AMCON Funding to Reduce Banks’ Earnings, Returns

Insideafrik
NEWS, NIGERIA

The planned increase in banks funding of the Assets Management Corporation of Nigeria (AMCON) from 0.3 per cent to 0.5 per cent will reduce banks Earnings per Share (EPS) and Return on Equity (ROE) by 1.8 per cent and 100 basis points in 2013, experts in the financial service sectors have said.

Nigerian banks currently pay 0.3 per cent of their previous year’s total asset balance to AMCON. This is effectively the cost to the banks in exchange for the state bailing them out after the None Performing Loans (NPL) crisis of 2008/09.

In a report made available to THISDAY, experts at FBN Capital described the planned increase as an unwelcome present for the banks and estimated that AMCON will raise N58 billion ($367 million) from the banks in 2012.

“The additional levy imposed on them (banks) by moving from 0.3 per cent to 0.5 per cent from 2013 equates to N107 billion – an 83 per cent year-on-year increase, or 67 per cent more than what they would have paid normally. While the impact equates to 1.8 per cent reduction to EPS, an increase in the levy to 0.67 per cent is likely to unsettle the banks. In a worst case scenario, for some banks, we estimate a 100bp reduction to its ROE, “they said.

However, THISDAY’s findings revealed that while the banks accepts the levy (i.e. the principle behind it) in public (as a necessary evil in a sense), privately, they are seething at the proposed hikes.

AMCON had at a year-end meeting with analysts and newsmen in Lagos said, for the year 2011, it reported a loss after tax of N2.37 trillion ($15 billion) on gross earnings of N468 billion ($2.7 billion).
AMCON said the loss was driven by N1.33 trillion ($8.4 billion) of exceptional items, a substantial proportion of which came from the 3 recapitalised banks that are 100 per cent owned by AMCON.

AMCON added that it expected the loss to narrow in 2012 to -N700 billion ($4.4 billion). For 2013, AMCON said it expected cash flow to be strong as resolutions with debtors begin to have an impact.

At a recent Bankers’ Committee meeting, the banks agreed to their AMCON levy rising from 0.3 per cent to 0.5 per cent in 2013.
While confirming the agreed increase, AMCON also indicated that if its funding gap widens more than it expects, an increase in the levy from 0.5 per cent to 0.625 per cent may have to be looked into.

“We had held the view that N1trillion (our estimate of the total levy over 10 years at 0.3 per cent) was insufficient against AMCON’s general funding requirements. The move to 0.5 per cent takes that figure up to N1.5 trillion ($9.5 billion). Beyond 0.5/0.625 per cent, the banks will be hoping that there will be no more ‘shifting of the goalpost, “said FBN Capital.