Monday, December 3, 2012

Measures to Resuscitate the Capital Market by Ngozi Okonjo Iweala

Dr. Ngozi Okonjo Iweala

by Dr. Ngozi Okonjo-Iweala, CFR
Coordinating Minister for the Economy & Honourable Minister of Finance, Federal Republic of Nigeria,

at the CME’s Conference Room, 7th Floor, Federal Ministry of Finance,

on Monday, December 3, 2012

Protocol Observed
• Distinguished DGs and MDs of Parastatals here present, distinguished ladies and gentlemen of the Press.

• Many of you are aware that activity on the Nigerian Capital Market, particularly the stock exchange, has been very slow in the aftermath of the global financial meltdown and the Nigerian banking crisis. We saw the Nigerian Stock Exchange (NSE) All Share Index (ASI) plummet from a peak of about 66,000 points in March 2008 to less than 22,000 points by January 2009, wiping out over N8 trillion (or around 70 percent) of the total capitalization of the stock exchange within this period. Since then, activity on the stock market has remained sluggish even though there are some signs of recovery, with the index now at about 26,494 points thanks to the efforts of the NSE and the SEC.

• A vibrant capital market is, of course, essential to the government’s Economic Transformation Agenda, especially in terms of raising much-needed long-term financing for critical infrastructure and the housing sector. Research (by the IMF and the World Bank) has shown that solid economic growth in any country is closely linked to the joint development of the banking sector and the capital markets. While the banking sector has already been cleaned-up, the capital market needs some intervention. 

• This is why, a couple of months ago, I set up a committee chaired by Dr. Kingsley Moghalu, Deputy Governor of the Central Bank of Nigeria, to make recommendations on measures to resuscitate the capital market. As part of the recommendations of the Moghalu committee, I am happy to announce today, two measures aimed at giving life to our capital markets. 

• The first measure is a forbearance of about N22.6 billion on the margin loans of 84 stock brokers, in accordance with Section 6(5) of the AMCON Act. AMCON had purchased these margin loans from banks for about N42.6 billion, but the value of the underlying assets or collateral is worth only N19.96 billion today. In furtherance of AMCON’s cleanup of the banking sector, it is necessary to wipe off the debt overhang in the capital market, as this is dampening market activity. But let me state clearly that this forbearance will be accompanied with sanctions to discourage excessive borrowing behaviour by capital market operators in the future. These sanctions include:

• Prohibition from services to AMCON: Brokers benefiting from forbearance will not be allowed to provide any professional services to AMCON for a period not less than 3 years;

• Greater Disclosure: Firms will be required to reveal to the Securities Exchange Commission (SEC), any dealings in any security valued at a minimum of N25 million executed in a single deal or multiple deals on the same day on behalf of their clients;

• Limit on Debt Financing: As part of their net capital requirement, no broker that has received forbearance shall permit his aggregate indebtedness to exceed 100 percent of his net capital;

• Report to Credit Bureaus: details of the firms will be forwarded to the Credit Bureau Agency;

• Use of Custodians: A strict requirement that imposes separation of assets and control for brokerage services and/or future margin facilities through the use of custodians; and finally,

• Trading Restrictions: The brokers will be prohibited from taking proprietary positions or trade on their own account for one year.
Let me also note that there were some other stock brokers who did not partake in any market infractions, including over-exposure to margin loans, and who managed their stock broking businesses well. The Ministry of Finance and the Central Bank plan to celebrate the good standing of these stock brokers in due course.

• The second measure is the elimination of stamp duties and VAT on stock market transaction fees. Taxes on stock exchange transactions fees are as high as 12 percent (5 percent in VAT and up to 7 percent in stamp duties) – much higher than in other jurisdictions, and these constitute a major disincentive to invest in the Nigerian capital market. I will like to announce that the Federal Government has consented to:

• waive the 0.075 percent stamp duties payable on stock exchange transaction fees; and,

• exempt from VAT, commissions: (a) earned on traded values of shares, (b) payable to the Securities and Exchange Commission (SEC), and (c) payable to the Nigerian Stock Exchange (NSE) and the Central Securities Clearing System (CSCS); by including these commissions in the list of VAT-exempt goods and services.

Let me thank the Moghalu committee for their work, and also re-emphasize the government’s renewed commitment to making Nigeria’s capital market one of the most vibrant markets in the World.

Thank you.


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