By Babajide Komolafe & Michael Eboh
The downward trend recorded in the Nigerian capital market last week, is expected to give way to a bullish trend this week, as investors take advantage of the few days of decline recorded in the market to take position in stocks.
Last week, investments on the Nigerian Stock Exchange (NSE), represented by the market capitalisation, recorded significant decline, falling by N229.06 billion.
In particular, the capitalisation which opened the week at N6.627 trillion depreciated by 3.46 per cent to close at N6.398 trillion.
Last weekÂ Central Bank of Nigeria (CBN) and the Nigerian Stock Exchange (NSE) made clarifications on the use of banksâ€™ shares as collateral for loan facilities.
The CBN, according to a statement signed by Mr. Mohammed Abdullahi, Head, Corporate Communications, noted that the apex bank 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, adding thatÂ the DMBs reserve the right to accept whatever security they deem suitable as collateral for their commercial lending purposes.
He noted that the CBN and the Securities and Exchange Commission (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, adding that detailsof these guidelines would soon be made public.
The Director-General of the NSE, Professor (Mrs.) Ndi Okereke-Onyiuke on her own part noted that Individual investors, whether it is a stockbroker borrowing in his name or an investor borrowing in his name â€” individual investors, whether Nigerian or not, can use their shareholding in banks to borrow money.
She further stated that the pronouncement by the CBN is only restricted to margin lending.
However, expert explained and gave rationale for the rejection of banksâ€™ shares and shares of other quoted companies as collateral for loan facilities.
Mr. Rilwan Belo-Osagie, Managing Director/Chief Executive Officer, First Securities Discount House (FSDH), explained that the banking sector was the most affected during the financial crises due to the huge facility given out to customers with the use of shares as collateral.
According to him, we had stock market crises for two years and you have collateral worth N50 million, and all of a sudden the collateral diminish to N10 millionÂ and at a time the shares could not be sold, even those shares you think are valuable are not as valuable as you think, the natural reaction is to shy away from it and that explains the reaction we are seeing from the banks.
He advised that more qualitative analysis need to be conducted by the sector in order to assess the quality of shares being presented to banks as collateral.
Another driver of activities in the market, this week is the release of results by banks and other companies. Last week, a number of banks declared disappointing year-end and first quarter results, leading to investors exiting the shares for more profitable ones.
The results of Access Bank Plc, Diamond Bank Plc, FinBank Plc, Stanbic IBTC Bank Plc, Cadbury Nigeria Plc among others, were released to the investing public prompting decline inÂ trading last week.
Embattled Healthcare stocks, Evans Medical Plc notified the NSE that it is yet to release its financial statement and called for an extension, to enable it study the report and recommendation of the forensic auditors over the misappropriation of N549.89 million in its last financial year.
Bullish trend to persist
The bullish trend in the secondary market forÂ FGN bonds last week is expected to persist this week owing to prevalence of excess liquidity in the interbank money market.
In the Over-the-Counter (OTC) market for Federal Government of Nigeria (FGN) bonds on the NSE, last week, a turnover of 269.85 million units valued at N324.84 billion was recorded in 3,229 deals, in contrast to the previous weekâ€™s turnover of 443.13 million units valued at N564.78 billion in 4,653 deals.
An upward trend is expected in the Mutual Funds quoted on the Nigerian Stock Exchange, this week, following the rebound recorded in the market at the tail end of trading, last week.
Investors, having learnt their lessons from the meltdown that rocked the capital market, a couple of months ago, now rely on the expertise of fund managers to invest on equities.
A number of investors have shunned investing in the market directly, as they now invest in mutual funds, who in turn, invest a portion of their funds in equities using their superior investment skills and expertise.
Of the 26 mutual funds, listed on the memorandum quotations segment of the NSE, only two appreciated, seven depreciated, while 17 remained unchanged.
Naira to suffer further depreciation
The depreciation of the naira witnessed in the last two weeks will persist this week owing to increasing demand for foreign exchange.
Last week the naira depreciated against the dollar in the official segment and in the interbank segment. In the official market the naira lost 22 kobo to the dollar as the official exchange rate rose to N148.61 from N148.43 per dollar in the previous week.
The rise in exchange rate was occasioned by 28 per cent rise in demand which rose to $758 million from $590 million in the previous week. The Central Bank of Nigeria (CBN) however only sold $500 million. At the interbank market despite foreign exchange supply of about $470 million from three oil firms, the naira still depreciated by 51 kobo as the interbank exchange rate rose to N150.85 from N150.34.
Cost of funds to remain low
Interbank interest rates will remain relatively stableÂ below the threeÂ per cent market this week. This is because the interbank money market is still soaked with excess liquidity (idle funds). Compared to the previous week, cost of funds etched up last week. Interest rate on Call closed at 1.19, up from 1.12 the previous week. Also interest rate on Seven Days and 30 Days closed higher at 2.375 and 5.25 per cent, from 2.47 and 4.92 per cent.