The Securities & Exchange Commission (SEC), at the weekend said it has commenced talks with the Central Bank of Nigeria (CBN) as part of efforts to fine-tune issues related to margin lending in the nation’s capital market.
Addressing newsmen on Friday in Lagos on the deliberations at the 2019 first quarter Capital Market Committee (CMC) meeting held on the previous day, Ms. Mary Uduk, acting director-general of the SEC, reported that deliberations are however “still ongoing on the inclusion of bank shares in the margin list.”
Investopedia defines margin lending as a programme through which institutions “allows an individual to borrow money for the purposes of investing it. The amount of credit loaned is based upon the amount of assets held by the borrower, which are pledged as collateral on the loan. This programme is often used by individuals who want to invest more than they currently are investing, and are willing to take on the risk of this type of loan.”
Investors with a margin accounts can borrow up to 50% of the total purchase price of marginable investments, with each brokerage firm having “the right to define which investments among stocks, bonds, or mutual funds can be purchased on margin.”
The quantum of margin loan was estimated at between 30 and 40% of the approximately N1tr non-performing loans level in the country in 2010, a time there was no guideline regulating the practice by the SEC, CBN or the Nigerian Stock Exchange (NSE), following which most of the parties adopted different measures.
In the height of the stock market meltdown around 2012, then Finance Minister and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, announced a forbearance of about N22.6bn granted on margin loans of 84 stockbrokers.
As part of re-energising nation’s the financial system, the Asset Management Corporation of Nigeria (AMCON) purchased the margin loans with assets or collateral having an underlying value of about N19.96bn in current value for about N42bn
Addressing journalists at a workshop in December 2011, Tunde Adeyemi, Financial Analyst and the Managing Director (MD) of DHTL had noted that a total of 17,800 clients and 274 Stockbrokers collected margin facilities from banks, with the Economic and Financial Crime Commission (EFCC) hounding the stockbrokers.
He lamented that the banks aggravated the extent of the market crash by hurrying to sell the stocks in their custory under3 the order of Sanusi Lamido Sanusi, the then CBN Governor,.
Under such situation, Adeyemi wondered: “How do they want us to make money? For instance some shares we bought at certain prices have drastically reduced; may be a share of N44.00 is now trading at N13.00. We know the price will surely go up again and they are saying no. They don’t even want the 70% they contributed; but the total money.
“We requested the banks to handle the issue properly; borrowing money is not a criminal offence, in this case, we were in partnership that is what the Offer Letter said. This is the reason, the case still lingers at the EFCC; all that is needed to be done is for the EFCC to call a meeting and we discuss, like I said earlier is a partnership. These are civil cases and that is why the Capital Market will not rebound; until the issue is settled” he said.
Also at last week’s CMC meeting, Ms. Uduk said participants acknowledged the success recorded in the dematerialization exercise, while advocating that implementation of the initiative which is now restricted to shares of listed companies be extended those of of unlisted public companies.
This, they believe, “would enhance liquidity and ease market processes.”
The SEC, in a statement, also promised an interesting year 2019 for the Nigerian capital market “as we shall undertake a review of the 10-year Nigerian Capital Market Master Plan.
The review would “align the master-plan with current realities on macroeconomic, political and market development fronts.”
Photo Caption: Acting Director General, Securities and Exchange Commission (SEC), Ms Mary Uduk (2nd right) addressing newsmen in Lagos on Friday on the outcome of the Q1 Capital Market Committee (CMC) Meeting. With her are: Vice Chairman Association of Stockbroking Houses of Nigeria, (ASHON), Akinsola Akeredolu (left), Acting Executive Commissioner Corporate Services, SEC, Henry Rowlands, and the Acting Executive Commissioner Corporate Services, SEC, Isyaku Tilde.
