…Stock market crash makes debt recovery tough
By Omoh Gabriel, Business Editor
LAGOS — ELEVEN of the nation’s 24 banks are carrying the burden of N421.7 billion as margin lending which includes loans to individuals, stockbrokers or loans to corporate organisations backed by share certificates.
The other 13 banks which data are not available have about N778.3 billion as margin facilities hanging in their balance sheet.
Margin lending and loans which are backed by stocks have generated lots of controversy as the Central Bank (CBN), recently put the total estimate of the facilities banks granted individuals, stockbrokers as well as lending secured with share certificates at N1.2 trillion.
The loans have become problematic as a result of the global financial meltdown which resulted in stock market crash around the world.
Share prices down
The prices of shares used in securing these loans have fallen well below the value of the loans they were used to obtain.
Selling such shares at the low level of share prices will make it impossible for banks to recover the full value of the loans granted.
Most of the shares so purchased are being warehoused by banks. The inability of banks and stock brokers to sell off the shares has resulted in some level of liquidity crunch in the money and capital markets in the country.
11 banks grant N229.9bn facility
Investigation showed that 11 banks in the country granted a total of N229.9 billion to individuals and stockbrokers as facilities to purchase shares.
A breakdown of the data showed that the bank which tops the list has a heavy exposure to margin loans of N85.2 billion.
The amount is made up of N36.9 billion facilities granted to individuals and stock brokers while a total of N48.3 billion was granted to other corporate entities who use share certificates as collateral leading to the N85.2 billion exposure.
The bank closely following has a total margin loan portfolio of N70.3 billion made up of N18.9 billion loans to individuals and stockbrokers to buy shares and N51.4 billion to other corporates who use share certificate as collateral.
According to available data, the third bank in the high profile margin loan saga has a margin loan exposure of N59.2 billion.
The balance sheet of another bank which has a total share loan exposure of N58.8bn, showed that it did not join the race for granting margin loans during the share boom years to individuals and stockbrokers but corporate bodies that used share certificates as collateral.
Records show that the fifth bank is carrying on its balance sheet a total exposure of N33.5bn out of which N20.1bn was as a result of loans granted to individuals and stockbrokers for share trading while N13.4bn was granted to other corporates which backed up the loans with share certificates.
The sixth bank granted a total N22bn as facilities for share trading to individuals and stockbrokers, while another has on its loan portfolio, a total N21.6bn margin loans that are backed by share certificates which prices of shares has fallen below their face value.
In the case of another Bank, it has on its balance sheet a total of N20.2bn margin loans portfolio made up of N19.6bn granted to individuals and stockbrokers and N0.6bn granted as facilities to other corporate bodies with share certificate as collateral.
Yet another bank, according to available records, has on its portfolio a total of N17.8 billion margin loan facilities.
The tenth bank granted a total N10.1bn made up of N5.2 billion granted for share trading while N4.9bn was granted to other corporate bodies backed with share certificates.
The eleventh bank had just N9.2 billion as margin loans and N 13.8 billion as facilities backed by share certificates amounting to a total of N 23.0 billion.
The CBN has already directed that banks should make provision for the loans which implies that the facilities will be provided for though not lost as banks will eventually recover the loans when prices of shares go up to the level of the facilities granted.
Fitch, a US-based rating Agency, in its comment on margin loan granted by Nigerian banks said: “It remains to be seen how Nigerian banks will address their share lending exposures in their financial statements.”
The agency considered that significant impairment charges could arise if these exposures became non-performing or if the value of collateral continues to remain below minimum coverage ratios.
According to the report: “Transparency 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.”
GREED@NIGERIABANKS.COM
pls name d banks in question and let the public know how secured the banks are in terms of their continue operation. Dont leave it too late like Royal Bank of Scotland in UK
With the bulls staging a comeback in the market, it may not be a total loss to the banks after all. I hope the banks have learned their lessons. You do not lend money to every Tom, Dick and Harry to play the market. It must be investors that have solid collateral to back the loans, not just the shares themselves, as they can become worthless in a market meltdown as recent events have shown.
The banking sector cannot boom while the real sector is comatose. The banks have to return to the drawing board. I doubt if this will happen under the watch of Sanusi, as he is one of their own
the banks in nigeria are just trying to see if they can get a bailout money from the federal govt. were they not the ones that caused the stock market problems in the first place today? they should better wait for the share prices to rise so that they can as well get back their loans and other instruments issued.
Quick profit base on speculations,why is our banks not lending to the productive sector of the economy
Sanusi should make sure banks write down their loans form now on. They should make sure they report using their international standards by December. Any bank that refuses to that, the CBN should the removal of the CEO and Chairman form the board.
Most of Nigerian banks are just senseless money lenders. They ask and encourage you to over value your asset or security and Nigeria being what it is, you can get this done at a cost. Some banks even recommend you or send you to their agents. The banks demand a lot of kick back from you and as a matter of fact, the banks give you the loan less the kick back and make you sign for the whole amount of the loan. As a result people hardly pay back the loan and the bank is lumbered with over valued asset or security. At the end of the day the banks are the losers and the dubious managers laugh all the way to the banks. With avaliable statistics, most banks in Nigeria will soon be going under and this will be up to 75% of the banks. The Central Bank has a responsibility to tell the public the truth and name such banks.
Our problem today is lack of accountability and transparency for this eco. Problem tell them. By sullivan arinze
umya economic legacy
The Banks To Hands Up For Takeover
The value of a loan is the lesser of the balance of the loan and the actual value of the security on it at the crystallisation of the loan. For example, if you accept a stock of shares as the security for the loan you give, on crystallisation of the loan, you can only get the lesser of the balance of the loan and the value of the shares. That is you either get the balance of your loan or get the lesser amount of the value of the security if the value of the security had decreased.
The banks are responsible for their loan transactions and the security they accept for the loans. Therefore, in the enforcement or maturity of loans that are secured on speculative instruments such as shares need only to be realised when the value of the shares is higher or equal to the balance of the loan. If the realisation is critical to your cash flow and the value of the shares is at your loss, you either wait for the value to go up, make alternative arrangement for your cash flow problem or realise your security at a loss.
Our banks who are today in precarious situations in their self-lending on risky and speculative instruments should not expect any handout from what is left on the PDP Government looted public fund. Moreover, the banks could not invariably lent to themselves and now expect the public to bear the burden, when they never lent to the real sector of the economy in the first place. Those banks that can no longer trade, are limping on as a result of their losses from trading and lending on speculative instruments should hands up now for either takeover or outright liquidation. There is no bailout available from public fund. Twenty commercial banks that do not serve the economy of the country are even too many.