A lot has changed positively in Nigeria banks and the banking industry due to the interventions of the Assets Management Company of Nigeria (AMCON), experts explained.
According to them, it was a wise decision to purchase N5 trillion non-performing loans of banks by the corporation, as this led to cleansing of balance sheet of lenders, improving their business as well as earnings and that of investors who traded in bonds and shares.
According to them, since the lenders were no longer pressured by non-performing loans, banks were able to declare a huge profit in the 2012 financial year.
The immediate past Chairman, Guaranty Trust Bank Plc, Mr Oluwole Oduyemi, said the recorded growth achieved by banks could be as a result of AMCON’s intervention in the industry. He added that the corporation’s intervention has also translated to good earnings for investors in equities among other traded instruments.
He said: “The successful cleansing of bank’s balance sheets through the sale of non-performing loans to the AMCON gave most banks the wherewithal to refocus their energies on driving growth, engaging in stiff competition for deposit liabilities, and engendering a more competitive environment for all players.”
The Managing Director, BGL Securities Limited, Mr Sunday Adebola, also said AMCON’s intervention led to investors making capital gain, of which they showed positive reactions and resulted to banks making profits.
He said investors are focusing on banking stocks because that is where they can get capital appreciation. “Many investors have recorded an average 100 per cent gains from bank stocks in recent times. Few days to the release of the International Financial Reporting Standards (IFRS) complaint audited reports of banks, many investors entered the market and exited as the Annual General Meetings (AGM) are approaching.
“They are making money through capital appreciation and dividends. This is the period of picking of earnings. Investors would continue to pick earnings from stocks of banks as long as they are free of toxic assets. This could not have been possible if the banks are still weighted down by huge non-performing loans,” said Adebola.
Mr. Adebola mentioned that accidental factors, such as interest on domestic and foreign portfolio investors also played there parts in the growth of the banking sub sector, but the Central Bank of Nigeria (CBN) and AMCON-induced reforms played major roles.
“Though the banking sector contributes over 50 per cent of market capitalisation, the fact is that investors are looking for safer and highly rewarding investment.
“The confidence engendered by AMCON made investors to buy banks-owned stocks in expectation of good returns,” he added.
According to the esteemed Managing Director of BGL Securities ltd., corporate bonds especially those issued by banks are embraced by investors because they derive values from them. He said, “The rate of defaults in banks’ bond is zero. Investors know banks are making money and, therefore, cannot default by way of paying them interest on bonds. They are convinced that they would get returns when they exit at the point of maturity.
“Had it been that the banks are still facing serious liquidity challenge as evident by the debts sighted in their accounts after the audited test of 2009, nobody would take a look at their products. But the reverse is the case as banks are increasing their deposits and lending to some sectors.”