The hike in interest on margin loans effected last November by banks was the fulcrum of a crucial meeting between officials of the Nigerian Stock Exchange (NSE) and banks as stakeholders seek options to lighten banksÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¾ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ burden close to N1 trillion loss they incurred from the facility.
In November 2008, banks had reviewed the interest rate on margin loans from 18 percent to between 22 to 25 percent in order to meet up with the shortfall that had arisen from the market meltdown.
A source at the meeting informed BusinessDay that the banks expressed concern over continued overtrading of the custodian accounts by stockbrokers.
With the failure of the capital market to respond to previous palliatives, stakeholders were unanimous in their resolve that unless the huge loss through margin loans is adequately tackled, the expected market rebounds will still be a mirage.
A source said it was not certain if the Central Bank of Nigeria (CBN) was aware of the action of the banks because that was contrary to the directive earlier that the loans should be restructured to December 2009 to allow the operators more time to pay.
But in the view of analysts, the gesture is a time bomb waiting to explode. The meeting which was held at the Nigerian Stock Exchange (NSE) yesterday afternoon was attended by representatives of some banks, senior officers of the Exchange, senior stockbrokers and the managing director, Central Securities Clearing System (CSCS).
Although, a senior official of the NSE said he was not aware of the meeting, BusinessDay investigations revealed that the role of margin credit which has become a critical issue in the market as a result of illiquidity in the system was broadly discussed.
Market operators are of the view that a market rebound would only be predicated on injection of more funds into the market.
According to a chief executive officer of a stock broking firm, the market is experiencing liquidity squeeze because of the hard stance of the banks on margin facility even as he noted that it was important that there is an understanding between the operators, NSE and the banks on a reasonable solution over the issue.
This, he said, was part of the issues that were discussed at the meeting.
It was revealed that some banks that act as clearing houses for the stockbrokers regarding the settlement of stock transactions have since resorted to holding back money that are paid into the stockbrokersÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¾ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ accounts by the clients for stock purchases when the stock broking firm is found to be indebted to them, thereby frustrating their business.
Over the last 12 trading days of this year, the NSE All Share index has dipped another 15.41 percent, closing Monday at a low of 26,667.09 basis points.
The president of Chartered Institute of Stockbrokers (CIS), Oladipo Williams, had said that the restructuring of the margin loans will allow banks a reasonable time to adjust their position and resolve the illiquidity problem in the stock market.
He explained that if banks are allowed to restructure those credits into a longer period of about five years, they will no longer be under pressure and will not put debtors under pressure to flood the market with shares to sell and repay those loans within one year.
The brokers also recommended that the over-hang offers in the market should be swept into a temporary purchase account to be managed by the Central Securities Clearing System Limited (CSCS). The purchase, they said, should be funded by some selected fund providers, mostly banks. - BusinessDay