The Governor of Central Bank of Nigeria (CBN), Prof. Chukwuma Soludo, has said that the Federal Government is not going to commit a kobo as financial bailout for Nigerian ailing stock market, saying government has no business in carrying out such intervention.
He claimed Nigerian banks are still financially sound. He also foreclosed the idea of a Stabilisation Fund for the Nigerian Capital market, as floated by some industry players.
Soludo stated this at the second Townhall Meeting of Thisday held in Abuja yesterday.
Also speaking at the event, the former US Secretary of Treasury, and President, Harvard University, Lawrence Summers, has regretted that though Nigeria was ranked the highest above newly independent third world countries to emerge as a global economy, several decades of mismanagement has let Nigerians to having one of the poorest living standards in the world.
The Managing Director (MD) of the Oceanic Bank, the sponsors of the Town Halll Meeting, Mrs. Cecelia Ibru, in her submission, attributed the crisis in the Nigerian Stock market banks divestment into infrastructural development and mortgage, thus pulling out huge liquid from the market that has led to 30% lost of its value.
But, Soludo had argued that that Nigerian monetary policies have been fine-tuned such that banks can draw huge sums from their deposits at the CBN and shore up the capital market without government giving a financial lifeline like is done in the US.
“Government is not going to do that now, and not in the foreseeable future”, he said.
Speaking further, he explained that the reason for the current crisis in Nigerian stock market is not far fetched. “The reason is simple, giving the credit crunch in the advanced industrial world”, he said, “several of the institutional investors in those advanced markets began to pull out of our own markets about five months ago”.
That is the origin of our own crisis here.. People were just busy not discussing the problem but looking for scapegoat – maybe somebody stopped the margin trading . . . they were just looking for scapegoat and not advancing the problem.
“The origin of the problem is the credit crunch that started globally and the institutional investors were then pulling out from Nigeria in order to service their facilities elsewhere. This led to stock prices going down and, as it went down, most of the investors in the Nigerian market are new and they are there for the short time. Some of them are there mostly for speculative purposes and so they began to sale”, he said.
“That triggered off two quick reactions”, posited the CBN Governor.
“The first reaction was the panic response on the part of all the stakeholders _ the Banks panicked by calling_in the existing facilities; the participants in the market panicked by also selling quickly to repay their loans. And so you found a situation where the Banks stopped new credit line going into the market, they were calling_in existing facilities.
And those who were already panicky wanted to get out of the market and there was only one way the market could go and that is the decline. And I think is very, very important that we understand how we got to where we are in other for us to begin to think about how we make progress”, he said.
On the way out, he suggested that the US that triggered off the crisis should have a disproportionate share of actions in terms of getting the world out of the crisis.
“And that is why the whole world is watching, waiting to see what the US does with regards to getting or at least triggering off a recovery from the global crisis”, he said.
But, Ibru in her short submission, told the gathering that Nigerian Banks hold about 60% of the capital market, because at the time of the Consolidation of Banks, activities in the other sectors of the economy where not so virile for investment.
“Today the Banks have about 14 million housing shortfall to fund with State Governments”, she said. “we are heavily investing in oil and gas and there are huge amount of money going into financing projects in Roads, Water, Bridges, Agriculture and many other areas of Public Private Partnership than ever”, she said, “so the banks have to move their resources to these areas”, she said.
“I think what is happening is not so strange. I believe that the market will naturally find an equilibrium very soon”, she said
Alh. Aliko Dangote, Chairman Dangote Group of Companies, lending his voice to the debate, agreed that massive capital flight from the financial sector is responsible for the downturn of the Nigerian Capital market.
“I know of a Bank in this country that lost so much money from its foreign partners recently”, he said. “Its partners, on seeing what was happening to the financial sectors of US and Europe, quickly withdrew $3.4 billion and left”, he said.
“We would want government to put in measures that will stop foreign investors from suddenly pulling out like this to avoid a shock in the system”, he said.
Summers, in his argument was emotional about Nigeria.
“I have spent sometimes in Nigeria, so I have very good knowledge about the country”, he said. “Your country is well placed and is very successful in oil resources”, he said. “If you look at the history of your country”, he went on, “there have been periods were oils prices have risen and the amount of money which your country has earned since then from the sale of oil, is more than any other country can accomplish and is worth many opportunities of uplifting the sufferings of the people.
But it has not been so. Most of the oil windfall that has come into your country, when you look at living standard in Nigeria, of the average Nigerian, one does not see the kind of prosperity which one wants to see.
“When I came to Nigeria in 1991, I remarked at that time on a very different economic trajectory of Nigeria and Indonesia. When I went to school in the United States in the 1960s, we saw Nigeria as a country with far brighter prospects than Indonesia, but that is not the true states now.
Your next generation of children should live far better than this generation of children. We should think about the future of Africa and the future depends on two countries _ South Africa and Nigeria. South Africa has it challenges, you have yours, but you are blessed with a tremendous moments of opportunities in terms of what is happening in the world today and I pray to God that your society use the tremendous opportunities of high oil prices today to make immense difference in the lives of millions of children alive today and the millions of children who will inherit your country in the nearest future”, he said amidst a rousing ovation.
Those in attendance included Mr. Oba Otudeko, President, Nigerian Stock Exchange, Senator Udo Uduma, Chairman Securities and Exchange Commission and Musa Al_Faki, DG, Securities and Exchange Commission.
Others are Mathew Pearson, Head of Africa Research, Renaissance Group, Isaac AlukoOlokun, Former Minister of Economic Planning Commission..