ALLEGED losses suffered by banks through the stock market meltdown may have been a hoax afterall, following disclosure by the financial institutions in Lagos yesterday.
Specifically, the banks explained that loans granted by them to stock-broking companies for margin trading before the recent bearish run in the stock market which caused stocks indices to plunge by about 40 per cent, did not affect the bottomline of banks, their chief executives have said.
The bankers, under the aegis of Chief Executives of Banks, which held a meeting in Lagos yesterday, picked holes in media reports, suggesting that banks may have incurred monumental losses from share purchase loans to investors.
“The reports are erroneous and a gross misrepresentation of facts probably out of ignorance”, the bankers said.
Market sources, however, said there is suspicion that the alleged loss by banks to the tune of N33 billion to stock market meltdown on huge loans given out by banks as margin credits to investors who took the facilities to play in the capital market, as reported by some newspapers, are being sponsored by some foreign interests to undermine the Nigerian banks and the entire economy.
“The margin on share purchase loans created by banks ranged between 50-100 per cent against about 35 per cent gross declines in the stock market. This means that rather than outright losses, the banks still have profit margins on the loans in the range of 15 to 75 per cent. The loans are fully secured in many cases up to 150 per cent cover. The banks are fully aware of the risk in stock trading and that was why the high margins and heavy protection”, the bankers explained.
“Even stockbrokers especially those affiliated to banks have not reported any such loss yet. Losses can only crystallise if brokers have sold the stocks they invested in at depreciated prices, but they have not sold yet and may not sell now as the market has started showing signs of recovery.”
They further stated that “banks’ CEOs are optimistic that the current rebound in the stock market will be sustained for a considerable period of time, thus further strengthening the positions of the investments in the stock market.”
Moves by the Federal Government and other stakeholders to salvage the stock market from the major bearish run experienced between March and August has yielded positive results.
For instance, the All-share index which measures the movement of share prices rose by 7.74 per cent last week, closing at 47.789.20 points, up from 43,382.48 points at which it opened on Monday, while market capitalisation rose by N899 billion from N8.845 trillion to N9.744 trillion.
The development was the first time the dominance of the bears would be checkmated in five months, but it was obvious that it was not due mainly to market forces but the intervention. The indices had dipped by about 40 per cent before the intervention.
For instance, the stakeholders of the capital market met with the Federal Government early last week to discuss the way forward for the market, after which some decisions were taken.
Part of the decisions include one per cent maximum downward limit on daily basis for share price movement, whilst the current five per cent limit on upward movement was retained.
It was also agreed that Nigerian banks should restructure existing facilities extended to licensed stockbrokers, institutional and individual investors to allow longer repayment periods, while the Central Bank of Nigeria (CBN), also agreed to take appropriate measures to review the liquidity situation in the economy, among other resolutions.