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.
Be the first to Write a Comment!
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.
