Home Analysis Trial and error policies that have damaged Nigeria financial markets

Trial and error policies that have damaged Nigeria financial markets

by Business News Report

The handling of the Nigeria banking crisis portrays every investor in Nigeria economy as a common criminal who should not be trusted and must be dealt with. Going by the current CBN governor=s understanding of his role in the economy, his responsibility starts and ends with protecting depositors only. . For all he cares, investors in the banking sector can go to hell. Right from the time he took over as the Governor, he made it clear to all who cared to listen that he is out to protect depositors and all shareholders in the rescued banks have lost their investment. With that attitude what happens in the capital market does not matter to him.

If CBN has responsibility to protect depositors in the banks, the Securities and Exchange Commission, the Nigerian Stock Exchange have the primary responsibilities to protect investor=s interest in the capital market. As it is, these two bodies have been swallowed by the all powerful CBN.

Yet the economy needs investment to grow and create jobs for the teeming unemployed youths in the country.

The CBN was quick to argue during the global financial crisis that the stock market collapsed when foreign investors pulled out their investment in the market. Any economist would have thought that the focus of policy makers would have centered on how to rebuild confidence in the market and get the foreign investors who left the economy to return. But in the past two years all monetary policies have been geared to drive investors. Each passing day the utterances and actions of the market regulators further damage the confidence. As it is today no sane local and foreign investor will approach the Nigeria capital market for investment. The evidence of this is what happened on Wednesday when the management of the Nigerian Stock Exchange openly begged investors to stop dumping their shares. There is total loss of confidence in the market.

The take over of three out of the eight rescued banks has resulted in panic dumping of bank shares at the secondary market of Nigeria capital market. In the last two years no new shares have been issued. Last Monday alone, investors lost a total of N138.932 billion at the Sock Exchange as the market value of all the shares listed, which opened the day=s trading at N7.484 trillion, dipped by 1.86 per cent to close at N7.345 trillion. The All share index, another key performance indicator also dropped by 1.86 per cent or 434.33 basis points to close at 22,963.11 points from 23,397.44 points at which it opened. Banks= stocks were the worst hit, as 11 banks recorded significant decline in their share prices. As a result, the NSE Banking index, representing major banking stocks dipped by 3.66 per cent to close at 317.33 points from 329.38 points.

Investors had a week before lost N137.4 billion as the total market value of shares dropped by 1.80 per cent to N7.484 trillion from N7.621 trillion at which it opened the week. On Tuesday investors again lost N141.96 billion as the total value of all the shares listed at the Exchange dipped by 1.93 per cent to close at 7.203 trillion from N7.345 trillion at which it commenced the day=s trading.

The All share index dropped by 1.93 per cent or 443.79 bases points to close at 22,519.32 points from 22,963.11 points. The NSE Banking index further declined by 4.22 per cent to close at 303.93 points from 317.33 points. This was brought about by massive decline in the share price of majority of the banks, as 13 banks recorded significant losses in their share prices. A turnover of 401.08 million shares valued at N2.96 billion was recorded in 5,196 deals.
What is more disturbing is that several multi national companies that are listed on the exchange having seen the lack of focus and discipline in the financial markets have applied to be de listed from the exchange. This is gives cause for worry as to the future of the Nigerian Stock market. As it is it will take a long time before the market recovers..

The delisting by executive fiat of BankPHB, Spring Bank and Afribank from the Stock Exchange without following procedures has given foreign investors reasons to believe that Nigeria has no respect for sanctity of investment contract. To De list a company from trading at the exchange, the management of the Stock Exchange will have to take a memo to the council of the exchange for consent and shareholders are adequately briefed of the intention and appropriate fees paid before such a company can be de listed.

The CBN had given September 30 as deadline for the eight rescued banks to re capitalise but the investing public woke up two Fridays ago to hear that the three banks have been acquired. Worse still the following Monday, management, board and a new name were announced for the banks. Investors in that bank woke up to find that the share certificates in their hands were worthless. They can neither trade nor sell off those shares because the banks under which they bought those shares have been taken over by NDIC on the order of the CBN.

Where were SEC and NSE when theses decisions were being taken? Did they not realise the implication this would have on those they were employed to protect? What moral ground will they have to urge Nigerians to patronize the capital market in the future? What will Sanusi, Arunma Oteh and Obi, be telling foreign investors when wooing them to come and invest in Nigeria? When will Nigeria public officials learn to obey the rule of law and put public interest above personal agenda? The action of the authorities has further damaged the shaking confidence that was building in the market. The CBN had in August 2009 injected the sum of N620 billion into the eight banks it bailed out and the three nationalised banks were among. Last Friday AMCON injected another N679 billion of public funds into the three bringing the total fund injected into the rescued banks to a whooping N 1.299 trillion though the three banks said they have paid off CBN.

But before the CBN intervention, the Expanded Discount Window the CBN opened for the banks to support them was N270 billion facility from which they could borrow. That window was closed by Sanusi thus leaving the troubled banks naked. Would it not have been better for the CBN to use the Expanded Discount Window to manage the troubled banks than the total mess the economy has been put through now?

SEC and NSE have failed in protecting investors, the NSE may be deemed complicit in the series of events beginning from the consolidation share offers and subsequent abuses that has led to the banks= problems and nationalisation. AUnfortunately the current leadership of NSE/SEC may correctly claim that these issues pre dated their tenures, and that they are taking corrective action. AOrdinary investors are the ultimate losers in this crisis. The bankers have become rich; depositors are protected; while CBN/NDIC/AMCON among others flex muscles with the bank owners.

The major concern of both local and foreign investors is the re entry of the federal government into the banking sector and the market distorting effect this is likely to have on the growth and development of the sector. This was the same option the CBN told the world it considered not feasible at the start of the current reforms. It appears that what is happening is a deliberate act to destabilise the whole financial markets and threaten the whole economy. The advice that institutional investors and financial analyst will be giving to investors now is to steer clear of the Nigeria financial markets and start looking for alternative markets and economy in the sub region
From the look of things AInvestors= protection is not on the agenda of SEC and NSE as the actions of the regulators especially in the last two years have heightened the political and investment risks of the country, which means we have finally lost the confidence of foreign and local investors in our capital markets. No investors will invest where situation like this happens.@

My brother do not mind Sanusi, he is trying to turn away attention from the real problem at hand to the sentimental issue of Islamic banking. He should resign.
Not all the water in the rude rough sea can wash the balm from an anointed king
Dear Omoh Gabriel thank you sincerely for helping many Nigerians understand the full implication of non interest banking spearheaded by CBN Governor. Like you pointed out there is nothing wrong introducing interest freebank by the apex bank but basing the rules for their establishment and operations in a secular state on an Islamic frame work is provocative. Does the CBN governor expect Christians wanting to float such banks to subscribe to Sharia laws as against conventional banking laws? Will he and fellow Muslims submit if it were a Christian law? People like Tony Momoh need to understand this. This singular act is enough for government to remove Sanusi Lamido Sanusi from office were it to be a Christian under a Moslem President. His actions are more threatening and serious than that of Professor Iwu. One hopes the National Assembly and Mr. President are watching.
Dear Omoh, I commend your efforts in seeing to it that sanity and good governance become a norm in Nigeria. However, I disagree with you that EFCC are not stopping the thieves that are stealing us blind. I am of the opinion of why stop the thieves after they had stolen why not stop them before stealing in the first place. EFCC is not a watch agency and even then, they go after those that are petitioned. What we need to do is to make draconian laws like China has done against those that steal public funds and make our parliaments and politics to be less lucrative. I call on you to use your column to advocate a part time parliament where legislators will earn sitting allowances only. This will put an end to lots of the problems we are facing at the moment.
Abdaziz Badamasi, Ogbomoso
Your mind boggling revelations in your column made interesting reading. This is a wake up call to the Farida Waziri led EFCC.
Somnazu Francis Asaba
Sequel to your article on the kind of ministers we need now Mr. President should appoint people that know the pains of the masses and people that has his kind of vision not by favouritism.

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