Thread by @yinkanubi

You might have seen this headline. And it probably won't trend. According to the Finance Minister, despite AMCON total debt obligation to the CBN in excess of N5tn, it has only "been able to recover over N1tn since inception". She goes further to say

punchng.com/amcon-recovere…

"It is evident that the FG cannot afford to write off this debt in the short term hence, our moral obligation to pursue obligors and recover the debts owed.” - Zainab Ahmed

What does this mean & what is she trying to imply by this statement? No qualms I'll break it down for you.

AMCON was established in 2010 to acquire eligible bank assets aka Toxic debts from banks to "stabilise the financial system". As at 2017, total liability was about N5.4Trn while total assets was about N1.5trn. Meaning assets can't cover liabilities. premiumtimesng.com/news/headlines…

The question you should ask is that "how and where did AMCON raise $15 Billion to buy toxic asset"? The answer is by "printing money" through raising bonds in excess of N3.8 Trillion. These bonds are backed up by the "Sovereign Guarantee of the Federal Government of Nigeria"

What does sovereign guarantee mean? It means in the event of default, the Federal Government of Nigeria will discharge the liability in full i.e. pay for it. That is a commitment to use Nigeria's revenue (inclusive of tax payers money) to offset the liability.

Keep in mind that AMCON cashflow comes from recoveries from sales of assets and shares in intervened banks, annual contributions from CBN and sinking fund. So if AMCON has N5.4Trn debt and only N1.5Trn asset + N200B sinking fund, that means there's a shortfall of circa N3.7Trn.

The question is - What happens if AMCON is unable to offset this short-fall of over N3 Trillion? The only option left would be to "write off the debt". Meaning the tax payer will bear the burden.

So now you understand what the Finance Minister meant by these words.

So the Finance Minister is only sending a strong message to AMCON that writing off these debts is NOT AN OPTION. That they must do all they can to recover these debts. For context, of the 13,000 bad loans acquired by AMCON, N4.3Trn (80%) is held by 350 Companies and individuals.

If you pause for a second to think that Nigeria has made a commitment to (if necessary) write off debt of 350 people owing trillions in other to "stabilize the financial system", then you wonder why investing in millions of people who contributes 50% of GDP is seen as "a waste".

BTW, maybe this is a good time to ask when AMCON is expected to wind down. Is it in 2024, 2030 or forever? One thing is obvious. The more they acquire new loans and their liabilities exceed assets, the more it is looking like the expected terminal date will never come.

UPDATE!

I understand the total sinking fund upto date is a little over N1 Trillion.