Eleven of the 24 banks in country are carrying the burden of N 421.7 billion as margin lending which includes loans to individuals, stockbrokers or loans to corporate bodies backed by share certificates. Margin lending and loans which are backed by stocks have generated lots of controversy as the CBN has recently put the total estimate of the facilities banks granted individuals, stockbrokers as well as lending secured with share certificates at N 1.2 trillion. Available figure show that the top 11 banks in country granted a total of N 229.9 billion to individuals and corporate bodies as facilities to purchase shares.
A break down of the data show that Intercontinental Bank top the list of banks with heavy exposure to margin loans of N 85.2 billion. The amount is made up of N 36.9 billion facilities granted to individuals and stock brokers while a total of N 48.3 billion was granted to other corporate entities who use share certificate as collateral leading to the N 85.2 billion exposure. It is followed closely by Gtbank which has a total margin loan portfolio of N 70.3 billion made up of N 18.9 billion loans to individuals and stock brokers to buy shares and N 51.4 billion to other corporates who use share certificate as collateral.
According to available data Ecobank is third in the high profile margin loan saga with margin loan exposure of N 59.2 billion. The bank however during its AGM in Burkina Faso said it has made 100 per cent provisions for the loans though it was not lost. First Bank though has a total share loan exposure of N 58.8 billion, its balance sheet show that it did not join the race for granting margin loans during the share boom years to individuals and stock brokers but corporate bodies that used share certificates as collateral.
Records show that Access Bank PLC on its part is carrying on its balance sheet a total exposure of N 33.5 billion out of which N 20.1 billion was as a result of loans granted to individuals and stock brokers for share trading while N 13.4 billion was granted to other corporates which backed up the loans with share certificates. Oceanic Bank PLC on the other hand granted a total of N 22 billion as facilities for share trading to individuals and stock brokers. United bank of Africa records show has on its loan portfolio a total of N 21.6 billion margin loans that are backed by share certificates which prices of shares has fallen below their face value. In the case of Diamond Bank it has on its balance sheet a total of N 20.2 billion margin loans portfolio made up of N 19.6 billion granted to individuals and stock brokers and N 0.6 billion granted as facilities to other corporate bodies with share certificate as collateral.
Union Bank according to available record has on its portfolio a total of N 17.8 billion margin loan facilities. Stanbic/IBTC granted a total of N 10.1 billion made up of N 5.2 billion granted for share trading while N 4.9 billion was granted to other corporate bodies backed with share certificates. Zenith 9.2 13.8 23.0
Fitch a rating Agency based in US in its comment on margin loan granted by Nigerian banks said ‚ÄúIt remains to be seen how Nigerian banks will address their share lending exposures in their financial statements. The agency considers that significant impairment charges could arise if these exposures become non performing or if the value of collateral continues to remain below minimum coverage ratios‚Äù.
The report said ‚ÄúTransparency is weak in Nigeria although there have been improvements in some of the more internationally active institutions. With the exception of GTB, bank financial statements are only presented in local GAAP. While Fitch recognises that Nigerian GAAP do not require the same levels of detailed disclosure as IFRS, the agency notes that most Nigerian banks do not provide supplementary information of their Tier 1 and total capital adequacy ratios and detailed information regarding their loan portfolios in their annual reports. First Bank was the only bank in the sector to disclose its share lending exposure at end 2008 in its annual report. Share backed and margin lending have become a feature of many Nigerian banks over the past two years. The CBN estimated sector wide exposure to this type of lending to be about N 800 billion N1.200 trillion at end 2008. According to the CBN, this represented 30 per cent 45 per cent of system wide share holders‚Äô funds in 2008. Of this amount, the CBN estimates that about N 400 billion related to margin lending. These facilities are primarily to individuals and stock brokers for the purpose of acquiring shares.
‚ÄúFitch makes the distinction between margin lending and share backed loans to corporates for the purpose of acquiring shares, with the former considered to be far riskier because of the counter parties‚Äô reliance on favourable share performance in order to repay the loan.
It said ‚ÄúA potential litigant is the proposed establishment of an asset management company which will take the form of a voluntary scheme that will enable banks to sell off these exposures at a discount to clean up their balance sheets. This law has yet to be passed, although Fitch understands that some banks have indicated their willingness to participate in such a scheme. Fitch has applied a 50 per cent impairment consistently across all banks in this test and recognises that it may be a blunt tool as no recognition has been given to future profits by the bank and tax benefits on any provisions.