Strong indications emerged last week that the slowdown in Nigeria’s property market for four successive quarters (from Q4. 2014 –Q3.2015) may have begun to take its tolls on the value of assets held by banks for the various facilities granted different classes of borrowers.
Banking industry watchers believed the erosion of values of some of the assets acquired by banks as collaterals for loan facilities was raising concerns in the industry on how lenders could bridge the gap between the true value of the facilities and the current valuations of assets.
Managing Director, Asset Management Company of Nigeria (AMCON), Mr. Ahmed Kuru, who confirmed the development, explained that the slump in the real estate sector has seriously affected the value of banks’ assets, one of the reasons he advanced for the corporation’s resolve not to acquire non-performing loans of banks anymore.
He said, “AMCON is not ready to acquire new loans again. If you do a proper analysis of assets banks are holding, you will be shocked.”
He disclosed that pricing of some of the assets taken over from delinquent depositors haven’t been favourable as a result of price depreciation, saying most of the prospective buyers of some of the assets advertised for sale in the newspapers wanted to buy such assets at a premium.
The development is coming at a period when non-performing loans ratio in banks is on the rise.
Kuru said purchasing more non-performing loans would encourage banks to buy bad assets, saying the development may necessitate the intervention of another bad bank to take care of AMCON.
Reports have it that real estate pricing in key locations of Lagos slowed down by up to 22 per cent in some places, not surprising though due to four successive quarters of slowdown from Q4.2014 – Q3.2015 as a result of uncertainties simultaneously fueled by the last general election.
There are also reports that the hitherto sizzling Dubai property market has slumped, leading to as high as 51.8 per cent plunge in the volume of transaction and 37.1 per cent drop in the value of transaction. For close watchers of the global housing development, this development has significant impact on the world economy.
The AMCON chief also disclosed that a weak economy is hindering efforts to recover billions of dollars of loans and other assets it took on five years ago to rescue banks in Africa’s biggest oil producer.
“The price of crude oil below $40 per barrel impacts the government’s ability to honour its obligations to those that are owing us,” Kuru said. “The impairment of oil assets we took over is another problem. Real-estate assets are challenged as the economy is going down.”
AMCON has no plans to offer Nigerian lenders another bailout following last year’s plunge in crude prices, according to Kuru. Non-performing loans will climb to between five and 10 per cent in the next two years from 2.9 per cent at the end of 2014, Moody’s Investors Service said last month.
“If you say you will always intervene it will breed rascality in banks,” Kuru said.
AMCON is meant to repay its liabilities by recovering loans and selling other assets, which include ownership of Keystone Bank Ltd. and stakes in Unity Bank Plc and Wema Bank Plc. The agency is funded by an annual levy on banks worth 0.5 percent of their assets.
Speaking on the drop in the price of crude oil; now at $40 a barrel, he said that it would also have multiple implications on AMCON’s debt recovery.
According to him, “this reduces government’s ability to honor even its own commitments, which means if we have customers or stakeholders who have loans with us and part of those loans are expectations from government payment, that one is impaired.
“Two, because of the price of crude which has also affected turnaround in the economy, economic activities of some of the businesses that owe have been weakened and their ability to repay is also impaired.
“Then we also have the impairment of some of these assets that we are holding, because the oil and gas sector represents more than 30 per cent of our book.”
“If we have a tank farm that was worth N10 billion yesterday, and you want to buy it today, obviously it reflects the price of crude. That also is a challenge to us because the price of crude is affecting some of our assets.
“As I’m talking to you, there are quite a lot of assets that disposing them will be challenging. For instance, there are quite a lot of tank farms in Apapa. And that is a specialised asset.
“Whoever indicates interest, will do so based on cash flow projections, expecting that five or 10 years down the line, they would have been able to pay back. To dispose of them is a big challenge and disposing of them at the prices we got them is also another challenge.