As Harsh Regulations Stifle Businesses

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As private sector operators lament the various challenges posed by the difficult operating environment, Crusoe Osagie looks at a fresh hurdle before businesses in Nigeria

But for the role President Barack Obama played in the rescue of the United States private sector during the global economic meltdown in 2008, he probably would have been classed among the worst presidents in the history of his country.

As at today, the US seems to have done better than most countries in the aftermath of the 2007-2009 financial crisis. Europe has struggled to cope with high debts and epileptic growth. And Japan has continuously walked on the edge recession. Among the world’s top economies, only China mostly escaped the worst of the fallout from the Great Recession.

The US has grown steadily at about a 2per cent pace since a recovery began in 2010. There has been a surge in job creation — 14 million new jobs since 2010. Auto sales recently hit a record high and home builders are rushing to build new properties to meet rising demand.
The success of the US in managing the financial crisis was premised two laws quickly enacted by then outgoing president, George W. Bush and Obama.

While the crisis was initially engaged with the Emergency Economic Stabilisation Act of 2008 signed into law by Bush, the momentum was sustained by a second law sighed by Obama called the ‘American Recovery and Reinvestment Act of 2009 (ARRA)’
The Emergency Economic Stabilisation, which is a mirror image of the Nigerian law which set up the Asset Management Corporation of Nigeria (AMCON) was enacted in October 3, 2008, commonly referred to as a bailout of the US financial system, is a law enacted in response to the subprime mortgage crisis authorising the United States Secretary of the Treasury to spend up to $700 billion to purchase distressed assets, especially mortgage-backed securities, and supply cash directly to banks.

The funds for purchase of distressed assets were mostly redirected to inject capital into banks and other financial institutions while the Treasury continued to examine the usefulness of targeted asset purchases. Both foreign and domestic banks were included in the programme.
The implementation of this law, coupled with ARRA, was chiefly responsible for the rebound of the US economy which now has as much jobs as its citizens are will to do.

Different Case in Nigeria
Unfortunately, the same cannot be said about the Nigerian equivalent of these interventions.

AMCON, unlike its US counterpart, thinks it is better to shut down businesses everywhere and create the very scenario, which it was established to prevent: Economic lull, loss of jobs, declining investment and dented business confidence.

As for businesses that have faced the wrath of AMCON, it is a lengthy roll call. Multitrex, a foremost cocoa processing company in Nigeria; Aero Contractors Limited, Bi-Courtney Limited and Capital Oil Limited. There were all shutdown by the corporation with thousands of Nigerians sent to the unemployment market. Last month, AMCON sealed the Abuja premises of Silverbird Galleria belonging to Senator Ben Murray Bruce. The galleria currently houses the Abuja studio of the radio and television stations of the senator as well as his other business interests. Apart from Bruce’s companies, the seven-storey building also houses other business interests such as Shoprite, United Bank for Africa, Standard Chartered Bank, Mango boutique, and Etisalat office among others. The building was sealed by AMCON through the assistance of law enforcement agencies around 8am following a court order secured by AMCON. Conspicuously written on the fence of the building as well as other strategic locations was an enforcement notice by AMCON, which says, “Possession taken by court order 26/06/16.”

Impossible Regulatory Requirement
Along with the Central Bank of Nigeria (CBN), AMCON has another set regulations, which may be the final lethal blow for companies across the various segments of the economy from financial sector to manufacturing and oil and gas.

For companies already indebted to AMCON by reason of the fact that earlier debts to commercial banks were purchased by the corporation, the CBN seems to have crafted a set of regulations that make it virtually impossible for banks to grant them credit in the future.
Analysts believe this approach is rather counter-productive, because the reason why the toxic assets were inherited by AMCON in the first place was to free both the financial institutions and the business operators to continue to advance their ventures, in order to keep the companies alive, so as to gradually pay off their initial debt now held by AMCON.
Unfortunately, the CBN has imposed some extremely stringent rules for accessing credit on private sector operators, even the ones whose existing debts with AMCON are performing.

Imagine banks trying to advance credit to companies who although indebted to AMCON, have performing loan status, getting the following correspondence from the CBN in a letter signed by its Director of Banking Supervision, Mrs. Tokunbo Martins: “Following the issuance of our circular of June 30, 2014 titled “Prohibition of Loan Defaulters from Further Access to Credit Facilities in the Nigerian Banking System,” the CBN has received several requests from DMBs seeking approval to extend further credit facilities to the above concerned obligors.
Having consideration of the various points raised by the DMBs, the CBN in this regard is issuing the following guidelines for the process of considering such requests.

Amcon Obligors
“An institution, having done a credit appraisal on the delinquent obligor and is desirous of extending a new facility to the obligor; should approach AMCON and obtain the following: The value of the obligor’s EBA purchased by AMCON; the terms of settlement reached between the obligor and AMCON, including a copy of the offer letter issued by AMCON upon restructuring of the facility; the current performance status of the obligors’ facility(ies) with AMCON and details of repayments so far made with dates; Obligor’s good faith payment made (if any) and collaterals held; and a letter from AMCON expressing no objection (not guarantee) for the grant of the new/additional facility by the DMB.

“After obtaining AMCON’s expression of no objection, the financial institution should write to the CBN seeking an exception for the obligor. The letter should be forwarded along with the following: The above information received from AMCON and AMCON’s letter of no objection (not guarantee) for the grant of the new/additional facility; Details on the proposed additional facility and the purpose of the facility. The institution’s request should include reasons advanced by the obligor for non-repayment of initial facility(ies) availed; Details on how the new facility would positively impact on the obligor’s outstanding indebtedness to AMCON or on any other delinquent facility (ies); Details of the collateral/credit risk mitigants proposed for the new facility and the level of perfection of title. This should also include valuation reports, from two independent valuers, indicating the open market value and forced sale value of the proposed collateral. The security/collateral should be distinct from whatever collateral is being held by AMCON for the EBA (Eligible Bank Asset) or where not different, details of agreements reached in this regard; and the sign-off of the bank’s Chief Risk Officer (CRO).

Other Categories Of Delinquent Obligors
The Institutions’ request to the CBN should contain the following information: Details on the proposed additional facility and the purpose of the facility. The institution’s request should include reasons advanced by the obligor for non-repayment of initial facility(ies) availed; Details on how the new facility would positively impact on the obligor’s outstanding indebtedness to any other financial institution; Details of the collateral/credit risk mitigants proposed for the new facility and the level of perfection of title. This should also include valuation reports, from two independent valuers, indicating the open market value and forced sale value of the proposed collateral; Evidence of the institution’s board approval for the new facility which shows that the board is aware that the borrower had defaulted on its previous loans and the institution is desirous of extending an additional facility to the obligor; and the sign-off of the bank’s CRO.

“In addition to the requirements for AMCON obligors and other delinquent obligors above, the lending institutions must meet the following prudential requirements: The institutions must have met the minimum regulatory and internal economic capital adequacy ratio and liquidity ratio requirements for six months prior to the request; The non-performing loans ratio of the institution should not have exceeded 5per cent in the last six months prior to the request; and The bank would be required to make a provision of 50 per cent on the loan from the onset of the loan irrespective of performance status and 150 per cent if for any reason the loan later turns out to be non-performing. After a review of the bank’s request, the CBN would either note the bank’s submission or decline. Institutions should be aware that the CBN’s position does not compel the bank to avail any facility to the obligor.”

With these sort of stringent rules in place, clearly, most of these companies would be denied credit by the banks, therefore, even companies with performing loan status with AMCON will soon slide into non-performance, leading to the failure of more and more companies, damage of the spirit of enterprise, and inevitably leading to more and more job losses and a contracting economy.

Considering the current economic crisis at hand, the federal government must rethink its financial engineering strategy and make adjustments in regulations not to encourage dubious debts but also not to stifle enterprise.