Bank NPLs (20) - A New Cottage Industry Emerges - Debt Factors and Loan Purchase Firms

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 Thursday, June 04, 2020 /  06:30 AM / by Debtors Africa/ Header Image Credit:   EcoGraphics


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The poor repayment culture of large debtors who tend to prove more recalcitrant than their smaller counterparts has given birth to a burgeoning debt factoring and loan repurchase business.

 

To be sure, analysts have argued that private debt factors and loan purchasers are the natural successors to the AMCON after the completion of its sunset period scheduled for June 2020.

 

The opinion of some reviewers of the local loan industry landscape have argued that the application of private, incentive-based recovery models would prove more effective than the AMCON-supervised arrangement that still has to resolve N5trn of outstanding bank assets.



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A few of the arguments of a new model for loan recovery include, but are not restricted to the following:


  • AMCON has done a hefty job of recovering bad bank debts but the efforts have still been marred by bureaucracy and inflexibility of approach
  • A private-sector led and incentive-based approach to debt recovery would see asset management partners (AMPs) of AMCON become more aggressive, innovative and strategic
  • The pricing of debt assets of banks from review of AMCON AMPs performance and judgment resolutions, show that a number of cases involved exaggerated loan values resulting in major discounts to recoverable asset value. To address this issue, a few analysts have suggested that a major loan write-down should be allowed in selected cases and these write downs should be bundled into separate tradeable fixed income instruments that could be retired after a period of five to ten years. The concept appears plausible, but it still leaves the burden of the loan repayment to taxpayers and allows the perpetrators of the poor asset creation get off lightly.
  • The blooming debt recovery business has received a boost to the arm with the revised AMCON law that allows the agency wider scope over the recovery of debt assets including the right of seizing accounts of any of the debtors wherever such accounts can be identified. The use of forensic accountants would receive a boost as recovery agents go through the paper trail of debtor businesses with a fine-tooth comb.


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Related Reports (PDF)

1.      Download the Full PDF Report - Debtors Africa, May 13, 2020

2.     Executive Summary PDF - Proshare, May 14, 2020

3.     AMCON and Financial Services Debt Burden in Nigeria - Aug 17, 2018



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