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THE EFFECT OF ASSET MANAGEMENT COMPANY OF NIGERIA (AMCON) ON THE PROFITABILITY OF DEPOSIT MONEY BANKS (DMBS) IN NIGERIA

THE EFFECT OF ASSET MANAGEMENT COMPANY OF NIGERIA (AMCON) ON THE PROFITABILITY OF DEPOSIT MONEY BANKS (DMBS) IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1  Background of the Study

       Banking industry word wide are paced with risk which range’s from operational risk, credit risk, reputation risk and liquidity risk among others which makes Bank Distress and failure inevitable. The History of bank failure in Nigeria dates back to the pre-independence days Elueni (2010). There were bank failures in the 1940’s, 1950’s and 1980’s; there was also the era of wander banks all of which failed in the wid-1990s and hence another round of bank crisis. At every round of bank failure individual savers, businessmen and corporate organization lost their hard-earned monies. The resulting effect and implication include health issues (hypertension and death) and closure of companies (resulting in job loss of family breadwinners) and these created much sufferings   that usually follow every round of banks failure and enhance the public confidence in the financial institution/system. The Nigerian deposit insurance corporation was established in the late 1980s. But it has not helped matters very much as claims are limited to a maximum of N50,000. The Asset management company of Nigeria (AMCON) was established by the leadership of central bank of Nigeria (CBN) and the federal Ministry of finance to manage the phenomenal stock of toxic loans in the financial sector which includes the deposit money banks Ogbonna (2010). The role of AMCON, according to AMCON Act 2010 which was signed into law by president Goodluck Jonathan includes   among others buying off toxic assets of banks experiencing distress which amount of to N2.3 TRN and empower them to continue in operation (Sunusi 2010).

       The concept of AMCON was first muted in Nigeria when, in 2007, the CBN ordered  banks to increase minimum capitalization N25 billion so as to set up an asset Management company to handle the assets of banks, that failed. At the end of the forced consolidation 25 banks emerged out of the then 84 banks. About 12 could not meet the minimum capital nor were they acquired by any of the bigger successful ones, Good as wide as the concept of an asset management company seemed then the CBN did not progress with it at the end of the consolidation AMCON came into existence fully as the off shoot of CBNS special audits of banks on the with of August 2009; when Sanusi as the first major assignment as CBN governor under took special audit of banks and discovered that some banks are suffering from chronic management sickness. It was discovered that some banks were technically dead (Sanusi 2009) Sanusi at that same date made the report of the joint examination of ten banks by the CBN and NDIC. The ten banks are diamond bank, first bank, UBA, GTB, Sterling bank, Afri bank plc, then intercontinental bank, and oceanic bank, union bank, FIN bank and Sanusi in the exercise of the power conferred on him by section 33 and 35 of the bank and other financial institution Act (BOFIA) of 1991 as amended removed all the chief executive officers of the 10 banks. He appointed new ones and injected the sum of N420 billion into the banks (Nwokoji 2011)

       The second phase of the special audits involve the audition of the remaining 14banks (Financial standard 2010) on October 2nd 2009, the CBN announced that Nine banks had adequate capital liquidity to support the level of their current operations and future growth. The banks are Access bank, city bank, Eco bank, fidelity bank, standard chartered bank and zenith bank. Although, unity bank was said to have insufficient capital but not in grave position, he later injected an additional amount of N200 billion to four banks that were found totally distressed. In tackling the banking illiquidity, Sanusi introduced the concept of   naming and sharing by publishing the names of bad debtors in the national dailies Okezie (2009). The total amount of money that constituted the non-performing loan was N747b which was borrowed from banks by the borrowers.

       To mitigate the suffering that usually follow every round of bank failure and enhance the public confidence in the financial system, Sanusi established the ASSET MANAGEMENT COMPANY of NIGERIA (AMCON) which was given the responsibility of managing the phenomenal stock of toxic loans in the financial sector and give Nigerians a system they could be proud of (Ogbonna 2010).

1.2     STATEMENT OF THE PROBLEM

       The statement of the problem focuses on the effect of AMCON on the profitability of DMBS in Nigeria. AMCON is not a Nigeria innovation. But its adoption provides a new vista to solving bank failure and challenges in Nigeria. The DMBs in Nigeria is ripe with risks and this exposure to risk makes bank failure inevitable. On the other hand the AMCON are not also without any shut coming cause mere buying off or bailing out of troubled banks by injecting an amount of money equal to its non-performing loans does not automatically translate to proper management of same by the banks. It is important to note that the life wire of any economy lies majority in the soundness of the nations banking industry (Nwosu 2005). This study is therefore been conducted to know what effect this AMCON have on the DMBs profitability in Nigeria, knowing that the profitability of DMBs in Nigeria among others things have effect on its customers, the economic development of the nation and stakeholders among others and it will greatly alleviate the impact/effect of the current liquidity squeeze in the country and improve confidence in the Nigeria a banking system.

  • OBJECTIVES OF THE STUDY

The main objective of this study is to determine the effect of AMCON on the profitability of DMBs in Nigeria. The specific objective of this study will be as follow;

  1. To ascertain the effect of AMCON on the profitability of DMBs in Nigeria
  2. To determine the impact of AMCON on the level of non-performing loan of the Nigeria DMBs
  3. To determine the impact of AMCON on stakeholders confidence in the Nigeria DMBs.
  • RESEARCH QUESTIONS

Research questions are formulated to help the researcher find solution to the problem under study. The research questions includes

  1. How does AMCON impact on DMBs profitability?
  2. How does AMCON affect the level of non-performing loans of DMBS in Nigeria?
  3. How does AMCON impact on the confidence of stakeholders on the DMBs in Nigeria?

1.5 RESEARCH HYPOTHESES  

       Hypotheses are academic connective formulated

to know if the view of the authors are true or false.

  1. Ho: AMCON has no positive significant impact on the profitability of DMBS in Nigeria.

Hi: AMCON has a positive significant impact on the      profitability of DMBS in Nigeria

  1. Ho: AMCON has no positive significant impact on the level of non performing loan of DMBs

Hi: AMCON has a positive significant impact on the level  of non-performing loan of DMBS

  1. Ho: AMCON has no positive significant impact on the level  of stakeholders confidence in the Nigeria DMBs

H1: AMCON has no positive significant impact on the level  of stakeholders confidence in the Nigeria DMBs

1.6    SIGNIFICANT OF THE STUDY

       The study the effect of AMCON on the profitability of DMBS will be of great benefits to the following:-

The up-coming students:- This work will be a good foundation for up-coming students who may choose to research more on the topic for further advancement.

The banking public. This will provide the banking public the necessary insight regarding how AMCON could bring stability to DMBS thereby relieping them of the anguish of losing their hard earned money to banks. In stability. The researchers. This work will constitute a guide do the researchers who may like to research more an the topic.

The lecturers. The work will be a good source of material for lecturers writing a text book on any course   related do the topic.

 1.7     SOURCE OF THE STUDY

          The scope of thus study lovers the period of when the law establishing AMCON was promulgated, 2009 till date, it also covers the entire deposit money banks using Eco bank of Nigeria Plc Abakaliki branch as a case study. Reason being that the former oceanic bank now (ECO bank) is among the banks that was resaved by AMCON.

1.8    LIMITATIONS OF THE STUDY          

         A research of thus nature, banks as a corporate organization do not gives out some of their activities to the general public. It was difficult to source for materials, However, in the end the aim of these factor do not affect the work in any way as the study achieved.

1.9   DEFINITION’S OF OPERATIONAL TERMS

AMCON: Asset Management Company of Nigeria. It is a     Special Purpose velude  Mainly  Created by the Federal Government Through the Central Bank of Nigeria to   Save the Economy from Imminent Failure Precipitated  by Bank  Facture (Nigeria Banker)

CBN: Central Bank of Nigeria: is the Nations Apex Bank  (Source: the World Banking System by Idown 207)

BOFIA: Bank and other Financial Institution Act Isanact Promulgation in 1991 to Establish Standard of  Operation for Banks in Country. (Source: CBN Bullion  April June 2009).

NDIC: National Deposit Insurance Corporation. Is  a Federal Government Agency Charged the Responsibility of    Deposit Protection Mandate as well as Resolving the Problem of Failing and Failed Financial Institution (Source: zoth year of Deposit Insurance of Nigeria; an NDIC Twentieth Anniversary Publication (1989-2009)

DMB: Deposit Money Banks

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