The Central Bank of Nigeria (CBN) has dispatched its examiners to four major banks to re-ascertain the level of their exposure to both margin and downstream sector loans.

A margin loan is a facility given to an investor for the purpose of buying securities. The loan is secured by investors' collateral, which is usually a portfolio of securities.

An investor uses a margin loan when he or she does not have enough money to buy securities or otherwise take advantage of a potentially profitable rise in securities prices.

In Abuja, CBN Governor, Professor Chukwuma Solodu, yesterday assured Nigerians that the exchange rate would soon crash following the measures being put in place.

The current re-examination of the books of the banks, known in banking parlance as "special examination", is quite different from the routine examination, which is conducted yearly either by the CBN or the Nigeria Deposit Insurance Corporation (NDIC).

A top CBN official, who confirmed this development to THISDAY in Lagos yesterday, said the examiners were sent to the banks last week and are expected to submit their reports before the end of the week.

Two of the four banks currently being examined have their head offices located on Victoria Island, Lagos, while others have theirs on Lagos Island.

THISDAY gathered that one of the banks granted an individual over N1 billion for margin loans, while another was said to have granted several billions of naira to an oil firm, whose Managing Director/CEO is currently being brought to book.

The debt portfolio to the downstream sector, said to be in the region N40 billion and spread among three other banks, has accumulated nearly N400 billion in toxic debts in the last two and a half years.

Following the global financial meltdown, in addition to the crash of stock prices at the Nigerian Stock Exchange (NSE), banks have been under pressure and are desperate to recover their money, having burnt their fingers in the stock market through margin loans with an exposure which the CBN estimates as less than N900 billion.

Soludo said last Tuesday at a briefing in Abuja that even if all the N900 billion exposure was lost, adequacy ratio of banks would still be above 15 per cent - whereas capital adequacy ratio in many developed economies is below 10 per cent.

Both the Securities and Exchange Commission (SEC) and the NSE have not been specific on the total exposure of banks to the market in terms of margin loans, but insisted that the influx of funds from banks contributed to the bull run witnessed in 2007 and early 2008.

They have, however, alluded to the fact that the recall of the margin loans also led to the downturn in the market, which has lost N8 trillion or 63 per cent in terms of market capitalisation. The NSE All-Share Index has also depreciated by 69 per cent since the meltdown began March 6, 2008.

The market capitalisation slid from N12.6 trillion on March 6 2008 to close at N4.9 trillion yesterday, while the index depreciated from a peak of 66,371.20 to 20,373.68.

But the Chartered Institute of Stockbrokers (CIS), which is the professional umbrella body for stockbrokers in Nigeria, has said that banks exposure to the market is in the region of N900 billion and N1 trillion.

Yesterday, Soludo, who was invited to brief the Federal Executive Council (FEC) on the economy with special reference to the exchange rate regime in this time of global crisis, assured Nigerians that the exchange rate would crash in no distant future.

Soludo gave the assurance that following the measures employed to ensure that 95 per cent of legitimate businesses are done by the banks at the official rate of N145-N150 to the dollar, speculators and parallel markets would soon go out of business.

Briefing State House correspondents, Soludo said the CBN had taken measures to make the parallel markets unattractive, insisting that most of the transactions in the market are done by those who want to avoid documentation like smugglers and money launderers.

He said: "We briefed the council on the developments in the foreign exchange market and the exchange rate regime especially at this time of global financial crisis. We try to put it in the global context that this is what is going on globally, the consequence of unprecedented global crisis that we are having. Resource flows, capital flows around the world are frozen up and commodity prices in Nigeria more than depends 95 per cent of its foreign exchange earnings on oil and the price has also crashed. To the extent that currently from about July last year, the outflow of foreign exchange has actually far more outstripped the inflows.

"In fact last month, we received about $800 million when last year we were selling about a billion dollars a month to the bureau de change. In fact, up to January, February this year we were selling about $800 million a month to the bureau de change alone not to talk about the official window. But the total inflow last month was about $800 million while the total inflow this month is about $691 million. Therefore, since no one knows how long the global financial crisis will last, as a country our national strategy should be to conserve the foreign exchange that we have so that even if the crisis lasts for an extended period, we as a country will continue to guarantee access to foreign exchange for end users, for legitimate business for the duration of the crisis.

"We also briefed council on the various measures we have put in place reverting to the Retail Dutch Auction System, getting all inflows from official sources now to the Central Bank and of course managing the official exchange rate with a band of plus or minus three per cent. We are also trying to emphasise and this is very important for Nigerians to know that the official exchange rate at the CBN window that you will go to bank and obtain has hovered between 144 and N150. It has never exceeded N150 since this year.

"And that is the exchange rate that about 95 per cent of legitimate transactions take place. We have stopped supplying foreign exchange to the bureau de change and that is why you are seeing the parallel market rate beginning to soar simply because we couldn't afford to continue the way we were doing before. But now, we are opening a new window. We are supplying foreign exchange through the banks. At least that we can monitor and make sure they comply with documents requirements.

"We also briefed council about the fact that part of the new reforms we have will actually make sure that most of the legitimate transactions for foreign exchange be it for payment of school fees, for mortgages abroad, medical purposes, businesses, or personal travel allowances that they can now go to their banks and get them. Whatever the amount, the banks will bid for them and transfer these monies for you. If you are also importing goods, $10,000, $15,000, $50,000 whatever it is, you can go to your banks and bid for foreign exchange and obtain at the official exchange rate. But for those who don't want to pay duties, those who want to launder money, those buying money to keep under their mattresses, when we are capturing most of the legitimate transactions, we will then ask the question who are the people going to the parallel market."

Soludo canvassed the help of the media to educate Nigerians on the dangers of patronising the parallel markets.

"It is for you in the media, to help us in communicating these facts to Nigerians that the exchange rate for the Naira is the official exchange rate because that is where more than 95 per cent of the transactions take place.

"With the new reform and our decision to now fund the exchange rate operated by the banks, and when the class ABCD also register, we will also be able to make cash available to them. We believe that the rate will be crashing down very seriously in the days ahead and that most of the transactions in the other market will be those who want to avoid documentation," he said.

Asked if CBN could meet the demands given the fact that the government was receiving reduced foreign exchange, Soludo said the signals from rates at the various markets as at yesterday's morning revealed that the rates had begun to respond.

He said the naira went as far as N190 last week but as at yesterday, adding that they were buying at N178 and selling at N181.