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Document Type

Case Study

Abstract

Nigeria experienced the Global Financial Crisis as a dramatic decline in the price of crude oil and a burst stock market bubble. These losses were compounded by a high level of margin lending, resulting in large numbers of nonperforming loans (NPLs) for Nigerian banks. The government established the Asset Management Corporation of Nigeria (AMCON) in July 2010 to purchase NPLs and inject capital into insolvent banks. AMCON injected a total of ₦2.3 trillion (US$15.3 billion) in capital into eight different financial institutions. Five capital injections were designed to bring failing banks to zero net asset value and allow them to remain open before their acquisition and further recapitalization by a third-party investor. The three remaining injections were made into purchase-and-assumption-style bridge banks, with the Nigeria Deposit Insurance Corporation acting as receiver. Bridge banks purchased and assumed the assets and liabilities of failed banks unable to achieve the minimum capital requirement. As a result of its operations, AMCON accumulated a negative equity position of ₦3.6 trillion (US$24 billion) by the end of 2014. Observers have highlighted the uncertainty surrounding AMCON’s ability to cover its losses from funds recovered through the resolution of NPLs, returns on its equity investments, and the ₦1.5 trillion (US$10 billion) dedicated to its operations through the Banking Sector Resolution Cost Fund.

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