Determined to ensure that Nigerian capital market is rescued from its sliding fortunes, several measures have been recommended by stakeholders and institutions like CBN, SEC for the market to bounce back.

Okereke

SEC has issued guidelines on  share buy-back by companies quoted on the NSE as a follow up to recent stakeholders' resolutions on how to move the capital market forward. Do you think that would go a long way in making the market bounce back?

Before the guideline was issued, the market has been on the downward trend even though the Nigerian Stock Exchange has tried to apply their own internal control measures which worked briefly. But we need to look at the period it has taken to come to where we are today. Again, the state of the market today compared to what it used to be five years ago shows that the market has really expanded.

A lot of people have been attracted to it. So, if there is any negative thing that happened to the capital market, the impact is going to be far reaching because the number of  players in the market which before now were not the same. So, why the impact is so heavy and severe was because the market has also expanded both in terms of the securities of the exchange, depth of the market, operators and the participants.

The extent of the down turn in the market has impacted negatively on the confidence of many investors because many of those that came into the market were not sophisticated investors.

They are mainly people that were attracted to the market for short-term gain and because the market has been on the rise in the last one year till March this year, people flocked into the market with the intention of making massive profits, particularly as an impression was created in the minds of many that the market would keep going up.

So, because of that, a lot of people that came for short term gain have been hurt as their objective for coming into the market has not been realised, instead they have lost money massively, and that is where an investor like me is different because people I manage their portfolios, I always encourage them to invest in the capital market on a long term perspective. Although people make short term gains, no doubt. But for those that have been in the market for many years, they would be able to realise that what is happening today is not new. It has happened in the past. Although the extent of the current fall has been very massive.

The last time we had similar fall in the market I guess was sometimes in 1997 when the market recorded a fall that was above 30 per cent. The market capitalisation and prices fell too. I could remember, PZ then fell from about N35 to less than N5 per share. So, many lost heavily then.

Therefore, the current trend is also as a result of a number of policy reversals, inactivity, lack of continuity in the reform programme, stagnation etc.

In Nigeria, government is the biggest spender. Until the government begins to work, the economy is sort of held to a standstill and in the process of those policy reversals and so on, it also impacted on the money and capital market because CBN which is the monetary arm of the government also came up with some policy measures that either were reversed or suspended.

Then in the process of trying to conform with the government of the day, they came up with the issue of common year end for banks. Aside that, there was also the issue of recapitalisation of stock broken firms and capital market operators by SEC. While that was going on the insurance companies were just coming out of their own recapitalisation exercise.

All these have direct impact on both the money market and the capital market because it is either somebody is investing in any of them or even the real estate sector.

So, with all these policies, the big question now is  where do people readily get money to invest. If you are not getting money from your earned income, you are getting it from borrowing from the banks. At a point in time banks were now struggling to position themselves.

In the past, they all kept making noise that we are the biggest and our deposit was this or that, but while they were doing that, the CBN now said, all of you are going to have a common year end so that we can know exactly who is the biggest or strongest. What that entails is that there is going to be a dislocation in the system because prior to now, banking is built on the principle of a circle that money will keep on coming and going as people would keep depositing and withdrawing. But the moment there is a break in that circulation, there would be problem. What most banks do, was that in order to declare massive profits, they would expand their portfolio of loans because it is from loans they make good money.

And when banks lend money, if they don’t have equivalent deposit, they are going to have problems but in order to meet those equivalent deposits, they need to borrow from other banks. That is interbank borrowing. Now,  if all the banks are going to be closing their books the same day, who is going to lend to the other person.

That warranted the banks going into the economy to go and source for deposits and because there was massive demand for deposits within the banks, the interest rate shut up. When interest rate rose, people refocused their investment drive. Instead of now going to put money in the stock market, that would take 2-5 years to make maximum returns, they preferred investing in the money market where they can get 14-17 percent interest rate and their money would still be secured.

That again removed money from the capital market into the money market, so, the moment liquidity was removed from the capital market, people were no longer interested in buying shares.

Aside inconsistency of government policies, there are allegations of irregularities such as manipulations or economic gimmick playing as most times stock brokers over quoted share prices and even more worrisome was that most companies whose shares are quoted on the floor no longer exist. How do you think the country can tackle these irregularities which have contributed to the woes of the capital market?

Well, the issue of accusing finger is not strange. It is something that must happen in any society and one thing we must have in mind is that in the midst of twelve, there must be a Judas. I am not playing any devils advocate for any operator but I believe that before SEC and NSC give license to any operator, such person(s) must have passed through some rigorous text , checks and balances before emerging  dealers or stock brokers at the NSE. Also they must have gone through the rigors of the Security and Exchange Commission in terms of their qualification ,experience and other capitalisation issues.

So, I don’t believe that anybody   who is a responsible operator   will put his license and integrity in jeopardy by getting himself involved in manipulating or quoting prices that are out of the ordinary. Again, let us also have it at the back of our minds that the capital market is a free market. A market that thrives on information as the players determine the price through the forces of demand and supply. Now, if a broker quotes a price of a stock out of the ordinary with the aim of making the stock sell at a higher price so as to earn higher commission and after quoting, nobody is willing to buy that stock  will naturally crash.

Again awareness of how the market works is still at a low ebb, and based on that many investors are saying more time should be given on dateline on e-allotment policy while some even condemned it outrightly saying it should be reviewed. How would you react to that?

Well, personally, the issue of e-allotment, e-dividend or electronic payment, etc. is a good development but we must take into consideration the Nigerian society. The country’s economy is divided into mainly two categories. Those that operate in the city and the rural communities.

In the last four years, the knowledge of capital market, share purchase have become widespread that it has gone even deep into the villages. We know that in the villages electronics, computer and network is a problem. E-allotment or e-dividend can be implemented for investors that are in the cities, and are computer literate, with CSS accounts and bank accounts.

For this category of people it is a  good thing as they would   want to receive their dividend immediately it is approved at the AGM as it will just go into their accounts directly from the registrar. No filling of  tellers. But we must take into consideration the mass of Nigerians that do not have bank accounts.

In fact, if you do a statistics of the number of people that have bank accounts both savings and current, not up to 20 million, out of 140 million Nigerians have it including statistics of the accounts that had been opened by mega banks excepts now that micro-finance banks have come into the picture as they are beginning to go into the nooks and crannies of the country and opening accounts with as low as N100 or N200, this has resulted in increase in the statistics of those that have accounts with banks. So, if we are implementing e-allotment does that mean that it is only this 20 million people that are supposed to be playing in the capital market or are there people outside this number that also have shares?

Again, there some shareholders that know all these things but because they are retired and are in the villages, they no longer have bank accounts. So how are you going to implement e-allotment and e-dividend for such people. While that is a very good policy for people that are enlightened and  have bank account, they should make sure that all the required information are available to the registrar to pay their dividends directly into their accounts and when there is public offers, the shares are allotted and credited to their CSS account.

Also, there are several people that have shares today but do not have a stockbroker or CSS account and are in the villages with their certificates. Some of them after they are encouraged to buy shares, when dividends are declared, they just keep it because they don’t even have bank accounts where the dividends could be paid  in. So, for this to be implemented, there is need for massive education, not just in the cities but massive education that would go into the hinterland to sensitize the people.

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