Emma Ujah and Tordue Salem
21 October 2008
AS the global financial meltdown closes in on the Nigerian Capital Market, the Director-General, Securities and Exchange Commission (SEC), Musa Al-Faki, said yesterday the Capital Market lost over three trillion naira in the last seven months.
Meanwhile, the Bankers Committee, the umbrella body of bank chief executives and the regulatory bodies, has ruled out the possibility of a bailout for the banking industry, saying there is no need for such a plan.
The D-G in company of the Committee Chairman, Sen. Udo Udoma, spoke while briefing the House of Representatives Committee on Capital Market on the economic downturn and the proposed way out by stakeholders.
"Manifestation by mid-March 2008 of the declining prices, showed that market capitalisation dipped by 23.5% from N12.1 trillion in March 2008 when the price drop started to N9.26 trillion by 15th October 2008. Between January 2008 and 15th October, 2008, it had gone down by 13.4%.
"NSE All Share Index dropped by 31% from 63,016.6 points in March 2008 to 43,492.56 points on 15th October, 2008. Between January and 15th October, 2008, it lost 25.7%," Al-Faki said.
The D-G who told the Committee that the Capital Market had netted N2.086 in trading value, with a daily average of N8.62 billion, regretted the downturn, and called for concerted efforts to reverse the trend.
Chairman, Board of Securities and Exchange Commission, Sen. Udoma Udoma, stressed that SEC would, as a matter of routine, be meeting with the National Assembly from time to time on issues bothering the Capital Market.
He insisted that the economic meltdown experienced in other parts of the world, especially the United States, had not really affected the Nigerian Capital Market, as the United States, unlike Nigeria, according to him, is a mortgage-based economy.
But members of the Committee led by Rep. Aliyu Wadada took him up on that, insisting that the bailout should be methodical and fast-tracked to save big and small investors from continuously losing money, as the Nigerian market continues to take a plunge.
The members, however, were split on whether the Federal Government should create a N500 billon hedge fund for the bailout.
Though Reps Wadada and Gbenga Onigbogi bought into the idea of creating a hedge fund, former Minority Leader of the House, Ahmed Salik, differed, describing the idea as another way of putting the tax payers' hard earned money in the pockets of some influential individuals in the country.
No bail-out for banks in Nigeria
The Central Bank (CBN) and the Bankers' Committee also, yesterday, put paid to weeks of speculations of a bailout for Nigerian banks and the capital market, as they categorically said there was no need for such an action, in spite of the global financial crisis sweeping across many economies of the world.
The crisis which has consumed many big banks in the United States of America and several other countries in Europe has led to several governments pumping hundreds of dollars into their capital markets to rescue the affected banks and other companies on their exchanges.
But arising from an emergency Banker's Committee meeting in Abuja, the CBN and the banks' Managing Directors announced that Nigeria's economic indices and the fundamentals of Nigerian quoted companies were strong and did not warrant any form of bailout.
According to the Director, Banking Supervision of the CBN, Mr. Ignatius Imala, "there is nothing to bail out. The quality of the assets of the banks' books here is very strong. We have stringent prudential guidelines."
Mr. Imala admitted that Nigerian banks had relationships with other banks across the globe but that such relationships arising from transactions should not be a reason for panic in Nigeria. How can banks bail out the capital market? Whatever you have heard is part of the speculation.
"Nothing to bail out when banks are reporting profits. The situation for now and in the future is nice. But we have to meet because we cannot afford not to meet on these issues.
"The MD of Zenith Bank, Mr. Jim Ovia, also buttressed the position of the CBN saying: There has been a global financial crisis across several countries especially America and the G-8 nations. The question is: 'Is it affecting our local environment?' The answer is 'no' because we don't operate the same system as the banks in the G-8 countries.
"Why our situation is different is because we know that the problem arose from the sub-prime crash loans given to individuals who don't qualify to obtain those mortgage loans. So the banks suffered huge loan losses ranging from $10 billion to $40 billion in the past one year which significantly eroded the capital of some of them. This led their national governments to bail them out.
"Their situation became so bad that banks couldn't even lend to one another. This led to governments taken equity positions of 10 per cent, 15, per cent or sum even 20 per cent. That does not obtain here.
In the past years, no Nigerian bank has been recording loses. We have been recording profits," he said.
Mr. Ovia added that Nigerian banks' average Capital Adequacy Ratio was about 22 per cent , which was far above the Basle II requirement of 8 per cent and that Nigerian banks were very strong and healthy, which should therefore allay the fears of investors and depositors.
In his contribution, Managing Director of Diamond Bank, Mr. Emeka Onwuka, said: "The economy and especially the banking sector is coming into the matter with a lot of self-insurance against the crisis we have seen globally," adding that the fall is share prices being witnessed had nothing to do with the fundamentals of the quoted companies on the Nigerian Stock Exchange.
Oil price may drop further
Meanwhile, there are indications that the falling crude oil price might decline further as the global economy approach what experts call the impending recession.
Already, one of the fastest growing economies in the last decade and a major driver of increasing demand for crude oil, China is experiencing a slow down in its economic growth.
China's gross domestic product for the first nine months of 2008 increased by 9.9 percent, 2.3 percent lower than last year, China's State Council Information Office said.
"There are no signs of a definite recovery from the financial crisis," bureau spokesman Li Xiaochao said in a nationally televised news conference.
"The growth rate has moderated," Li said. The rate of expansion was the slowest since the second quarter of 2003, when the outbreak of Severe Acute Respiratory Syndrome, or SARS, cooled growth to 6.7 percent.
Be the first to Write a Comment!
Copyright © 2008 Vanguard. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
