21/4/2016/Cordros

In what appears to be an open agreement with our opinion (expressed in our most recent economic note “Monetary Policy Committee May Tighten”), the CBN Governor, Godwin Emefiele, on Saturday (April 16, 2016), revealed that the country’s Monetary Policy Rate (MPR) will still have to rise. The CBN boss hinted this in Washington, at the International Monetary Fund (IMF) headquarters, noting that keeping the MPR at current level, in the face of rising inflation rates, faults sound economic policy.

In a bid to offer consolation to the private sector, Emefiele reiterated the CBN’s continued effort at supporting and promoting sectors of the economy — e.g agricultural, solid minerals and the real sector — with huge growth and employment potentials. While this looks concrete on the surface, we are more critical about its reality.

We refer to our March Post-MPC commentary, “Monetary Policy Committee Tightens to Stun the Market; Changes Gear from Growth Stimulation to Inflation Targeting”, where we expressed that the Committee’s policy shift (from an accommodative stance to tightening) may crowd-out the capacity of the private sector to borrow. Adding to this risk is the concern that the weakening prospect of a major improvement in the macro environment may be brewing increasing conservatism among the commercial lenders. It was recently reported that (1) DMBs have cut loan growth projections for the 2016 financial year due to rising non-performing loans; and (2) foreign banks have pruned credit lines to Nigerian banks due to the lingering forex challenges in the country.

The waning prospect of an oil price recovery dogged by the inability of major OPEC members to reconcile economics with politics combined with rising production challenges faced locally (in addition to the ongoing force majeure on Shell’s 400kbpd Forcados facility, it was reported yesterday that Agip declared force majeure on its 160kbpd Brass River export facility) suggest (1) the potential for far lower than budgeted oil revenue; (2) an increased drive to augment the oil revenue shortfall with the already ambitious non-oil revenue target; without which (3) budget deficit may widen. It appears the welfarist philosophy of the current administration’s style of governance is gradually waning as reality bites. Compared to four (4) months ago, it appears the FG is taking a more benign view of austerity measures to achieving its non-oil revenue target which hitherto seemed too drastic in their view. We note the possibility of VAT increase as one of the issues discussed in the National Economic Council retreat that held last month. Eventually, this will add to pressure on the private sector.

In the meantime, uncertainty regarding (1) the passage of the 2016 appropriation bill; (2) protracted fuel supply shortages; (3) epileptic electricity power supply; and (4) a possible devaluation of the Naira, continues to impact the business decisions adversely.

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Lagos (INVESTADVOCATE)-The Nigerian Stock Exchange (NSE) Tuesday notified all issuers on the mandatory payment of value added tax (VAT) in compliance with the law on VAT which commenced in 1993.

The Exchange in a notice made available to InvestAdvocate said it’s mandatory for all issuers, stockbrokers, issuing houses and other agencies making payment to it on application and listing fees to pay VAT.

‘’All issuers, stockbrokers, issuing houses and other agencies making payment to The Exchange on application and listing fees, that in accordance with the law on VAT which came into effect in 1993, it is mandatory to include VAT payment of 5% to such payments,’’ the NSE said.

In the same vein, the Nigeria’s Exchange directed payment of eligibility fees to central securities clearing system limited (CSCS) to be paid directly to CSCS.

According to the NSE, it will no longer accept responsibility of collecting payment of eligibility fees on behalf of the CSCS.  

In the light of this, payment of such fees should be made using the following bank account details: Name: central securities clearing system plc, Bank: Guaranty Trust Bank Plc Broad Street branch with account number 000-292-5850 and sort code number 058152036.

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– Transaction Fees others scraped

By Peter OBIORA InvestAdvocate

Lagos (INVESTADVOCATE)-84 Stockbrokers has been granted a N22.6 billion forebearance on Margin Loans at the Nigerian Capital Market (NCM).

This is contained in an address   Monday by Ngozi Okonjo-Iweala, Nigeria’s Minister of Finance at Press Conference in Abuja Nigeria and obtained by www.investadvocateng.com.

According to her, the forebearance package is first out of two measures by a Committee she set up and chaired by Dr. Kingsley Moghalu, Deputy Governor of the Central Bank of Nigeria (CBN), to make recommendations on measures to resuscitate the Capital Market.

“The first measure is a forbearance of about N22.6 billion on the margin loans of 84 stock brokers, in accordance with Section 6(5) of the AMCON Act.  AMCON had purchased these margin loans from Banks for about N42.6 billion, but the value of the underlying assets or collateral is worth only N19.96 billion today.

In furtherance of AMCON’s cleanup of the banking sector, it is necessary to wipe off the debt overhang in the capital market, as this is dampening market activity.

But let me state clearly that this forbearance will be accompanied with sanctions to discourage excessive borrowing behaviour by Capital Market Operators in the future” she said.

The second measure is the elimination of stamp duties and VAT on Stock Market transaction fees.

“Taxes on Stock Exchange transactions fees are as high as 12 percent (5 percent in VAT and up to 7 percent in stamp duties) – much higher than in other jurisdictions, and these constitute a major disincentive to invest in the Nigerian Capital Market. I will like to announce that the Federal Government has consented to: waive the 0.075 percent stamp duties payable on Stock Exchange transaction fees; and, exempt from VAT, commissions: (a) earned on traded values of shares, (b) payable to the Securities and Exchange Commission (SEC), and (c) payable to the Nigerian Stock Exchange (NSE) and the Central Securities Clearing System (CSCS); by including these commissions in the list of VAT-exempt goods and services” Okonjo Iweala said.

Below is a full text of Okonjo-Iweala’s Address

“MEASURES TO RESUSCITATE THE CAPITAL MARKET…

Distinguished DGs and MDs of Parastatals here present, distinguished ladies and gentlemen of the Press. 

Many of you are aware that activity on the Nigerian Capital Market, particularly the stock exchange, has been very slow in the aftermath of the global financial meltdown and the Nigerian banking crisis. We saw the Nigerian Stock Exchange (NSE) All Share Index (ASI) plummet from a peak of about 66,000 points in March 2008 to less than 22,000 points by January 2009, wiping out over N8 trillion (or around 70 percent) of the total capitalization of the stock exchange within this period. Since then, activity on the stock market has remained sluggish even though there are some signs of recovery, with the index now at about 26,494 points thanks to the efforts of the NSE and the SEC.

A vibrant capital market is, of course, essential to the government’s Economic Transformation Agenda, especially in terms of raising much-needed long-term financing for critical infrastructure and the housing sector. Research (by the IMF and the World Bank) has shown that solid economic growth in any country is closely linked to the joint development of the banking sector and the capital markets. While the banking sector has already been cleaned-up, the capital market needs some intervention.

This is why, a couple of months ago, I set up a committee chaired by Dr. Kingsley Moghalu, Deputy Governor of the Central Bank of Nigeria, to make recommendations on measures to resuscitate the capital market. As part of the recommendations of the Moghalu committee, I am happy to announce today, two measures aimed at giving life to our capital markets.

The first measure is a forbearance of about N22.6 billion on the margin loans of 84 stock brokers, in accordance with Section 6(5) of the AMCON Act.  AMCON had purchased these margin loans from banks for about N42.6 billion, but the value of the underlying assets or collateral is worth only N19.96 billion today. In furtherance of AMCON’s cleanup of the banking sector, it is necessary to wipe off the debt overhang in the capital market, as this is dampening market activity. But let me state clearly that this forbearance will be accompanied with sanctions to discourage excessive borrowing behaviour by capital market operators in the future. These sanctions include:

Prohibition from services to AMCON: Brokers benefiting from forbearance will not be allowed to provide any professional services to AMCON for a period not less than 3 years;

Greater Disclosure: Firms will be required to reveal to the Securities Exchange Commission (SEC), any dealings in any security valued at a minimum of N25 million executed in a single deal or multiple deals on the same day on behalf of their clients;

Limit on Debt Financing: As part of their net capital requirement, no broker that has received forbearance shall permit his aggregate indebtedness to exceed 100 percent of his net capital;

Report to Credit Bureaus: details of the firms will be forwarded to the Credit Bureau Agency;

Use of Custodians: A strict requirement that imposes separation of assets and control for brokerage services and/or future margin facilities through the use of custodians; and finally,

Trading Restrictions: The brokers will be prohibited from taking proprietary positions or trade on their own account for one year.

Let me also note that there were some other stock brokers who did not partake in any market infractions, including over-exposure to margin loans, and who managed their stock broking businesses well. The Ministry of Finance and the Central Bank plan to celebrate the good standing of these stock brokers in due course.

The second measure is the elimination of stamp duties and VAT on stock market transaction fees. Taxes on stock exchange transactions fees are as high as 12 percent (5 percent in VAT and up to 7 percent in stamp duties) – much higher than in other jurisdictions, and these constitute a major disincentive to invest in the Nigerian capital market. I will like to announce that the Federal Government has consented to:

waive the 0.075 percent stamp duties payable on stock exchange transaction fees; and,

exempt from VAT, commissions: (a) earned on traded values of shares, (b) payable to the Securities and Exchange Commission (SEC), and (c) payable to the Nigerian Stock Exchange (NSE) and the Central Securities Clearing System (CSCS); by including these commissions in the list of VAT-exempt goods and services.

Let me thank the Moghalu committee for their work, and also re-emphasize the government’s renewed commitment to making Nigeria’s capital market one of the most vibrant markets in the World.

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