June 15, 2009

11 banks groan under N422bn share loans

…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.”