ABSTRACT
One of the most conclusive lesson of economic theories over
the past three centuries is that free markets, when allowed to operate within
the norms of fairness to all market participants, lead to enhanced growth in
the national economy. When government fails in its role as a regulator, it
creates the market noise that may lead to market failures. Attempts to deal
with these failures in themselves sometimes deepen the problem. Sustained
market failure results in economic depressions, which are significant
dislocations and depletion in the national well being through losses in
individual wealth. In the aftermath of the global financial crisis that erupted
in 2007 and 2008, several governments across the world adopted emergency
economic and financial measures to confront the massive financial implosions
that faced their national economies. Some of these measures were put in place
without thorough academic, legal, or policy analysis. These fire brigade
approaches to national emergencies seemed necessary to avert national financial
calamities, especially where some of the leading economies of the world were
prodding others to respond. In Nigeria, rash monetary authority examination of
the financial crisis created uncoordinated responses that jig-sawed from
indictment of nearly half of the leading financial institutions in the country,
forced bail out of some of the institutions through infusion of public funds,
removal of financial institutions management teams, to the birth of AMCON.
However there have been criticisms leveled against the establishment of AMCON,
It is against this background that this work examined and critiques the Asset
Management Corporation Act of Nigeria 2010. Consistent with the above the study
sought to; examine the Act establishing the Asset Management Corporation of
Nigeria in the light of other existing Acts in Nigeria; examine the rationale
behind the contribution of public fund as a start-up capital for the Asset
Management Corporation Nigeria; examine what constitute eligible bank asset in
line with Asset Management Corporation of Nigeria classification of bank asset;
and examine what constitute debt in line with Asset Management Corporation of Nigeria
definition of Non-performing loans. The research design adopted was the
comparative research design and the ex post facto research design to
enable the researcher makes use of secondary data. The findings from the
research revealed that the duty of AMCON as regard being a systemic regulatory
agency is in conflict with CBN, NDIC, EFCC and other existing laws put in place
to strengthen the financial sector of Nigeria; Asset Management corporations in
other jurisdictions have government funds as start-up capital, thus the use of
government fund in the establishment of AMCON is not out of place; the Act did
not give the banks, their shareholders or directors a hearing as to the
classification of eligible bank assets; the Act definition of debt is vague, as
regards classifications of debt as performing, doubtful and non-performing
which banks are required to make provisions for. The study thus recommends that
government should encourage the development of a free market in Nigeria where
market forces are allowed to determine price and output. It is only in such an
atmosphere the long-run growth and development of the Nigerian economy could be
achieved and sustained.
CHAPTER
ONE
INTRODUCTION
1.1 Background
of the Study
The banking system often dominates the domestic financial
system in most emerging markets (Fung, George, Hohl and Ma, 2004) with
enterprises and individuals relying heavily on banks to provide financing and a
vehicle through which to invest funds in the form of deposits. As a result, the
problems experienced in recent years by many countries’ banking systems have
had a more far-reaching effect than they would have had the financial sector
not been so concentrated in banks. In some cases, most easily identified by a
high level of non-performing loans (NPLs), these banking problems have
contributed to major economic crises such as the Asian crisis that began in
1997, threatening the stability of the entire financial system and the economy.
Therefore, the restructuring of the banking system and its return to a sound
financial condition has become a key step in the overall revitalization
programme for the economy and is instrumental in the return of broader economic
stability and growth (see, Fung, George, Hohl and Ma, 2004)
The dramatic impact of the recent financial crises which
erupted through the U.S. Subprime housing market precipitated a decline in the
price of financial assets that were associated with housing, in particular
mortgage assets based on subprime loans that lost value as the housing boom
ended and the market underwent a dramatic correction. Some institutions found
themselves so exposed that they were threatened with failure and some failed
because they were unable to raise the necessary capital as the value of their
portfolios declined triggered a global financial crises which affect most
countries in the world. By late summer of 2008, the potential ramifications of
the financial crisis ranged from the continued failure of financial
Asset management basically refers to managing money for
individuals through stocks, bonds and cash equivalents etc. The asset
management system sprang from maintenance management systems and its aim is to
optimise asset use and manage all maintenance efforts involved in making the
assets as confidential, accurate and efficient as possible. The principles of
asset management apply equally to all physical assets such as infrastructure,
property, heritage, plant and equipment. The term “asset management company”
(AMC) in regard to toxic assets refers to any organisational unit created to
manage and recover financial assets acquired from troubled or failed financial
institutions. Such entities include asset workout departments or units of
banks, bank-owned subsidiaries or affiliated companies, private companies, and
government owned asset management agencies (Agbakoba and Associates, 2010).
The Asset Management Corporation of Nigeria (AMCOM) came
into being on July 19, 2010 as a body conceptualized as a resolution mechanism
to stimulate the recovery of the financial system by acquiring non-performing
loans from banks and
However there has been lots of criticism of the Act
especially the use of public funds in acquiring the toxic assets of banks.
Experts have questioned the failure of AMCON Act for not making provision for
total independence, at the beginning, from government money. Analysts have also
raised alarm that as time goes on, AMCON may engage in favoritism in their
purchase of toxic assets. They postulate that the issue of favoritism will
become severe if AMCON is unable to raise enough money to fund the purchase of
the entire assets during its life time as a result of poor macroeconomic
environment. Future economic downturn may increase insurgence of bad loans in
the economy and reduce AMCON funds; therefore this may lead to a
rationalization of AMCON funds. This may put the Corporation in a position to
choose favorite among bad loans submitted by various banks (see, Pan African
Capital Limited report, 2011).
Other critique against the act are that it is inconsistent
with the requirements of the constitution of the Federal Republic of Nigeria
1999 and the Fundamental Right provisions of the 1999 constitution especially
the right to fair hearing and the Act according to critiques is repugnant to
common sense and thus inhibiting the spirit of free commercial enterprise on
what is acceptable classification of eligible bank assets.....
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