THURSDAY, 26 AUGUST 2010  SEGUN EDWARDS  

 

September 1, this year, has been set as the deadline for all the banks in the country to recover the estimated N1 trillion stock market debts tied to margin loans or face the sanctions of the Central Bank of Nigeria (CBN).

 

The apex bank had in July, this year, directed all the banks to reduce their risk assets portfolio in the capital market to not more than 10 per cent.With this directive, the Nigerian Compass gathered yesterday that the banks have begun cash calls through massive sell-off in the market towards meeting the ultimatum.The effect of this is a loss of over N200 billion in the last couple of days, as the CBN deadline expires next Wednesday.

 

Investigation also revealed that in a bid by the banks to recover all margin-related debts from stockbrokers, portfolio managers as well as investors, they have agreed to forfeit all interests on all loans obtained by operators to buy shares in the stock market during the period preceding the meltdown in the first quarter of 2008, requesting that principal debts be paid.

 

The development has jettisoned the CBN earlier palliative measures put in place by the erstwhile Governor, Professor Chukwuma Soludo, in the wake of the global financial recession that all margin loan debts in the market should be restructured on a long-term basis.

 

The CBN had, among other measures, directed a downward review of the Monetary Policy Rate (MPR), the benchmark with which all other rates are measured, from 10.25 per cent to 9.75 per cent, a reduction of Cash Reserve Requirement (CRR) from 4.0 per cent to 2.0 per cent, a reduction of Liquidity Ratio from 40.0 per cent to 30.0 per cent, and an expansion of lending facilities to banks up to 360 days, among others.However, the September 1 ultimatum has attracted the opinion of stakeholders in the market, who said it would further push it down rather than restore it to recovery.

 

For instance, former President of the Chartered Institute of Stockbrokers (CIS), Mr. Dipo Aina, said the reform in the banking sector is still affecting the market because 60 to 65 per cent of the total market capitalisation of the Exchange is skewed to the banking sub-sector.He, however, admitted that the global market is experiencing a downturn, but added that the market is yet to feel the impact of the liquidity in the banking sector.

 

His words: “Sixty to 65 per cent of the total market capitalisation goes to the banking sector. There is over- dependence in the banking sector. They should allow other sectors to come in. Although the global market is suffering a downturn and investors are selling to meet up with their family needs, but we are yet to feel the impact of the liquidity in the banking sector.”In his reaction, the Managing Director of Dependable Securities Limited, Mr. Chinenyen Anyanwu, said the CBN directive that banks should not allow their holdings to exceed 10 per cent is impacting negatively on the performance on the market.

 

He argued that the directive is not timely, as the September deadline is a very short period for the banks.According to him, the apex bank should have allowed the market to stabilise before issuing such directive.“The CBN governor’s directive that banks should reduce their holdings by 10 per cent is affecting the market. As we all know, banks are the major drivers of the market and some of them are currently dumping to meet the September deadline,” he added.

 

Another stockbroker, who spoke on the condition of anonymity, said the development has been putting pressure on the market, as there has been dumping of shares through massive sale by the banks by trading off on margin accounts, thereby creating more supply of shares than demand.

 

He disclosed that the bank’s chief executives are jittery, as they have been asking stockbrokers to return their money, adding that the CBN policy is condemnable.

 

Source:Nigerian Compass