Selling pressure mounts as banks prepare to meet September deadline


THURSDAY, 12 AUGUST 2010 01:03

Following the post Securities and Exchange Commission’s (SEC) intervention in the capital market leadership, not a few market analysts expect that there will be selling pressure on the Nigerian bourse this month. Their expectation boils down to the fact that many banks are expected to comply with the September 1, 2010 deadline issued by the Central Bank of Nigeria (CBN) on 10 percent margin loan. A margin loan or margin account is a loan made by a brokerage house to a client which allows the customer buy stocks on credit.


Only three months ago, the CBN in a move to avert another banking industry crisis, where majority of it emanated from the activity of the banks on the nation’s capital market through margin loans, capped lending to investors who want to use the funds to buy stocks to 10 percent of all loans. The CBN had also ordered lenders whose so-called margin loans are more than 10 percent of their total loan portfolio to submit a clear plan of how they intend to comply with the new limit. The apex bank expects banks that want to engage in margin lending to reapply for permission from it, as the bank’s shares won’t be allowed for margin trading any longer.


And analyzing this latest move in the banking sector is Bismarck Rewane, chief executive officer, Financial Derivatives Company (FDC), who is of the view that there will be selling pressure on the Nigerian Stock Exchange (NSE) this August driven by the desire for banks to comply with the September 1, deadline.


Rewane is, however, optimistic about positive earnings announcements from some of the banks, particularly, those in the middle tier, saying “results might be consistent with positive banking sector trends, underpinning optimistic sentiments towards the sector.”


Also, as part of the capital market reforms, the SEC is expected to issue new margin guidelines this month, and this new guideline is expected to check margin related problems in the capital market. Other reforms expected from the regulatory body in the stock market this month include the deepening of the capital market by encouraging the oil and gas and other conglomerates to be listed, as well as product offering and development of the bond market.


However, other analysts believe that buying opportunities will continue to exist for stocks with good fundamentals for medium to long term.


According to analysts at Sterling Capital, “we expect the market to be positively influenced by the recent intervention at the Stock Exchange, coupled with improved liquidity in the system. However, the September 1, deadline for banks to comply with the 10 percent maximum exposure to the capital market may likely increase selling pressures.“Buy opportunities continue to exist for stocks with good fundamentals for medium to long term”.





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