-line? What was the hurry for? Could the CBN and NDIC not have waited just ten more days for the then new Minister of Finance, Dr. Ngozi Okonjo-Iweala, to assume office and make an input into the decision-making process? Why the enormous effort to present her with a fait accompli? This paper shudders to ask!
The NDIC Act allows the NDIC to operate a bridge bank for up to 5years. [6] What magic is AMCON going to perform which NDIC is unable or incompetent to do? NDIC would not have had to inject N678.5Billion into the banks as 'Share Capital to achieve 15 per cent Capital Adequacy Ratio' because the law says a bridge bank needs no Share Capital. All NDIC would have done is provide liquidity by way of 90-day 'Accommodation Bills' which it is empowered by law to issue as 'Financial Assistance' to the banks which is one of its fundamental functions. [7]
To date, the CBN and AMCON have doled out N1, 298,500,000,000 (One Trillion, two hundred and ninety-eight Billion, and five hundred Million Naira only!! to salvage the eight banks it took over in 2009. Is Nigeria so much in need of what to do with money again as it was during the Oil Boom years of the early 1970s such that spending N1.3Trillion to save eight banks has become inconsequential? Is the cost-benefit analysis of a failure resolution option no longer relevant in choosing the most viable path of action which makes the best economic/financial sense? Are we not operating a free market economy where the principle of 'Free Entry and Free Exit' holds sway? This paper maintains that the latest injection of N678.5Billion into three nationalized banks is an unnecessary waste of funds since the NDIC could have statutorily managed them as bridge banks without them needing to have any Share Capital and NDIC would only provide them temporary liquidity support until they are sold to new owners. [8]
On its part, the Independent Shareholders Association of Nigeria, ISAN, denounced the action of the CBN and urged President Goodluck Jonathan to declare a state of emergency in the banking sector. ISAN described the revocation of the licenses of the banks as 'a calculated subversion to the nation's economy and a threat to the people of Nigeria'. [9] This paper reasons that the CBN's resolution of recapitalization through bridge banks remains an attestation of failure and inept leadership by the current management of the apex bank toward finding a permanent answer to the nation's induced banking problems.
4. THE ASSET MANAGEMENT CORPORATION OF NIGERIA: AN ASSESSMENT.
The Asset Management Corporation of Nigeria Act 2010 (AMCON Act), was recently signed into law by the President of the Federal Republic of Nigeria, Dr Goodluck Ebele Jonathan on 19 July 2010. The Act creates an Asset Management Corporation of Nigeria for the primary purpose of efficiently resolving the problems associated with non-performing loan assets of Nigerian banks. Stakeholders in the industry have lauded the passage of the bill as a long overdue crisis resolution mechanism for the seemingly beleaguered financial sector of the Nigerian economy. The Asset Management Corporation of Nigeria (AMCON) established pursuant to section 1 of the Act is charged with the responsibility of acquiring the non-performing loans from banks and other financial institutions, or as more appropriately termed under the Act, eligible financial institutions (EFIs).
AMCON is a critical tool for the reform of the Nigerian banking system. Its main purpose is to purchase the non-performing loans ('NPLs') of Nigerian banks, focusing on the eight banks that were rescued by the Central Bank of Nigeria in 2009. However, NPLs from all banks are eligible for purchase by AMCON. The overall strategy of AMCON to improve the strength of Nigerian banks consists of three phases:
Purchase the NPLs in the banking sector so that the banks have a 'clean' balance sheet in 2011;
Recapitalize the rescued banks so that they no longer have negative equity; and
Encourage the sale of rescued banks.
The intent is to strengthen the balance sheet of the rescued banks in order to attract investors to recapitalize the banks. Some of the investors may be from outside Nigeria and could bring international bank expertise to the rescued banks and improve their managerial capacity. As part of enabling reform of the banking system, Sanusi early in his term as Governor of the CBN relaxed the rules on foreign ownership of banks operating in Nigeria. [10]
Salient Provisions of AMCON Act.
Acquisition of Eligible Bank Assets
AMCON is empowered to issue bonds or other forms of debt instruments as consideration for the acquisition of toxic assets of banks and other financial institutions in order to create liquidity in the banking sector through the purchase of Eligible Bank Assets (EBA) from Eligible Financial Institutions (EFIs). [11] It also makes provisions for the acquisition of bank assets known as tainted EBAs which include loans granted by the EFIs without following the laid down regulations or CBN guidelines for the issuance of such loans. When the EBAs are acquired, they automatically become vested in the AMCON and are so held at is powers and discretion including institution of court actions to realize them.
In the discharge of its duties, AMCON is also cloaked with special powers in certain instances. The Act gives AMCON the power to act as, or appoint, a receiver for a debtor company whose assets have been charged or mortgaged as security for an EBA acquired by AMCON. The job of the receiver in this instance includes: realizing the assets of the debtor company, enforcing the individual liabilities of the shareholders and directors of the debtor company, and managing the affairs of the debtor company. In order to ensure liquidation of debts, AMCON has the power to apply to court by way of a motion ex parte (without notice to the debtor) for an order vesting it with the possession of the movable or immovable property of the debtor. It also has the power to apply in the same manner for an order freezing the accounts being held in an EFI by the debtor. In both instances above, the order is deemed to have lapsed if after 14 days of the order being made; AMCON does not begin debt recovery proceedings against the debtor. Where debt recovery proceedings are concluded and an order is made against the debtor requiring him to pay any sum and such sum is not paid over to AMCON within 30 days of the order, then the AMCON may further pray the court for a receiving order against the debtor. AMCON does not have to satisfy the requirements set out in the Bankruptcy Act before the court grants a receiving order. Where the order is granted, the Court is able to adjudge the debtor as being bankrupt and on the strength of the application by AMCON, appoint an official receiver, or authorise AMCON to assume the role of a trustee of the debtor's property.
Where however, the order of court in debt recovery proceedings is made against a company or other legal personality, and the debt is not liquidated within 30 days of the order, then AMCON can petition the court for a winding up order. If a winding up order is granted by the court, the court may appoint an official receiver or liquidator to wind up the affairs of the debtor company. For the purposes of the Act, the appropriate court vested with jurisdiction to hear all applications is the Federal High Court. The Act does not create a separate court to hear applications for the recovery of debts owed to AMCON or EFIs, rather it vests the Chief Judge of the Federal High Court with the power to assign such matters to a designated Judge, who shall only hear such matters to the exclusion of all others for a term to be prescribed by the Chief Judge.
The broad aim of the Act is therefore to seek to restore liquidity and stability to the financial system of Nigeria through judicious exercise of its powers in cultivating, promoting and protecting economic growth and by extension maximizing overall returns and gains for the exercise of such authority.
Functions of the AMCON.
In furtherance of its powers under the AMCON Act 2010, the AMCON is granted certain functions under section 5 of the AMCON Act as follows:
The acquisition of EBAs from EFIs in accordance with the provisions of the AMCON Act. [12]
To purchase or otherwise invest in eligible equities on such terms and conditions as the AMCON, with the approval of the Board of the CBN, may deem fit.
To hold, manage, realise and dispose of EBAs (including the collection of interest, principal and capital due and the taking over of collateral securing such assets).
To pay coupons on, and redeem at maturity, bonds and debt securities issued by it as consideration for the acquisition of EBAs.
The performance of such other functions, directly related to the management or the realisation of EBAs that it has acquired, including managing and disposing.
To take all steps necessary or expedient to protect, enhance or realise the value of the EBAs that it has acquired, including:
The disposal of EBAs or portfolios of EBAs in the market at the best achievable price;
The securitization or refinancing of portfolios of EBAs; and
The holding, realising and disposing of collateral securing EBAs.
To perform such other activities and carry out such other functions which in the opinion of the Board of Directors of the AMCON are necessary, incidental or conducive to the attainment of its objects. [13]
General Powers of the AMCON
The AMCON by virtue of section 6 of the AMCON Act is vested with the general powers necessary to perform and carry out its functions and realize its objectives set out in section 4. Section 6(1) of the AMCON Act, in addition to granting it the powers to do all such other things as its Board of Directors considers incidental or conducive to the attainment of any of its functions, vested on the AMCON the powers to do the following:
1 Issue bonds or other debt instruments as consideration for the acquisition of EBAs. [14]
Maintain a portfolio of diverse assets including equities, fixed income bonds and real estate. [15]
Provide equity capital on such terms and conditions as it deems fit.
Borrow or raise money, in naira or any other currency, with or without the guarantee of the CBN, and secure its payment.
Initiate or participate in any enforcement, restructuring, reorganisation, arrangement or other compromise.
Enter into contract options and other derivative financial instruments, whether in naira or any foreign currency.
Guarantee the debt or performance of other obligations by subsidiaries or any SPV set up by it, for valuable consideration.
Draw, accept and negotiate negotiable instruments. [16]
Open and maintain bank accounts in any currency and carry out necessary banking transactions.
Form or acquire a wholly-owned subsidiary or a holding company for the purpose of performing any of its functions. [17]
Establish a trust or participate in a trust as trustee or beneficiary.
Borrow or lend debt securities, including but not limited to, equity and debt instruments.
Invest its funds40 or sell or dispose of its property or investments.
Engage consultants, advisers and other service providers on competitive basis from time to time.
The above powers of the AMCON are not exhaustive in view of the fact that there are other powers vested in it in other sections of the AMCON Act to enable it carry out thorough execution of its mandate and objectives.
There had been divergent views as to the propriety cum advantage or otherwise of the establishment of the AMCON by professionals, legal practitioners as well as economic analysts. Speaking in support of the establishment of AMCON, the Managing Director of Lambeth Trust &Investment Company, Mr. David Adonri said that the setting up of AMCON to mop up toxic assets in the banking sector would assist the bailed out banks to shore up their liquidity position and collaterally, the action will impact positively on the liquidity of the capital market and economy in general. But he queried the pricing model for buying over the banks toxic assets and advised the corporation to take into consideration the historical cost of the assets, adding that the pricing should not be based solely on the current market price. He said that transparent and equitable pricing of the assets particularly those in relation to equities market should be adopted, stressing that 'a premium pricing model rather than a discount model should be considered.' [18]
Arguing in the same line, the Head of Microeconomics and Regional Head of Research, Standard Chartered Bank, Razia Khan, while commenting on the signing of the AMCON Bill into law said 'the news is obviously positive. Less than a year after the first wave of the bank rescues, it will hasten expectations of rapid resolution of Nigeria's banking sector crisis.' Contrary to expectations, she said that the intervention of the authorities has meant that no bank has failed, adding that with hope for resolution through AMCON, the building blocks are in place to recapitalize the banks and kick start credit growth. [19] She submitted that in all, AMCON represents a significant win for Nigeria which has tightened financial regulation, and safeguarded its financial sector with what appears to be minimal welfare as well as fiscal costs. [20]
Challenges of the AMCON Act.
As good as the intention of the legislature could be for the enactment of the AMCON Act, it has been receiving several criticisms from different quarters of the country on ground of not only being inconsistent with the Constitution, but that it is targeted to achieve selfish end and parochial mindedness of an oligarchic few. Among those who opposed the provisions of AMCON Act were the shareholders of banks and a rights group known as the Truth and Transparency Initiative and they have taken their grievances of the Act before the Court for determination. According to Tunde Oyesina, the judicial correspondent of the Tribune Newspaper, [21] the legion of issues before the Court for determination speaks volume and actually captures the criticisms trailing the AMCON Act since its passage. The issues are:
Whether the entire provision of the Asset Management Corporation of Nigeria Act 2010 is not inconsistent with the requirement of the Constitution of the Federal Republic of Nigeria, 1999 and the Fundamental Rights provision of the 1999 Constitution especially the right to fair hearing and therefore null and void.
Whether the provisions of the Act are not repugnant to common sense, inhibits the spirit of free and commercial enterprise and therefore illegal, null and void.
Whether the Act is not such that inhibits entrepreneurship, business and commercial practice and not ultra vires the powers of the National Assembly as being inconsistent with the requirement of fair hearing as enshrined in the 1999 Constitution and therefore null and void.
Whether the Act in so far as it does not give banks or their shareholders or directors the opportunity to be heard in the deliberations of the Asset Management Corporation of Nigeria concerning the banks is not null and void.
Whether the Act in so far as it does not give the banks, their shareholders or directors a hearing as to the classification of their assets as 'eligible bank assets' and whether the Act in so far as it gives to AMCON the sole power to determine assets that qualifies as an 'eligible bank assets' of banks without opportunity to the banks to be heard on the qualification of its asset as 'eligible banks assets' is not unconstitutional, null and void.
Whether the Act in so far as Asset Management Corporation of Nigeria will acquire the assets of a bank without any input or hearing from the bank as to whether the asset of the bank should be classified as 'eligible bank asset' or whether the asset is such that should be acquired by the Asset Management Corporation of Nigeria is not unconstitutional null and void.
Whether the Act in so far as the banks do not have a say in the classification and acquisition of the assets of the banks by the Asset Management Corporation of Nigeria and whether the Act in so far does not require a representation from a bank as to whether the asset of the bank should be classified as 'eligible bank asset' or whether the Asset Management Corporation of Nigeria should acquire the asset of the bank as 'eligible bank asset' is not unconstitutional, null and void.
Whether the Act in so far as it defines 'debt' to mean performing loan and performing loan can be classified as 'eligible bank asset' is not illegal against the tenets of banking and commercial practice, crude, primitive, absurd and repugnant to common sense.
Should the court answer the interrogatories in the affirmative, the plaintiffs seek an order of the court to declare that the entire Act is inconsistent with the requirement of the 1999 Constitution and that of the Fundamental Rights especially the right to fair hearing and therefore, null and void. [22]
5. COMPARATIVE EXAMINATION OF LEGISLATIVE INTERVENTIONS IN CORPORATE FAILURES.
The use of Special Purpose Vehicles (SPVs) to rehabilitate the books of troubled financial institutions has been an age-long practice. [23] There are documented examples of the use of SPVs in the U.S., Sweden, Germany and Ireland. [24] Recently in the U.S., the Troubled Asset Relief Program (TARP) was set up under the terms of the Emergency Economic Stabilization Act of 2008 [25] which authorized the U.S. Department of the Treasury to establish programmes to stabilize the U.S. financial system and prevent its systematic collapse. The TARP has nine components; namely: capital assistance programme; consumer and business lending initiative; making home affordable programme; public-private investment programme; regulatory reform; capital purchase programme; asset guarantee programme; targeted investment programme; and automotive industry financing programme. [26]
According to Kane, any SPV set up to buy up troubled assets of financial institutions should be proficient in four activities; namely: taking over the distressed assets (rescue); valuation of the assets (appraisal); protecting and enhancing the value of the assets (property management); and disposing of the assets (sales and related activities). [27] In addition, the SPV must have experts in each core activity together with experts in the types of assets within its supervision. On the hand, Cassell and Hoffman highlight ten lessons from the U.S. Home Owners' Loan Corporation and the Resolution Trust Corporation as follows: [28]
A temporary, dedicated administrative entity was key.
Clear formulation of the critical task is crucial.
Autonomy and discretion are needed in performing critical tasks.
Flexibility to adapt in the field is essential.
The temporary administrative entities must understand and be responsive to market conditions.
Government must have the expertise to hit the ground running in responding to a financial crisis.
Government must have the ability to effectively monitor and manage contractors.
Government must have sufficient financial and personnel resources to complete the task.
Government must have exit strategies.
There must be clear and transparent oversight.
According to Thomson, [29] Cassell and Hoffman's ten lessons complement Kane's four principles for asset salvage. However, eight key features can be deduced for SPVs used in the resolution of the troubled assets of banks. These are: temporary, dedicated entity; formulation of critical task; autonomy; flexibility; management of contractors; availability of financial and personnel resources; transparency; and exit strategy. [30] These can be said to be international best practices on such SPVs as can be gleaned from experiences in other jurisdictions. It is apposite to undertake an evaluation of the existing framework for AMCON against these features of such SPVs as enunciated.
International best practices in the use of SPV in the resolution of troubled assets of financial institutions are that they are separate entities established for such special assignment. They may be under the supervision of a Department or other agency of government, but they are usually a temporary, dedicated entity. This applies to the AMCON which is specifically created 'for the purpose of efficiently resolving the non-performing loan assets of banks in Nigeria.' While it is clear that the AMCON is a dedicated entity, its temporariness is not as certain. In the first place, the AMCON Act has no provision on the life span of the AMCON. It contemplates that it would be liquidated at some future date, but that date is not provided for in the AMCON Act. The general impression is that the AMCON would exist for ten years. [31] A position that is supported by the fact that the bonds it creates should have a term of not more than seven years. [32]
Transparency is another crucial factor in the success of SPVs set up to resolve nonperforming debts of financial institutions. Its benefits include ensuring stakeholders buy-in regarding the plans and actions of the SPV, providing a framework for effective monitoring of the performance of the SPV, freely and fully communicating with stakeholders on the activities of the SPV, and keeping the SPV focused on its goals. There are several provisions in the AMCON Act designed to make the AMCON transparent in its operations and activities. For example, section 20 enjoins the AMCON to keep proper books of accounts which comply with approved accounting standard. Also, the accounts of the AMCON are required to be audited by an independent audit firm. [33] Moreover, AMCON's audited financial statement is to be published 'in widely available media within six months of its year-end. [34] Also, copies of the audited accounts are to be given to the National Assembly, the Federal Ministry of Finance and the CBN. Furthermore, examiners or any other person may be appointed by the CBN to undertake special or routine examination of the books or affairs of the AMCON. Again, the AMCON is required to submit an annual report to the Federal Ministry of Finance and the CBN within three months after the end of each financial year, the Federal Ministry of Finance or the CBN may require it to report to it, at any time and in any format, on any matter, including the performance of its functions and any information or statistics relating to such matters. The AMCON is also required to submit to both Houses of the National Assembly, through their relevant Standing Committees, a quarterly report of its operations.
Certainly, it is clear that a deliberate effort was made to ensure that there is transparency in the operations of the AMCON. What may be suggested to improve on the transparency measures provided for in the AMCON Act is that the AMCON should use its website a lot more to publish information relating to its activities. For example, all reports, whether quarterly or annual, it submits to the Federal Ministry of Finance, CBN or National Assembly should be made available to the general public on its website. It is important that it communicates a lot with the general public as this would go a long way in dousing the negative impression being expressed about its intention and the purpose for its creation.
In order for the AMCON to be truly effective and to restore confidence in the Nigerian banking system, it must be insulated from political pressure. Fraudulent practices among some of the rescued banks, previously ignored by certain regulators and encouraged by some politicians, contributed significantly to the banking crisis. One way to insulate the AMCON from political pressure is to strengthen its governance through an independent board of directors. The AMCON Act attempts to do so. The board of AMCON consists of 10 directors appointed by the President of Nigeria and confirmed by the Nigerian Senate. [35] The Chairman of the Board is nominated by the Ministry of Finance; the Managing Director serving as the Chief Executive Officer is nominated by the Central Bank of Nigeria. The CBN also nominates 3 executive directors. The remaining five members of the Board are non-executive directors, two of whom are nominated by the Ministry of Finance, two by CBN, and one by the Nigerian Deposit Insurance Corporation. All directors serve a five year term, with the possibility of a reappointment to a second five year term. [36] CBN appoints 6 of the 10 directors of the AMCON board and, therefore, has significant influence on the management of AMCON.
However, this paper criticizes the broad ability of the President and CBN governor to remove members of the board does not support the independence of AMCON because the board members could be susceptible to pressure from these two senior government officials. While the Jonathan administration appears to respect the independence of AMCON and the CBN, this statutory provision does not create a strong institutional barrier to removal of AMCON directors as they can be removed merely for expediency. [37] While other provisions of the AMCON Act appear to state AMCON is an independent agency, these provisions include the following language: 'except as otherwise provided in this Act'. [38] This proviso creates an exception that is used in other provisions of the Act. [39] Section 8 of Part I of the Act provides: 'The Central Bank of Nigeria, in consultation with the Federal Ministry of Finance, may issue guidelines and directions in writing to the Corporation in connection with the performance of any of the Corporation's functions under this Act.' [40] Furthermore, the AMCON Act provides that the CBN can supervise and regulate AMCON as necessary. [41]
One commentator stresses the lack of independence of AMCON could forecast its potential failure to reform the banking system of Nigeria. [42] Other successful asset management companies designed to remove non-performing assets from the banking system similarly lacked independence from bank regulators. For instance, the Resolution Trust Corporation ('RTC') established in the late 1980s in the United States was created 'to manage and resolve failed savings associations that were insured by the Federal Savings and Loan Insurance Corporation.' [43] The RTC, officially established on the Aug. 9, 1989, was to terminate all of its functions no later than Dec. 31, 1996. [44] The Thrift Depositor Protection Oversight Board was responsible for the general oversight and periodic review of the performance of the RTC. [45] The Board is required, in consultation with the Resolution Trust Corporation, to develop and establish overall strategies, policies, and goals for the Corporation's activities, including the Corporation's overall financial goals, plans and budgets.
The governance of the RTC and AMCON is remarkably similar. While the AMCON legislation enumerates several areas in which the CBN may regulate AMCON's activities and the CBN in effect appoints a majority of the AMCON board, the Oversight Board of the RTC consisted of the senior officials of the central bank and other bank regulatory agencies in the United States who are political appointees. The RTC is considered one of the more successful asset management companies created within the last thirty years. [46] Unlike the RTC legislation, the AMCON Act contains no termination date. The current AMCON Managing Director Chike-Obi and Governor Sanusi have implied that AMCON will not operate for more than ten years. The maximum term of the bonds to be issued by AMCON, one of AMCON's principal sources of funds, is limited to seven years. [47] This time limit is a strong indicator that AMCON is intended to operate for a limited time. [48]
The effects of the AMCON purchase of NPLs should become more apparent in 2012. AMCON's resolution of the rescued banks should release liquidity currently trapped in the banking system and encourage lending by banks. A key indicator of success will be an increase in prudent lending by Nigerian banks in 2012. According to a few initial reports, some debtors of banks were refusing to pay on existing loans with the idea that the loan would become non-performing and sold to AMCON. The debtor was expecting to obtain better terms from AMCON. AMCON and CBN have condemned this behaviour because widespread refusal by debtors to pay would undermine financial stability. The creation of AMCON does raise the issue of moral hazard - both improper behaviour by debtors and risky behaviour by bank executives if they know they will be bailed out by the federal government. The recoupment of significant value from the NPLs purchased by AMCON will be a significant measure of success. However, the amount of recovery will not be known for several years as was the case with Danaharta in Malaysia and the RTC in the United States. The Nigerian banking sector has decreased from the 24 banks to 19 banks. With additional consolidation in the banking sector, competition will likely decrease resulting in higher charges to banking clients in an already high cost operating environment. On the other hand, the abolition of the universal banking model will allow for different types of financial institutions to operate in Nigeria and may attract some Nigerian or foreign investors who were discouraged by the high initial capital investment required to open a universal bank. The proper management and subsequent disposition of the three nationalized banks indicate the continued emphasis on reform of the banking system. In addition to stabilizing the banking system, a stated goal of the nationalization of the three banks was to protect jobs in those banks. For instance, Mainstreet Bank employs 4,000 people in an economy with a high unemployment rate. [49] A restructuring of the three banks, including a reduction or redeployment of staff, will be necessary to prepare the banks for eventual sale.
Finally, Sanusi has made some provocative statements regarding the role of a central bank as an agent for economic development in an emerging market. [50] Sanusi has forcefully expounded on the role of the central bank in developing the economy not merely by focusing on price stability and financial stability, but also by directly encouraging growth in specific sectors.
The CBN has identified three key sectors for growth - power, transportation, and agriculture - and proposed specific financing programs for these sectors.58 Responding to criticism about expanding the CBN's mission beyond its original intent, Sanusi states: Some schools of thought have questioned the rationale for any central bank to pursue the so called multiple objectives. Let me emphasize the fact that in a developing economy such as ours in need of strong growth, typically a central bank's objectives should include developmental role in addition to its core mandate of ensuring price stability. Indeed during the global financial crisis, most central banks subordinated the price stability objective to achieving financial stability and initiating growth.
A concern with this additional role is that the CBN may be expanding its mission without the necessary financial or human resources to meet all these objectives successfully. The regulatory reform initiatives undertaken by the CBN and AMCON - more stringent banking regulation and supervision, the creation and ongoing management of AMCON, the sale and recapitalization of five rescued banks, and the management and eventual sale of the three nationalized banks - as well as monetary policy implementation consume a large amount of personnel and senior management time. Adding development initiatives to CBN's existing responsibilities could prove to be an enormous challenge. Additional monitoring is warranted.
6. CONCLUSION.
From the arguments and submissions reached in this paper, it is clear that no nation, no matter how economically buoyant, can boast of complete insulation from corporate fraud. Concerted efforts are put in place to check incidences of failures and minimize effects it may have on investors and the economy as a whole.
For example, as lesson to nations who think they have the well wither to shield their economy from crisis, the first reaction from politicians and other professional unions in the European Union was to treat the phenomenon arising from the Enron and subsequent scandals as an American abnormality. The United States corporate system was alleged to be suffering from a 'lethal combination of greedy executives, conflicted auditors, reliance on accounting rules instead of principles and an obsession with quarterly earnings'. [51] The euphoria did not last as Royal Ahold of Netherlands reputed to be the world third largest food retailer disclosed on February 24, 2003 that it had overstated its 2001 and 2002 earning for over $500 million. [52]
This led the EU to take serious and make practical step to improve the governance system in the corporation of member states. This was buttressed by the high priority given to the work of the High Level Group of Company Law Experts who brainstormed on ways to curb increasing cases f corporate failures in Europe. [53]
Thus, the aftermath of corporate scandals and promulgation of the Sarbanes-Oxley Act has prompted a number of countries to amend their corporate governance code. Leading the pack is Japan with what is now referred to as the J-Sox. [54] Italy has followed suit with the reformation of its corporate governance relating to financial services institutions. The United States and European experience have clearly revealed that governance system should not be left to the whims and caprices of the corporation. The deficiencies in the self-regulatory regime of governance system are indeed very glaring. There is much apprehension on the destination of the corporate system in Nigeria. The running of public companies leaves much to be desired. From all indication, it is evidently clear that we do not have a minimum acceptable standard of corporate governance on accountability in the Nigeria system.
As clearly seen from the submission of this paper, the Oxley Act is not a perfect legislation and indeed possessed certain inherent weaknesses. Be that as it may, it is the firm position of this paper that Nigeria has much to gain from studying and adopting certain provisions of the reform especially as it relates to accountability and disclosure. Scandals have no nationalities. What happened in other jurisdiction can and is happening in our Nation with more destructive consequences.
The case of Cadbury Nigeria Plc and the banking sector crisis which AMCON is establish to savage, buttress the above assertion. The Cadbury's case was a bit pathetic as the dramatis persona in the financial imprudence was hitherto credited to be of impeccable character. Also culpable are auditing firms of the highest credentials in Nigeria. The Nigerian investing public was shock to their marrow when the financial saga broke in late 2006. The Bunmi Oni led Board of Cadbury was engaged in stock buy-back, cost deferrals, trade loading and false supplier stock certificates since 2002. Quite interestingly, Oni was named by Pricewatercoopers in September of the same year as the most respected Chief Executive Officer in Nigeria. [55]
The regulators of Nigeria's securities market can no longer behave like the proverbial ostrich. It is high time they came out clearly with governance system that will change the unacceptable corporate culture to ensure best practice. The positive development in the Cadbury saga is the legal action embarked on by 300 Cadbury Nigerian shareholder and Lagos based brokerage securities firm against Cadbury and PricewaterhouseCooper for negligent conduct. The legal challenge impacted positively on shareholders activism in Nigeria and other emerging markets.
Due to the foregoing, this paper recommends an urgent reform of the Companies and Allied Matters Act especially chapter 1 of Part XI on provisions dealing with financial statements and Chapter 2 on Audit to bring them in line with reform in the US and other jurisdictions. Reform is also strongly advocated to radically change in Chapter 1 of Part IX dealing with Director with a view to ensuring the independence of the Board as it relate to the Independent Director and the Audit Committee in public Companies.
The effect of Sarbanes-Oxley Act on governance system especially on accountability of Board and Management of public corporation, resolving conflicted situations and enhanced disclosure regime cannot be overemphasized. This paper has analyzed the inherent weaknesses in the Sarbanes-Oxley Act and therefore cannot advocate a wholesome adoption.
However we cannot shy away from the fact that our system need heavy dose of reform. As such this paper calls on all stakeholders to wake up and scrutinize the integrity of corporate governance in Nigeria. The paper emphasizes that any reform in Nigeria that fails to start from the regulators - CAC and SEC is doomed to fail. This is because what will have in Nigeria are beautiful but unenforced legislations as the regulators lack the capacity for enforcement. This paper cannot but fully agree with Abugu on the effectiveness of Securities and Exchange Commission on monitoring and enforcing provision of the ISA on Insiders. The Securities and Exchange Commission lacks the legal and administrative framework to effectively police the securities market, detect and prosecute insiders. The war against insiders as it is now, is merely a statutory war where the Investment and Securities Act and its precursor, the Companies and Allied Matter Act; have made a number of bold innovative provisions designed to check insider dealings, but there remain to be seen an infrastructural machinery for the effective monitoring, investigation, detection and punishment of insider dealing in the capital market. [56]
On the second part of this article dealing with rescue intervention in Nigeria's banking crisis, the paper submits that the AMCON is designed to play a very crucial role in savaging the situation and by extension, the economy. A lot of people are depending on it succeeding. Thus, it must not fail. Its failure would have disastrous consequences. In spite of all the positive wishes for the AMCON, this paper is convinced that the AMCON is faced with an uphill task which is bound to negatively impact on its success.
Firstly, there are fears that the AMCON may be bogged down by litigations and other bureaucracy. [57] Already some cases have been instituted in court against the AMCON. [58] It is reasonable to expect the deluge of litigations against the AMCON by the debtors to these EFIs in respect of non-performing loans. [59] This contention is predicated on the fact that the AMCON did not contact the debtors before purchasing the EBAs from the EFIs. Most of the bank debtors are contesting the amount of indebtedness their banks claimed against them as was evident when the names of bank debtors were published in 2009.
Secondly, the special powers [60] conferred on the AMCON which are rather arbitrary and unilateral could stir up some legal challenges when implemented. Another concern about AMCON is the valuation method for troubled assets as the shareholders of the assets have no say in the determination of the value of the assets. Moreover, the fact of the enabling statute not providing for the terminal date for the AMCON could occasion some needless distractions and scheming. Already, there are calls for the extension of the ten-year generally accepted terminal date for the AMCON. [61] Lastly, the most touted evidence that the AMCON is designed to fail is the pervasive and domineering influence of the CBN over the AMCON. The CBN has such pervasive and domineering influence over the AMCON that can be stifling. Though CBN holds 50 per cent equity in the AMCON, the level of control the CBN has over the AMCON ex facie would suggest that the AMCON is a wholly owned subsidiary of the CBN; which is not the case. It is conceded that the creation of the AMCON is the brain-child of the CBN, but that is not an excusable justification for such pervasive dominance.
This paper contends that numerous provisions of AMCON Act are unambiguously in breach of the Constitutional provision on Fair Hearing [62] and by extension, offends the Supremacy of the Constitution. [63] section 36 and section 1(3) of the 1999 Constitution of the Federal Republic of Nigeria and submits that such provision void be declared null and void when tested in court. The declaration of debt obligations by members of its Board of Directors and employees; indemnification against worthless collateral; non-prejudice by lack of notice to debtors by EFIs; subrogation of rights of EFIs; dedication of a special judge to handle AMCON-related matters by the Attorney-General of the Federation or any other person appointed by him being designated to handle AMCON-related matters without recourse to the rights of the shareholders to determine the faith of their investment; and the exemptions granted to the AMCON in respect of certain statutes ; all lend credence to the submission that AMCON is designed to fail.
While Enron Corporation, like the eight troubled Nigerian banks was so highly praised by the outside observers, internally these companies had highly decentralized financial control and decision-making structure, which made it practically impossible to get coherent and clear view on their activities and operations. Of course, the problem was not exclusively due to poor managerial performance, all the departments of these companies were involved in the running of corporate ethical values and principles, but executives and managers bear primary responsibility for the absence of corporate culture, clear accountability and transparency of the companies. Family and ethnic affiliations in the management and running of Companies should be de-emphasis, if not totally removed, Code of corporate governance and allied regulations and legislations should be given primacy in decision making and in the policy trust of the corporate entity - else sooner than later, the economy becomes endangered species to the avarice of greedy executives and their cronies in government.
