This Day (Lagos)
Ayodele Aminu and Goddy Egene
25 June 2009
Lagos — The Nigerian stock market shrunk by 6.9 per cent within three days following pressure by banks to minimise margin loan losses as well as panic sale by other investors who are said to have reacted to the decision of the Central Bank of Nigeria (CBN) to audit the loans.
The market, which witnessed significant recovery from last April till the beginning of this month, had opened trading last Monday with a fall of 0.9 per cent.
By last Tuesday, the decline was 2.5 per cent before a heavy fall of 3.5 per cent yesterday.
The Nigerian Stock Exchange (NSE) All-Share Index, which is the major barometer for the performance of the market, closed at 26,927.65, down from the opening value of 28,910.19.
Also, the NSE capitalisation, which measures the value of equities, closed at N6.141 trillion, indicating a fall of N452 billion in three days.
Indications also emerged yesterday that three of the big banks have withdrawn their funds from the inter-bank market - where banks borrow from one another to cover their positions - for investments in Treasury Bills and government bonds and Open Buy Back, with a view to shoring up their liquidity for the December 31 common year end for all banks in the country.
Market operators said the sudden bearishness of the market resulted from a combination of many factors including selling-down by some banks to reduce losses in their margin loans - in reaction to three issues raised by the Central Bank of Nigeria (CBN) governor, Sanusi Lamido Sanusi, in an interview with the Financial Times of London.
These issues are: 100 per cent provisioning for margin loans; possibility of another round of consolidation and removal of CEOs that cook their books.
But the governor, who noted that the market had been on the decline before his statements, told THISDAY yesterday that he was undeterred by these developments - because his primary responsibility is to have safe and sound financial institutions.
He said: "If the market marks down bank shares because of reforms, I cannot really help it.
"I am not going to compromise on the altar of the share prices. I think [my] comments should be viewed as positive from the investor perspective because it would institute improved regulation and banking operations in the country.
"It is sad if there are investors who are not happy that the regulator is trying to institute reforms. However, that would not deter me from instituting improved transparency and regulation in the banking system."
Commenting on these developments, a senior stockbroker said: "Given the fact that the CBN Governor has said banks should disclose their margin loan exposure with the view to making provisions for them, some of the banks are taking advantage of price growth witnessed in the market recently to reduce their losses. That move by the banks at the same time is putting the market under pressure."
Another broker said that the comments by the World Bank that the Nigerian banking system was under stress, as well as Sanusi's comments, are sending panic to some investors.
"When the CBN governor makes a statement, it is taken very seriously, considering the relationship between the money and capital markets and given the fact that the banks constitute over 60 per cent of the market capitalisation. Investors are bound to react to such comments by the CBN boss," another operator said.
The Managing Director of Crane Securities Limited, Mr. Mike Ezeh, said: "Apart from the usual profit-taking, since the market is information driven, any comments that affect listed companies, whether banks or manufacturing firms, are supposed to reflect in the stock market."
However, the Managing Director of Partnership Investment Company Limited, Mr. Victor Ogiemwonyi, said a bear market was not unexpected given the fact that some banks are preparing for their half year results, while others are trying to align with the December 31 uniform year end stipulated for all banks.
He said: "June 30 is around the corner and companies who have that date as their second quarter or year end are coming together. Apart from the usual month end expenditure pattern that brings in only seller, June is particularly difficult as most institutional investors and banks adjust their books in anticipation of year end.
"The market was not helped by the recent reports that our banks may be weaker than we anticipated. There is also the suggestion that the pent-up sale orders that were held back in the last few days may also have impacted the market yesterday after the limit order was lifted. What investors need to know is that the worst is over for the market. We will need a few more months for the market to stabilise."
However, a source in the stockbroking arm of one of the banks linked the bearish trend in the past few days to cautious approach by market speculators who are trying to guide against losing the capital appreciation recorded in the past two months.
The source explained that such speculators are not sure of the sustainability of the bull run witnessed recently.
"They want to make sure that what they have gained is not lost. That is why some of them are selling and when there is more supply than demand, prices tend to fall. That is what is happening," the source said.
About 20 banks recorded price losses yesterday, indicating that banking shares, which constitute more than 60 per cent of the market capitalisation, are being dumped.
Some of the banks had recorded capital appreciation of over 30 per cent since the market began to recover last April.
On the movement of funds from inter-bank market, Sanusi told THISDAY: "This had been on for a while and was not as a result of any statement attributed to me. The CBN has been aware of the decline in inter-bank lending and will introduce the necessary measures to restore confidence in the inter-bank market."
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