Daily Independent (Lagos)
Kingsley Ighomwwenghian
8 July 2009
analysis
Lagos — The second quarter and first half of 2009 ended last Tuesday. The second quarter especially was indeed very eventful, particularly when viewed against the background of the exit of the heads of the two foremost regulators of Nigerian financial system.
First it was Musa Al-Faki, director-general of the Securities & Exchange Commission (SEC), who is believed to have been forced to resign about five months before the end of his first tenure of five years, which was due on October 26. He was not even allowed the honour of bidding for a second term over allegations of improper handling of a case of share price manipulation involving former soul-mates- Aliko Dangote of Dangote Group and Femi Otedola, President, Zenon Oil & Gas, as well as chairman, chief executive officer of African Petroleum. In the second quarter also, President Umar Musa Yar'Adua acceded to pressure, allegedly from the North, and denied Prof. Chukwuma Soludo, immediate past Governor of the Central Bank of Nigeria (CBN), a much-coveted second term, despite reported promises even up to two weeks before the end of his first term on May 29. The President, in exercise of his powers under the constitution submitted the name of Sanusi Lamido Aminu Sanusi, a risk management expert, who was then only five months as group chief executive of 115-year First Bank, Nigeria's longest surviving financial institution, to the Senate, who confirmed his nomination.
One other major landmark event during the first quarter of the year was the decision by the CBN not to pursue the revocation of the operating license of Savannah Bank Plc, seven years after. The Court of Appeal in Abuja ruled that the revocation was done in bad faith and that the license be restored, following which the Nigeria Deposit Insurance Corporation (NDIC) handed the bank's headquarters in Lagos over recently.
Beginning In January
The year opened with concerns over the 2009 Appropriation Bills before the National Assembly and the delay in its passage into law, aside from talks about the propriety and otherwise of a bail-out for the Nigerian stock market by the Federal Government. While some insisted that the market was not in trouble as to require a bailout akin to that in the United States, across Europe and Asia, others believed that the market's fundamentals remain strong, while there were those who insisted that the government should just say something positive to bolster investor confidence.
Although Dangote, a member of the Presidential Steering Committee on Global Economic Crisis (PSCGEC) and First Vice-President of the Nigerian Stock Exchange (NSE), assured in February that the Federal Government would soon come out with a package to rescue the nation's capital market. Dangote said the PSCGEC was set up partly to look into the problems of the stock market and proffer the necessary solutions.
The talk of a bail-out arose from the loss of N7.54 trillion between March last year, and early this year, representing a drop of over 66 per cent of its value, just as government ruled out any bailout for the nation's banks and capital market operators. This was despite the pull out of N812 billion worth of investments by foreign investors from the Nigerian stock market.
But this never came, just as some others who thought that better ways of restoring confidence in a market friendly way, through the floatation of a "reverse bond," so called because, instead of the usual bond where government pays interest on bonds to borrow money from individuals and financial institutions. Individuals holding the government reverse bond will have to pay interest to the government instead.
According to an expert, the government issues the reverse bonds with tenure of not less than three years to individuals only, while institutional investors are exempted. The reverse bond would attract the usual commercial interest rate say an average of 15 to 20 percent depending on the tenure. Individuals with margin facilities from banks can then exchange their short term bank loans for the long term government bonds, paying the same interest rate to the government that they were paying to the banks.
Remi Babalola, Minister of State for Finance, noted then that government will rather bail out the real sector with an emphasis on the textile sector, and is set to roll out a N70 billion package to revive the textile sector, otherwise, he said 500,000 workers could lose their jobs.
Common Year-end For Banks
About 14 years after banks in Nigeria agreed to adopt a uniform year-end of December 31, beginning from this year, one year after it was supposed to have become effective. Currently, the banks operate different financial year-ends ranging from February 28 to December 31. Already, Guaranty Trust Bank has adopted the new date, closing its books on December 31, 2008, as against its previous February 28, 2009. Adopting the new date, which means that banks would either submit two audited results this year or stretch the current financial year to between 15 and 18 months to December 31, 2009, also ensures a true picture of the health status of the banking industry. This will also help to curb the situation where all banks claim supremacy even when they have different year-ends.
The decision, Aigboje Aig-Imoukhuede, chief executive, Access Bank, said, was based on the fact that some banks (especially with international parentage) had already adopted the December year-end already. This is just as Akinsola Akinfemiwa of Skye Bank noted that there would be challenges for the industry, one of which Aig-Imoukhuede believes, increasing interest rates as banks fight for deposit thereby increasing operating cost for some. The issue, he continued, is that "banking is not about who is biggest, but who is the soundest. (So), banks may not want to increase their cost of funds."
Suleiman Committee Report
In February also, the Securities & Exchange Commission (SEC) received the report of the 15-member Adedotun Suleiman committee on the Review of Capital Market Structures and Processes. The committee did not however include a representative of the NSE, which became an issue when the report was submitted and the implementation of the 32 recommendations was scheduled to commence.
The report noted that even if the meltdown in the Nigerian stock market indicators coincided with the global trend, nobody should be confused into thinking that the worldwide crisis was the lone cause. It thereafter identified seven other factors that contributed that helped to impact negatively on investor confidence like "ineffective market regulation and supervision; weak institutions and corporate governance; (and the) lack of regulatory pro-activity and cohesion." Other inhibiting factors, the report identified included "unregulated margin financing; concerns about transparency; uncompetitive cost structures; (and) inefficient, cumbersome processes."
The committee touched on the seeming superiority battle between the SEC and the Nigerian Stock Exchange (NSE) and the structure and governance of the exchange, aside from the need for adequate capitalisation of market operators to enable them discharge their duties of market intermediation more effectively.
Another interesting recommendation by the committee is the appointment of an Executive Chairman for the SEC, like the CBN Governor, who must have 15 year's relevant experience in capital market operations, finance and investment, law, economics, accounting, business administration or any other related field. This is in addition to a provision for board members to retire by rotation to ensure continuity.
The report noted the seeming independence of the NSE to the SEC "despite unambiguous provisions of the ISA (Investment & Securities Act) to the contrary. The market's perception is that The NSE is at par with SEC, is not subject to SEC and does not require SEC approvals for its operations. This is possibly because The NSE was established before SEC, operates an effective monopoly market, its proximity to market, and the prominence given to its daily activities."
First Bank, UBA For N200b Agric Fund
In the first quarter of the year also, the CBN named First Bank and United Bank for Africa to administer the N200 billion the commercial agriculture credit scheme
to be financed from the proceeds of the N200 billion bond raised by the Debt Management Office (DMO). According to the apex bank after a meeting of the Bankers Committee in Lagos, the amount will be disbursed through participating banks for financing commercial agricultural enterprises.
According to the Guidelines for commercial Agriculture Scheme, "state governments and the Federal Capital Territory Authority could also borrow up to 20 per cent of the bond proceeds for on-lending to farmers. The ceiling to the States may be reviewed as the need arises by the Project Management Committee (PMC)."
A commercial agricultural enterprise is defined under the scheme as "a commercial enterprise is any farm or agro-based enterprise with agricultural asset (excluding land) of not less than N350 million for an integrated farm with prospects of growing the assets to N500 million within the next three years and N200 million for non-integrated farms/agro-enterprise. This however, does not apply to loans obtained by state government for on-lending."
Target agricultural commodities include cultivation of target like rice, cassava, cotton, oil palm, wheat, rubber, sugar cane, Jatropha carcus, fruits and vegetable; livestock- dairy, poultry, piggery; and fisheries. Credit support to the target commodities is to be administered along the entire value chain of; Production, Storage, Processing, Market and Enterprise development," according to the CBN
The objectives of the scheme, according to the guidelines include fast-tracking development of the country's agricultural sector by providing credit facilities to commercial agricultural enterprises at a single digit interest rate.
Price manipulation
AP had in a paid advertorial recently accused Nova Finance & Securities Limited, acting for Dangote of manipulating its share price between February 11 and March 20, 2009. The SEC investigating committee heard from representatives of the various parties including AP, Nova Finance, Dangote and Afribank Registrars, and found Nova Finance, a stock broking firm, guilty of flouting several sections of the Investments & Securities Act (ISA) 2007 and the industry code of conducts. The commission suspended Nova for a year from April 16, 2009, in line with Section 38(4) of the ISA. Eugene Anenih, Nova's CEO was "disqualified from being employed in any arm of the securities industry for a period of five years with effect from April 16, 2009." Anenih was also been referred to the Economic & Financial Crimes Commission (EFCC) for further investigation and possible prosecution under section 115, among others.
The commission did not find any evidence showing that Dangote instructed Nova Finance or its CEO to effect the transactions in AP, which were allegedly done on his behalf.
ATM In Public Places
Within the period under review, the CBN ordered banks to remove their automated teller machines from public places, especially airport and hotel lobbies across the country. In the April 7, 2009 circular to all banks, the CBN expressed anxiety over the crowding of public places as banks compete for space.
Signed by James Olekah, Director, Banking Operations Department, the circular entitled "deployment of Automated Teller Machines" recalled that at the onset, the ATM Consortium (ATMC) was the body mandated solely to deploy the electronic payment system in public places, while the banks will concentrate on installing same only within their premises. The CBN directed banks to "henceforth restrict the deployment of ATMs to their premises. Banks are further advised to redeploy all existing ATMs in public places to their premises on, or before June 30, 2009."
The apex bank also hinted of plans to license another ATM consortium in addition to the existing one, both of which shall be responsible for the deployment of ATM in public places in line with best practice. This, the statement added, is in line with the policy on joint payment infrastructure and to effectively meet growing public demand for the services the industry.
So far, there are about boast of 8,138 ATMs, a far cry from what is needed, out of which 55 per cent are located outside bank branches, many have queried the move, which they believe has not taken convenience of customers into consideration.
Femi Omoyele, in his opinion published by a newspaper a fortnight ago, regretted that this could have huge impact on the industry, as about 55 per cent of these machines are located outside of bank branches. This, it is believed, would lead to huge cost of pulling down to be erected again in designated areas. He regretted that that apex bank by saying only the consortium can install ATMs in public places has misplaced its priority at this time. He wondered why the CBN issued such a directive knowing the relief and convenience brought by the advent of the machines to bank customers. The directive, he believes, amounts to the CBN wanting to take Nigerians back to the past
Pegging Of Deposit, Lending Rates
Worried by the soaring rates in the country, the Bankers' Committee pegged the maximum deposit rate at 15 percent per annum from the former 21 percent, while prescribing 22 per cent maximum lending rate 22 percent per annum from over 30 percent hitherto. All other charges are also not to exceed 2.0 per cent per annum, decisions, which according to Soludo were taken at a breakfast meeting where it also noted the a need to moderate competition and lay greater emphasis on the safety and soundness of the banking system.
To dampen the inter-bank interest rates, he disclosed that the apex bank would lend to banks at no more than 500 basis points above its monetary policy rate at the discount window (that is maximum of 14.75 percent at the current MPR).
Forex Concerns
The CBN further streamlined purposes for which funds sourced from the official market can be used. In its circular titled: "Use of RDAS Funds for Investment in securities denominated in foreign currencies and establishment of offshore subsidiaries/branches," the CBN forbade the use of funds sourced from the Retail Dutch Auction System (RDAS) for opening branches by banks and companies. Instead, the apex bank directed that such endeavours must only be financed from other sources.
According to the apex bank, the RDAS "shall not be eligible for investment in securities denominated in foreign currencies abroad and setting up of offshore subsidiaries/branches of Nigerian companies."
The CBN earlier in the year returned to the RDAS, which was earlier abandoned in 2006 for the Wholesale Dutch Auction System (WDAS), under the new regime, banks can now only buy (foreign exchange from the CBN) and sell to end users, while such purchases must be supported with appropriate documentations. "Because funds are fungible, people can buy and use it to trade among themselves," the governor said, adding that it is now an offence to misreport to the apex bank.
The apex bank later pegged the price that banks can buy and sell foreign exchange at 1.0 per cent above the rate the CBN (benchmark) rate. This, he continued, is an indication that the CBN is committed to ensuring a stable exchange rate for the Naira against other major currencies of the world.
The CBN has since adopted a zero tolerance for erring banks, as defaulters risk such punishment ranging from blacklisting any bank official cut whether he is the bank treasurer or chief executive. Depending on the weight of the offence, the CBN governor warned that sanction could also be as severe as withdrawing the foreign exchange dealership license of the erring bank.
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