Planned Amendment of Margin Lending Rules Excite Operators

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Goddy Egene
Some capital market operators and investors have hailed the move by the Securities and Exchange Commission (SEC) and the Central Bank of Nigeria (CBN) to amend the rules guiding margin lending, saying it will go a long way in providing liquidity and boost activity in the capital market.
Margin loan is a type of investment loan that lets operators and investors to borrow money to invest in shares, managed funds and other approved financial products.

Margin lending was very prominent during the capital market boom days prior to the meltdown in 2008/2009.
Following the losses suffered by operators and investors as result of margin lending, SEC and the CBN had issued rules on margin lending in 2010.
Since then, there have been zero activity regarding margin lending, hence SEC and CBN are making moves to review the rules and make them flexible and attractive.

Reacting to the development, operators said it would be a very positive thing for the market.
A broker, who spoke to THISDAY on the condition of anonymity on Monday said: “Many people have not been attracted to margin lending despite the fact the rules have been in existence since 2010 because they are not flexible enough. SEC and CBN brought out the rules with stringent conditions due to what happened in 2008/2009.”
“But the situation has improved considerable, which has necessitated a review and it is good that the two regulators are planning to do so now,” the broker added.

An investor, Mr. Moses Igbrude, said while margin lending is good, it was abused in the past hence many people got their fingers burnt.
“But now that SEC and CBN want to review the rules and make them more attractive, investors would be encouraged to use margin loan to beef up their portfolios and it will be good for the market in general,” he said.
The Acting Director General of SEC, Ms. Mary Uduk, had explained that the commission was working with CBN in order to review the rules and include banking shares in the margin list.

The 2010 rules excluded all publicly traded banking securities from margin list. They also excluded securities offered through private placements whether for a private company or by a public company prior to a listing by introduction and securities where the average trading volume of the company’s shares on a securities exchange over a three-month period demonstrates low active demand for those securities among others.
Uduk said: “After the meltdown, in 2010, the SEC and CBN came up with rules on margin loan but after the issuance of that rules, we found out that there was zero activity in respect of margin loan and that is why the market suggested that it appears the rules on margin loan is very stringent.
“In coming up with that rule, probably due to the experience of the past, we excluded banking shares from margin list. We found out from other jurisdictions that you can be given loans to buy banking shares, so, because of that, we started engaging CBN.”

Analysts Highlight Key Diversification Opportunities for Nigeria
Obinna Chima
Analysts at the Financial Derivatives Company Limited (FDC) have identified five key areas where the federal government and its agencies should focus to make a significant impact on revenue generation.
These include improving tax administration; sales and leasing of public assets; intervention in other mineral resources; encourage the production of semi-processed commodities and investment in power and infrastructure.
The Lagos-based firm stressed in its latest economic bulletin that deepening non-oil revenue would help the country achieve sustainable economic growth.

Tax is less than 12 per cent of federal government revenue, which is a reflection of the leakages in the tax administration system.
To guard the loopholes and curb the effect of oil shocks on government revenue, the report stated that avenues for higher tax income such as improving tax compliance, employing necessary and appropriate technology, introducing other indirect taxes to capture a greater share of the non-formal economy and increasing the effective tax rate for the elites through VAT on luxury goods should be put in place.
Furthermore, it pointed out that an effective way to reduce deficits in the economy was by following the footsteps of some developed countries such as the United Kingdom and Australia by selling and leasing some government assets.

“FGN can harness revenue from financial assets by securitising the government’s minority equity holdings in Joint Ventures (JVs) and non-financial assets by commercialising idle lands and buildings and also, privatising state-owned enterprises.
“Nigeria has many discovered and proven solid minerals but a very small portion of them are currently mined. These untapped mineral resources will not only generate revenue but also create jobs and wealth for Nigerians. An enabling environment would also attract much-needed investment in this industry.

“Agriculture was the mainstay of the economy and Nigeria’s main export before the oil boom, and it remains one of the largest employers of labour. The major impediment of this sector is the lack of various seedlings, storage facilities, and inadequate farming techniques.
“Aside from the different agricultural programmes/funding schemes provided, measures need to be taken to ensure the provision of various seedlings, storage facilities and most importantly mechanised farming tools to genuine farmers.

“Nigeria has a comparative advantage in some Agric products such as tomatoes, rice, and groundnut in SSA. Harnessing necessary investments to these commodities will not only make the commodities sufficient for domestic consumption but also enough to generate export earnings.
“The agricultural sector, if given the required boost, would improve its share of government revenue, create more jobs for the unemployed youth, reduce the country’s reliance on imports of processed food products and boost exports,” it explained.
In addition, it recommended the investment in power and infrastructure, saying operational capacity was less than 40 per cent of installed capacity of 12,522MW.

“Although there has been an improvement in power generated in the past few years, large challenges remain in all phases of the power value chain. “Therefore, substantial funding is required to improve the efficiency and effectiveness of this sector.
“Also, good roads should be built and existing ones should be properly maintained. This would facilitate inter-state commerce and mobility, attract investments and encourage industrialisation.

“Subsequently, the internally generated revenue would increase,” it added.
It stressed the need for the government to urgently initiate tailored policies to save the Nigerian economy, saying revenue diversification was fundamental to economic sustainability both now and when crude oil prices inevitably decline again.
The oil sector serves as a major source of foreign earnings in Nigeria, accounting for more than 80 per cent of its export revenue and 60 per cent of the total government revenue.

Nigeria is exposed to the oil price shock owing to its reliance on oil revenue.
In 2016, Nigeria’s economic growth slipped into a recession due to plummeting oil prices and production shortfalls.
The spill-over effect was a currency crisis, with external reserves falling to as low as $23.9 billion and several exchange rate adjustments implemented.

According to the report, Nigeria was reminded of its oil dependency again at the end of 2018 when, after a peak oil price of $86.29 a barrel in October 2018, Brent crude oil prices declined sharply to $50.47 a barrel on December 24, 2018. This resulted in lower oil revenue and external reserves which wilted in recent times.
To this end, the firm noted that the federal government needed to make revenue diversification a reality.