The Asset Management Corporation of Nigeria (AMCON) has once again brought to light the difficulty it faces in recovering over N4tn from debtors who are unwilling to repay their loans, indicating another layer of Nigeria’s failing institutions and state capture. AMCON’s inability to recover these debts highlights the burden of an economy and taxpayers who suffer because of the lack of law enforcement against the wealthy and influential. Nigeria, which is currently broke, indebted, and broken, must begin to use all lawful powers at its disposal to recover bad debts and plug the gaping fiscal hole.
During his eight-year reign, President Muhammadu Buhari could not solve the bad debt crisis that he inherited from his predecessor, leaving a disappointing and complicated legacy. The Managing Director of AMCON, Ahmed Kuru, explained that much of the trouble the agency faces involves high-profile individuals who have failed to pay their debts.
AMCON’s primary goal, set up by the National Assembly in 2010, is to address Nigeria’s financial system’s systemic stress; it is an embarrassment that over a decade later, unrecovered debts still stand at over N4tn. Many other countries, such as the United States, India, the United Kingdom, and Germany, set up debt-recovery institutions or ‘bad banks’ in reaction to the 2007-2010 financial crises. A debt-recovery institution or ‘bad bank’ is a separate financial entity set up specifically to purchase illiquid or non-performing loans from other financial institutions, freeing these stressed companies up from crippling liabilities. Nigeria followed in these footsteps as eight of the existing 25 banks were on the brink of distress at the time. However, many wealthy debtors in Nigeria behave as though they are above the law and refuse to settle their debts.
While many of the top debtors owe 67 percent of the total debt, these debtors continue to live lavishly while ignoring their obligations to repay their debts, which Kuru calls “reckless.” If AMCON is unable to recover the debts, it becomes the Federal Government’s and, therefore, the taxpayers’ burden. Thus, the government must help AMCON using lawful means to obtain repayment and prevent a few individuals from exploiting loopholes in the law so they can escape their moral and legal obligations.
Many international mechanisms are in place to manage loans and ensure their repayment. In the US, refusal to service indebtedness after several incentives can be a criminal offense, and continued non-payment of loans leads to late fees or penalties, wage garnishment, and drops in credit scores. Even a single missed payment could lead to a 40- to 80-point drop. Eventually, lenders might send the delinquent account to a collections agency to force repayment, and foreclosure, asset seizures, and liquidation of businesses are last resorts.
Nigerian bank officials and debtors have been held accountable for the collapse of financial institutions under the Banks and Other Financial Institutions Act, as about 160 bank executives were detained and some eventually convicted for breaking the laws in defiance of conventional credit guidelines and corporate governance protocols. Under the BOFIA, every director of a debtor firm is liable. The current case, where chronic debtors live in ostentatious luxury, indicates elite conspiracy and corruption are at work.
The courts’ unhelpfulness to AMCON is a significant obstacle, as courts often grant protective injunctions to big debtors while lawyers tie up proceedings with technicalities. Bad banks in several countries have successfully fulfilled their mandates and wound down when their work was completed.
The Central Bank of Nigeria has a responsibility to assist in debt recovery by barring individuals and corporations with delinquent debts from acquiring new credit facilities from any financial institution in the country. Before AMCON closes, the government must summon the resolve required to recover all outstanding debts. An incoming administration should also follow this path since it will inherit an empty treasury and will require every cent it can secure. Unlike his predecessor, President Buhari, the next leader must go after these debts with unbeatable determination.
