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Banks’ shares not banned as collateral for lending, CBN, NSE

By Babajide Komolafe & Michael Eboh

The Central Bank of Nigeria yesterday said it did not ban the use of banks’ shares as collateral for lending.
Similarly, the Nigeria Stock Exchange assured investors that  banks’ shares can be used to secure loans from any bank.

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The apex bank said that it only limited banks’ exposure to margin lending to ten per cent of their loan portfolio and that it is still working on guidelines for lending for share trading.

A statement signed by the Deputy Director, Corporate Affairs, Alhaji M. M. Abdulahi, said “The Central Bank of Nigeria (CBN) has noted with concern the misrepresentation of the Bank’s position on the use of banks’ shares as collateral for lending as reported in some national dailies and the subsequent comments on the same issue by some commentators.
“The CBN wishes to correct this misrepresen-tation, by stating very clearly that no such directive on not using banking shares as collateral for lending had been issued by the Bank.

“The CBN Board, at its April 15, 2010 meeting,  approved rules and regulations on margin lending.
“The Board noted that large exposure of banks to the capital market was a major contributor to the recent banking crisis and, therefore, decided to ring-fence depositors of banks against any speculative or high risk trading activities in order to protect depositors’ funds.
“It also set a maximum cap of 10 per cent aggregate exposure to margin lending in the loan portfolios of individual banks.
“The CBN and SEC are in the process of finalising the framework on the guidelines and rules that will guide operations and activities surrounding lending specifically meant for trading in stocks in the capital market. Details of these guidelines would soon be made public.

“For the avoidance of doubt, the CBN had at no time issued a blanket directive to deposit money banks (DMBs) on the type and nature of collaterals on facilities granted to their customers.

“The DMBs reserve the right to accept whatever security they deem suitable as collateral for their commercial lending purposes.”

Addressing stock brokers on the floor of the NSE, the Director-General of the NSE, Professor (Mrs.) Ndi Okereke-Onyiuke, clarified  statements by the CBN as regards usage of banks’ shares as collateral for loan facilities, declaring that investors are not affected by the pronouncements and that their banks’ shares can be used to secure loans from any banks.

She said that the directives by the CBN only affect stockbrokers and market operators engaged in margin lending.
She stated that the clarification became necessary following panic by investors’ after the pronouncement, a factor which could also lead to dumping of banks’ shares by investors.

She said “The recent pronouncement by the CBN concerning usage of banks’ shares as collateral has been misinterpreted by investors.

“The NSE have been inundated with calls and concerns by investors as to the fate and value of their investments, if it can not be used as collateral.

“As a result, we held talks with officials of the CBN and we got proper clarification on the issue.
“The pronouncement only relates to stockbroking firms and banks as regards to margin loans.

“Individual investors, whether it is a stockbroker borrowing in his name or an investor borrowing in his name.
“Individual investors, whether Nigerian or not, can use their shareholding in banks to borrow money. It is only restricted to margin lending.

“The policy is restricted to margin laons between brokerage firms and banks. A stockbroking firm and a bank doing margin lending or institutional lending.

“The stockbroking firms can not the banks’ shares in their portfolio for lending to do margin transactions.
“Any individual investors that have shares in a bank, can use the shares that he or she have to borrow money from that same bank or another bank.”


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