Debt Collection Is One Of The Most Difficult Jobs To Do – Kuru

Ahmed Kuru
Mr. Ahmed Kuru, Managing Director of the Assets Management Corporation of Nigeria (AMCON), does not have an easy job. The entity, which he heads acquired non-performing loans (NPLs) of banks and in pursuit of the corporation’s mandate as provided by the AMCON Act 2010, he is constantly interfacing with men of power and influence who could not meet their debt obligations to financial institutions. From banking to aviation, his footprints are obvious as he goes about recovering bad loans. This has cost him treasured friendships in some cases and expanded the camps of those who loathe his resolute commitment to his assignment. But he says he is unperturbed by this as he sees his work as crucial to growth of the economy and national development. His finance sector background prepared him for this current assignment. A budget analyst with the Federal Ministry of Finance in the mid-80s, Kuru started his banking career over three decades ago with Habib Bank. Prior to his appointment as the chief executive officer of AMCON, he was the Group Managing Director of former Enterprise Bank Limited. At his waterfront office in Marina, Lagos, this alumnus of Ahmadu Bello University, Zaria, who will be two years in the saddle in three months, shares his experience with Thisday on Sunday newspaper
How has your background as a seasoned banker helped as Managing Director of the Assets Management Corporation of Nigeria (AMCON)?
AMCON’s work basically is banking related. Of course you know that AMCON was set up to purchase Non-performing loans away from the financial institutions. There is this joke in the banking sector that when every department is tired of you, in those days banks because banks do not sack people anyhow because of the long process that has to be followed, you would be dumped in the debt recovery department of the banks. It is a recent development these days that you wake up one day and you hear that they have sacked 300 people; in those days you follow quite a number of processes. If within the system there is somebody that is not performing in marketing, not performing in the back office, what we used to do in those days is to send them to debt recovery department or media department or credit department, because those places are like a dumping ground of the banks. Now AMCON has the misfortune of buying all those credits and basically that is what we do day-in-day-out. So I can tell you that the experience that one has garnered in the banking sector is very relevant to what one does now; all one needs to add to that is to sharpen one’s negotiation skill, sharpen your restructuring skill, sharpen your resolution mechanism and also develop a more broad mindedness because more than what happens in the banks, here you also try to see the possibility of breathing life back into those credits. So I can tell you that what we have learnt in the banking industry has tremendously helped us with what we are doing here and that is why the majority of our staff is from the banking industry.
What is the number of bad loans in AMCON’s portfolio and the percentage of non-performing loans in the banking industry at the moment?
AMCON purchased roughly around 14, 000 loans from the financial institutions and we paid about N1.7 trillion, the loans were valued then at about N3.3 trillion, and on the other hand we also provided financial accommodation of about N2.2 trillion. But the funny thing is that about 300 of those 14,000 loans which is less than five per cent, accounts for more than 70 per cent of the total outstanding of the loans that were purchased. So if I focus on the 300 I will be attacking more than 70 per cent of my loan book. So you can see that there is more preponderance of the heavy loans more than the smaller loans. As you are aware, the non-performing loans in the industry at that time was more than 40 per cent and that was why AMCON was created so that AMCON could buy the non-performing loans and provide liquidity to the banks so that the banks will have the opportunity to lend the liquidity back into the economy; and at that time we were able to reduce the non-performing loans to less than five per cent regulatory requirements as set out by the Central Bank of Nigeria (CBN).
Recovery of NPLs is a Herculean task, particularly in a society where people take loans without any intention to repay. What is the recovery rate so far and what are the challenges faced in the course of doing that?
Like you rightly pointed out, debt collection is one of the most difficult thing that you can go through. If you have a neighbor and he comes to you and say borrow me N10, 000 when I get my salary I will pay back and you lend him the N10,000, the moment salary day is approaching you will begin to see some friction between you and your neighbour because typically he does not want to pay. If you now transposed that into the corporate level you will be surprised at the kind of challenges that we go through in terms of debt recovery. Let us not forget that the basic role of the financial institutions is to lend money; if you look at the balance sheets of most of the banks more than 60 to 70 per cent of revenue are from interest earnings, which means loans are very key to the profitability of financial institutions. Now the only thing that will make a financial institution to sell a loan tells you that they have lost all manner of hope of that loan coming back. More than 80 per cent of the loans that comes back to AMCON have been restructured and restructured over time. Like I always say, some of the loans were brought to AMCON inside the incubator, some were inside ICU (Intensive Care Unit) and some of them were already inside the coffin.
In some of the banks, they had written off the facilities but suddenly there is an opportunity to get some liquidity out of some of the facilities so they went into their warehouses and dusted the documents and they sold it to AMCON. Now it is thought that there is a magic wand in AMCON such that when you knock on somebody’s door and say pay your debt, the person will just bring out his cheque book and write you the amount he owes. And like I said, quite a number of those companies are already dead. So the recovery process was and is still very tedious. Again, the assumption at the beginning was that if I buy a loan with a book value of N3.2 trillion and I pay N1.7 trillion and I provided for financial accommodation of N2.3 trillion, it presupposes that, with our inflationary trend in Nigeria, property that owes N10, if you kept it for three to four years, usually it should appreciate to about N30 to N40 based on our inflationary trend, but unfortunately in the last couple of years things slowed down a bit, so the assumption that we will be able to get more value for some of the asset – because the N1.7 trillion were backed up with assets while the N2.2 trillion which is the financial accommodation is not backed up with asset – the assumption was that the excess from N1.7 trillion will take care of the N2.2 trillion that is not backed up by asset; however, the contrary happened.
So we are left with no option than to communicate, negotiate and litigate. In the last six years we’ve been talking to people, in the last six years there were instances where we put money in the businesses and nothing has worked. So we’re now left with no option than to litigate because we can’t arrest people on the street. If you have been talking to somebody for the past six years and it is not achieving any results, the only option left is to resort to the courts which is why more often than not you see us going to the courts because many Nigerians are not ready to pay back their loans; and if I told you that less than five per cent (of loan defaulters) accounts for more than 70 per cent of the total loan portfolio, so that tells you that they are not ordinary people, even though ordinary people also don’t like to pay back loans; we’re talking of billions and billions of naira. So in terms of recovery rate we’ve been able to achieve 35 per cent of our recovery in terms of forfeiture and cash because what we also do is if you have an asset and you are unable to pay us, we ask you to forfeit the asset to us. We have quite a number of those assets that we’re holding and because of the economic situations currently we cannot sell some off the assets because if we sell them we’ll have more attrition in terms of recovery rate.
The three banks taken over by AMCON – Enterprise, Mainstreet and Keystone Bank – have been successfully sold, but why did it take a longer time to get Keystone off your plate?
I think it has to do with the process and the economy at the time. At the time that the first two banks were sold the economy was not badly hit by what we now like to call recession and when we started that process was when it was declared that we had recession. When we started the process there were more than 26 entities showing interest but one by one they dropped off because the economy at the time wasn’t doing very well and when the economy is not doing very well the banking industry is about the most badly hit. It was a very tedious process for the advisers based on what they set out to achieve particularly because, as I said before, the interest that it generated at the beginning; so by the time that the economy started to contract it affected their ability to keep to the programme.
Even after the process was completed the regulatory clearance also took a while because the regulators also needs time to verify certain things and get approvals before it was announced; but for us what is most important is that there must be a process that is dependable and transparent and that we can defend the process. I think that was why it seemed like it took longer time. However, I can tell you that, because I was MD of Enterprise Bank when it was being put up for sale, it look longer time to conclude the sale of Enterprise Bank compared to Keystone Bank. It took more than one year, almost two years to conclude that one, but because there was so much information around during the process of selling Enterprise Bank people didn’t notice that it was taking that long. When we did the analysis, we realised that it took longer time because Enterprise Bank was the first to be sold; of course Mainstreet Bank took shorter time. But in terms of when the process was started and when it was completed the process of selling Keystone Bank took shorter time than when Enterprise Bank was sold.
AMCON has done well in the financial services sector, especially with the rescued banks all of which now have new owners. How optimistic are you that the corporation will replicate same level of success in the aviation industry with the takeover of Aero and Arik air?
The aviation sector is another ball game altogether. When I think of the aviation sector I get worried and I will tell you why. Any sector of the economy that you cannot say there is a business or company in that sector that has successfully operated in that sector for more than 10years, then there is a problem somewhere. You cannot pick one airline and say this airline has successfully operated for more than 10 years; that tells you that there is a structural problem more than the entrepreneurial calling. Some of the guys that have invested in the aviation industry have invested in other sectors and they’ve been successful meanwhile there are issues in the aviation industry. So to my mind, I think more than the businesses, there is the need to look at the structure of the aviation industry from the regulatory perspective and from the government perspective, and I think the Minister of Aviation (Mr. Hadi Sirika) has realized that. I think he is doing a good job of looking at some of those issues in terms of providing infrastructure, looking at some of the fees to ensure that it applies to standard. Unfortunately, it is one of the industries that are heavily dependent on foreign exchange. If you want to buy, even a plug, it is foreign exchange related. So there must be availability of foreign exchange to run an airline. So if you have to go and get FX at the rate of N400 or N450, you have to struggle to get aviation fuel – it actually accounts for more than 45 per cent of their expenses; then they have to go and borrow money at the rate of 30 per cent and also deal with some of the regulatory charges. We really need to take a critical look at the industry template. I believe that is where the solution to the problem of the industry lies.
As a journalists, ask yourself or attempt an analysis of what has happened to the Okada, Kabo, Chachangi, Sosoliso, ADC, Albarka and the likes; what has happened to all of them? Of course there are issues of corporate governance because some of them were ran like one man business where the owner of the business is the chairman, the MD and the Director of Finance; you do have those issues because there is always a link between governance and performance; but I believe the problem of the industry is a combination of so many things. The good thing is the minister of Aviation is currently looking at these things given the information that we have.
Apart from Aero and Arik, are there any other airline that are of interest to you in terms of non-performing loans?
Yes. AfriJet is still with us, IRS is still with us, same thing with Bellview, Air Nigeria is with us and I am talking of those that are already down; substantially from the old ones but thankfully new and good airlines are also entering the market. Like Medview, Air Peace; they are helping to reduce the pressure as to what is happening in the aviation industry. But like I said it is important that the reform that the minister is looking at is thoroughly looked at because the issues confronting the industry are still there. There is the need to look at availability of aviation fuel, there is the need to look at the rate at which they borrow money which translates to cost of transportation. From Lagos to Abuja if you’re not careful you’ll pay as much as N35,000. Now N35,000 is a lot of money for many Nigerians and even at that rate the airlines are barely breaking even. N35,000 is a lot of money for many Nigerians and even at that rate the airlines are bleeding. Thank God the CBN has been working very hard and we’re beginning to see some traction, supply of FX to the aviation industry is becoming easier so they can import spare parts, tires and have maintenance checks abroad. If they want to do C-Check the cost runs into millions of dollars; by the time you convert that into Naira, then when they bring back the aircraft, to recoup that money also takes a lot if you consider the load factor. There are few lucrative routes, if you take away Lagos, Abuja, Port Harcourt the airlines are merely doing balancing on some of the other routes because they also need to network. So it is a challenging industry.
There is an ongoing controversy over the debt profile of Arik. There are claims and counter claims on this. What is the actual debt profile of that company and is its debt far more than its assets as claimed?
I think there has been a lot of communication around that even though when it comes to the Aviation industry you have to be very careful not to put too much out there because it is an industry that rely so much on safety, and I am very happy that Aero and Arik pay very high premium on safety issues, they also have very good maintenance facilities locally. That said, AMCON’s exposures to Arik is in excess of N142 billion. AMCON intervened in Arik to ensure that Arik continues to fly. Arik was beyond just being a business, the airline just needs to continue to fly because it is one of the few airlines that connect almost every part of Nigeria. The airline used to have about 30 aircraft but by the time we intervened their fleet had reduced by more than 70 per cent; and we could see that if we had not intervened at the time we did, based on information available to us, the airline would have stopped to operate in two or three weeks thereafter.
So intervening in Arik was not a recovery move like go into a place, appoint a receiver and we sell what we can sell and move out. It was more to ensure that the airline continues to fly and I can assure you that we’ve been doing so much to ensure that the airline continues to fly; we will continue to add to the fleet but of course we must have an exit strategy because AMCON will never manage or participate in managing any business because that is not our call; our call is to pursue companies for the recovery of our money and if in the pursuit of that money there is the need for us to get involved in running that business what we do is we go and look for professionals in the industry who people cannot ordinarily question their choice.
In Arik for example, we went for Captain Roy Alagbado – he is one of the finest guys you can talk about in the industry – to go and manage it, independent of AMCON because we have no interest in the managing of the business; and that is why it is surprising when people alleged that AMCON has taken over Arik. AMCON has not taken over the airline. I cannot manage an aviation business, manage businesses in food and beverage industry, manufacturing, financial services, and still go after business in the oil and gas sector, real estate and more; how would I have the skills. We are only a resolution company. But of course if I have to go into any industry for recovery effort I will look for professionals in that particular industry for the holding period; only for the holding period while I work out my exit strategy.
Controversial as the intervention in Arik may have become, depending on who you are talking to, I think we are all witnesses to what Arik had become at that stage in terms of delayed flight, total cancellation of flights. Certainly if you were servicing a route with 20 to 30 aircraft and suddenly you only have seven, eight or nine certainly you cannot keep your commitments, yet your overhead is fixed. So there must be some kind of intervention to protect the airline and I think AMCON’s intervention actually saved Arik because if our intention was to recover our money we will simply take possession of aircraft and then put it up for sale; and we will leave trade creditors to Arik Air to deal with. Contrary to that, our intention was to ensure that the airline continues to fly and I think we have kept to that intention; what we now need to do is to work out what is the next stage for the airline.
Recently, the Finance Minister disclosed that some investors were expressing interests in Aero and Arik, the two airlines that were taken over by AMCON. Can you shed more light on that and how soon do we expect to get these airlines to return to the path of profitability?
There has been quite a lot of interests. Even yesterday I had a meeting with some of the previous owners. We have received tremendous, serious proposals from people that have shown interest in both Aero and Arik; in a country of 160 to 170 million people, a country that is very wide and diverse, means of transportation is very key. And while we are trying to get the train network back on track, air travel will continue to be relevant. Good enough, quite a number of the interests that we have received are interested in budget travelling, such that if you are going to Abuja you should be able to book a seat for N5000 or maximum of N10,000; so there are quite a lot of interests. When you go to a place like Europe you find such airlines that are cheap so that people can be able to afford them. And like I said, we are talking to people, even the owners, to try and make it easy for people to invest because whether we like it or not, both airlines require the injection of fresh money and that money must not come by way of debt because it will kill the company, it must come by way of cash. It must come by way of equity because if you borrow money at the rate of 20 to 25 per cent, what is your margin? You do not make profit margin of five or ten per cent in aviation. If you borrow money at the rate of 20 to 25 per cent and then you still have to deal with some other related issues, like your expenses, it further depresses your margin.
So there are quite a lot of interests and our initial projection was that within the first 90 days we should be able to work out something that will be long lasting and we are still working along that line. I expect that within this year we should be able to achieve our goal because these are legacy airlines that are very strong brands that we can’t allow them to fizzle away; we must ensure that they remain in operation profitably and these has been our objective.
There speculations that the two airlines would likely form the takeoff platform of the proposed national carrier by the federal government. How true is this?
It is not possible and people that are familiar with the way financing work will tell you the same. If an airline has a debt obligation of almost N300 billion, how do you create a national carrier out of it? If I have N100 billion I can set up a brand new airline unencumbered, without any problem. Like in Arik, every day you have new claims on the business, you cannot fly Arik international now because they have debts and over there if they do not play, they can impound the aircraft. Let me shed more light on how airline business works. For example if you pick Arik, Arik may have 30 aircraft, but many of the aircraft belong to different entities, may be 10 belong to AMCON, another five may belong to Zenith Bank, another number belong to Access Bank, the aircraft all have different owners; the way the airline business is structured is too complicated. That said, I can tell you categorically that it has never been discussed and I don’t think it makes any sense at all to propose the two airlines as take-off platform for the new national carrier being proposed. If government wants to set up a national carrier, they are better off starting afresh and I think they are aware of that, they recently appointed advisers regarding that. If they have N100 billion they can lease 50 aircraft, you do not need more than N10 billion to set up a structure and build a terminal, then you can go and get new, small bodied aircraft on lease agreement that can fly from one place to another. Thinking of converting Arik or Aero into a national carrier will be a disaster, that, I can tell you and nobody has ever thought about that, it is all gist from the street.
There was the issue of a N50 billion naira loan involving Barrister Jimoh Ibrahim and Union Bank, how was this resolved eventually?
Unfortunately we are in court on the matter and I will not be able to enter into discussion on that. The corporation’s objectives include buying up non-performing loans from the banks, re-capitalising them, and finding buyers to run them in a transparent way, are you confident that these objectives have been carried out well by the corporation in a manner that would discourage a reoccurrence of the circumstances that led to their acquisition in the first place? I think these are two different situations. When AMCON was set up it was a reaction to the global economic crisis. You will recall that that was not the first time that the Nigerian banking sector will go into crisis; there was the failed Banks Tribunal in the past where people were taken to and prosecuted. Banks were allowed to fail in Nigeria; government had never been involved with injecting money into financial institutions before but due to the global financial crisis of 2008 and 2009, governments were inclined to put money into businesses. Even in the US, the Obama administration put monies in companies, banks, General Motors and others because of the financial crisis and because they couldn’t allow the economy to fail and they know that the financial institutions are the bedrock of any economy, once you fail to protect the financial institutions against failing, once you fail to provide financial liquidity to the financial institution to be able to jumpstart the economy with, that becomes a problem for the government too. So it was a totally different situation at that time and it was a kind of global framework that was applied here in Nigeria at the time. But I can tell you that nobody is under any kind of illusion now that government will bring out money to go and buy over non-performing loans, I don’t think so. The best that can happen is to have a private sector-driven kind of mechanism whereby a kind of pool is created so that people can come and cherry pick. There are equity firms that have funds for bad loans, they will come sit down with you and look at the loans, then they will cherry pick some of the loans that they want to buy, buy them, then turn the loans around and then walk out of it. AMCON did not cherry pick, AMCON bought all manner of rubbish. But I do not see any situation where the kind of thing that happened with AMCON will happen again.
Are you confident that you have handled the issues involved in a way that banks will not indulge in those practices again?
There are two things here. Whether banks will engage in booking credits that are not good is another issue and it is for the regulators to deal with and I think the CBN is working on that to make sure non-performing loans remain within the regulatory framework. Whether if those loans crystalise and there is a structure in place that will go and take over collaterals for the loans, I don’t think that one will happen again. That is not the mood of this government; I don’t think this government will use public money to safeguard private entities.
Indeed your tenure has been very active with debt recovery, often times involving top shots and big influential Nigerians, have you had to pay a price for taking on such people, in terms of threat to your safety?
I can tell you that it has not been a very smooth ride because we are dealing with big men. On the average I make five enemies every week. Everybody has a perspective as to how he feels his issue should be resolved and they don’t realize that AMCON has a limitation as to what kind of resolution they should accept because there is a recovery rate; once it is below that, AMCON’s discretion ceases from there because these are structures that was set up by the CBN. There’s a joke that I share with my friends that the assignment that my colleagues and I carry out at AMCON is a very dangerous one because we’re telling people that are not used to being told to come and pay their debts that they just have to come and pay. However, what has made our job easier and somewhat tougher is that with the current government you cannot go and curry favours from anywhere then come here to put anybody under pressure. Nobody interferes with what we do here and nobody dares to do that because the system is not created to tolerate such. We have tremendous support from the CBN, we enjoy fantastic support from the honourable minister of finance; we have excellent support from the government; all they tell us is that you go and do your job. Nobody comes here to tell us that go and do this and that to that person, and that makes it easier for us to do our job. On the flip side it puts you under a lot of danger because people are used to doing things with impunity, people like to curry favours in some places and when they tell them in those places that they should go and settle with AMCON it presupposes that it is only AMCON that can give the kind of concessions that they are seeking, meanwhile AMCON doesn’t even have the concession, and so at that stage it becomes personal. There are quite a number of people that we don’t even talk anymore.
Additionally, from where we’re coming from some people have certain expectations of what they believe AMCON is capable of doing or the extent to which they believe AMCON is capable of supporting them. Unfortunately AMCON is not. And by my own calling, I have the misfortune of telling people as it is and that sometimes create problems because people feel that you’re being difficult; they fail to realize that we have limitations. If I bought a loan of N100 million and the loan is with me, I don’t have the powers to collect N80 million from you. As the MD of AMCON I may have a recommendation power but for me to recommend something it must also make sense to the people that I’m recommending it to. So you see that it is a very tough job. I always tell people in a joking manner that AMCON is like the commercial side of EFCC. Nobody wants to pay debt, then again quite a lot of people here that needs to pay don’t have the means to pay. Some that have the means to pay still don’t want to part with their assets. But from AMCON’s perspective the words that you cannot pay does not exist; the moment that it exists in our record, that in itself begins to hinder the ability of the debtor to pay. What we know is how much can you pay? What concession can we give? What waiver can we give you? But you must pay. We spent a lot of money purchasing the loans and there is always collateral, the model permits that if you cannot pay you forfeit the collateral on it and I sell the collateral to recover my money. Yet, a lot of people have issues with that.
Again, most of these businesses are in bad shape. Now if you have a very bad loan of N100 million and I purchase that loan from Bank A and there is a collateral supporting that, I can tell you that it is practically impossible for you pay back the loan within the scope of that business; you have to do asset forfeiture because that business is already challenged, that is why it is with AMCON. Now for you to give me a promise that I should give you three or four years that you will pay from that business is not possible. That is why 90 per cent of the restructuring proposal that we have entered into with people is not working because the business has failed even before it came to AMCON. 95 per cent of the businesses that we have tried to inject money in is not working.
When people say that AMCON has taken over Aero, I say to them that even before AMCON intervened in Aero the airline had been challenged. If the airline is not having problem it won’t end up with AMCON. AERO had problems with Oceanic Bank that is why it is with AMCON, (there is a N24 billion loan that was used to purchase the loan. When it came to AMCON, we came to realise that there is no way that you can run the business and pay back the N24 billion loan; the airline’s revenue cannot even service the interest alone, more so 70 per cent of the airlines’ aircraft are under lease.
So when AMCON realized that they cannot pay the loan and they are not paying, there are two options: One, you fold your arms and allow the airline to go dead completely and then you lose the airline and you lose the N24 billion with which you purchased the loan because it is an airline that is built on lease structure. The second option is for you to go in there and see if you could use some initiatives to save the airline and then you say let us convert some of the debts to equity and then about N14 billion of the debt was converted to 60 per cent equity in the airline. By so doing, you have reduced the debt and you have also reduced the interest because AMCON borrowed money to buy the loans so there will continue to be interests. With all of that you could see that it is already a challenged airline. There were issues within the legacy owners, there were stealing from inside. So without AMCON going into Aero there would not have been any airline called Aero today; we would have been referring to it as we refer to ADC. Many people think because AMCON is there, cases should be fast-tracked, they don’t realize that AMCON is not a bad bank; it is a bank that warehouses bad bank loans. It has to be understood from the very beginning that if the business is doing very well it would not be in AMCON. If the business is doing well some of the financial institutions would have approached AMCON with offers to buy the loans. But people feel because it is government money you must continue to pump money into it; if you must pump money into an entity it must make business sense. The only area that we entered into what does not make business sense is Arik because it was important for us that Arik doesn’t fail because Arik goes to some areas that no other airline goes to.

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