Why making mess of financial markets?

Money matter

“Call it what you like, money matters. To Christians, the love of it is the root of all evils. To generals, it is the sinews of war; to revolutionaries, the shackles of labour”-These words of Niall Ferguson, in the book, The Ascent of Money, aptly situate the current happenings in the nation’s financial markets.

Financial system

Lest we forget, for those who are not well accustomed to this terrain, when we talk of the Nigerian financial system, it is broadly divided into two sub-sectors, namely the formal and informal sectors. The informal sector comprises the local money lenders, the thrifts, savings associations etc. This sector is poorly developed, limited in reach, never regulated as it was not integrated into the formal financial system.

But the formal financial system, on the other hand, is made up of the money and capital market institutions, comprising the banks and non-bank financial institutions. An example of the latter is the Nigerian Stock Exchange (NSE).

Regulator

The regulatory institutions for this formal system are the Federal Ministry of Finance, Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Securities and Exchange Commission(SEC), National Insurance Commission, Federal Mortgage Bank of Nigeria (FMBN) and the defunct National Board for Community Banks.

Business as usual

The major activity in these financial markets- money and capital markets-is trading, which, in the words of the Nobel laureate, Professor Wole Soyinka, is simply “commodity exchange, either by barter or through convenient value correlation.”

He, however, cautioned: “if you permit market regulations to be adjusted at will, observing them when it suits you and rejecting them when not, then the society itself collapses.”

Why should the society collapse like that? You may ask. It is because money is at the centre of the problem. Little wonder then the popular saying: when you lose your money, you lose your life. As if to explain this notion , Soyinka said that “Social existence virtually spins on the axis of money.”

That is why money matter is never taken lying down .To buttress this assertion,

the erudite scholar observed that “money, inseparable from its value with its value is, of course, only one of the many ass

ets jealously guarded by society.”

Investors had lost confidence in their ability to revitalize the market.stress tests that revealed fundamental weaknesses in corporate governance and risk management, huge levels of non-performing loans, malpractices and capital impairment that left eight banks in a fragile condition

Market mess

Come to think of it, why did the Central Bank of Nigeria (CBN) had to take over eight banks last year? Of course, just because money of money matter.

According to Dr Kingsley Moghalu, the Deputy Governor of the apex bank in charge of Financial System Stability, the affected banks had N3.6 trillion deposits of nearly 10 million customers.

The Central Bank has since launched far-reaching reforms in the Nigerian banking system, “the reforms followed a comprehensive audit of the country's 24 commercial banks and stress tests that revealed fundamental weaknesses in corporate governance and risk management, huge levels of non-performing loans, malpractices and capital impairment that left eight banks in a fragile condition,” he added.

All the aforementioned issues did make a mess of the money market, and to avoid a spill-over effects, Moghalu called for the extension of the reforms to other sectors of the economy

According to him, this is to ensure that banks will have outlets in the real

economy to which they can lend with lower levels of risk. “If other areas of the economy, do not open up, bank assets may go again into various kinds of

speculative lending and create another asset bubble that will burst in due time.”

Vote of no confidence

This is exactly the context in which the intervention by SEC in the second market-the capital market-can be properly situated. Earlier, a couple of years back, a former President of the Chartered Institute of Stockbrokers(CIS), Mr Oladipo Aina, had called for the change in the leadership of the Nigerian capital market as investors had lost confidence in their ability to revitalize the market.

According to him, investors who should have invested in stocks are taking their money elsewhere because of no-confidence vote they had already passed on the market leaders. To add insult to injury, as they say, the now suspended president of the Stock Exchange, Alhaji Aliko Dangote, accused its leadership of making a mess of the market by dipping its hands into the accounts of Central Securities Clearing System (CSCS) and took about N900 million to support its cash deficit position, among other stinkers that even border on the issue of corporate governance.

About N6 trillion investors’ fund is tied to one instruments or another in the market.

Because of this, the Commission came out to take a far reaching decisinons that have been hailed as the beginning of reforms in the market

The Hammer

In a release signed by its Head of Media, Mr Lanre Oloyi, SEC said “it has closely followed the developments in the Nigeria Stock Exchange, particularly with respect to inadequate oversight of the Exchange, ongoing litigation, allegations of financial mismanagement, governance challenges, and the inordinate delays in the implementation of the succession plan for the Exchange. The Commission has decided that it is in the interest of the public and necessary to protect the investor to sack its Director General, Professor (Mrs)Okereke-Onyiuke and suspended its president, Alhaji Aliko Dangote.

But market watchers believe that the root cause of the problem is the status granted the bourse as a self-regulatory organisation .They are of the view that the leadership exploited this for long before the bubble finally burst .What they are now clamouring is a situation where The Exchange will be fully subordinated to SEC for all its activities so that they-NSE and the banks-would stop making mess of our financial system .

Why making mess of financial markets?

“Call it what you like, money matters. To Christians, the love of it is the root of all evils. To generals, it is the sinews of war; to revolutionaries, the shackles of labour”-These words of Niall Ferguson, in the book, The Ascent of Money, aptly situate the current happenings in the nation’s financial markets.

Financial system

Lest we forget, for those who are not well accustomed to this terrain, when we talk of the Nigerian financial system, it is broadly divided into two sub-sectors, namely the formal and informal sectors. The informal sector comprises the local money lenders, the thrifts, savings associations etc. This sector is poorly developed, limited in reach, never regulated as it was not integrated into the formal financial system.But the formal financial system, on the other hand, is made up of the money and capital market institutions, comprising the banks and non-bank financial institutions. An example of the latter is the Nigerian Stock Exchange (NSE).

Regulators

The regulatory institutions for this formal system are the Federal Ministry of Finance, Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Securities and Exchange Commission(SEC), National Insurance Commission, Federal Mortgage Bank of Nigeria (FMBN) and the defunct National Board for Community Banks.

Business

The major activity in these financial markets- money and capital markets-is trading, which, in the words of the Nobel laureate, Professor Wole Soyinka, is simply “commodity exchange, either by barter or through convenient value correlation.”

He, however, cautioned: “if you permit market regulations to be adjusted at will, observing them when it suits you and rejecting them when not, then the society itself collapses.”

Money matter

Why should the society collapse like that? You may ask. It is because money is at the centre of the problem. Little wonder then the popular saying: when you lose your money, you lose your life. As if to explain this notion , Soyinka said that “Social existence virtually spins on the axis of money.”

That is why money matter is never taken lying down .To buttress this assertion,

the erudite scholar observed that “money, inseparable from its value with its value is, of course, only one of the many assets jealously guarded by society.”

Messy affairs

Come to think of it, why did the Central Bank of Nigeria (CBN) had to take over eight banks last year? Of course, just because money of money matter.

According to Dr Kingsley Moghalu, the Deputy Governor of the apex bank in charge of Financial System Stability, the affected banks had N3.6 trillion deposits of nearly 10 million customers.

The Central Bank has since launched far-reaching reforms in the Nigerian banking system, “the reforms followed a comprehensive audit of the country's 24 commercial banks and stress tests that revealed fundamental weaknesses in corporate governance and risk management, huge levels of non-performing loans, malpractices and capital impairment that left eight banks in a fragile condition,” he added.

All the aforementioned issues did make a mess of the money market, and to avoid a spill-over effects, Moghalu called for the extension of the reforms to other sectors of the economy

According to him, this is to ensure that banks will have outlets in the real economy to which they can lend with lower levels of risk. “If other areas of the economy, do not open up, bank assets may go again into various kinds of speculative lending and create another asset bubble that will burst in due time.”

Your turn,Madam Stocks

The above scenario is the context in which the intervention by SEC in the second market-the capital market-can be properly situated. Earlier, a couple of years back, a former President of the Chartered Institute of Stockbrokers(CIS), Mr Oladipo Aina, had called for the change in the leadership of the Nigerian capital market as investors had lost confidence in their ability to revitalize the market.According to him, investors who should have invested in stocks are taking their money elsewhere because of no-confidence vote they had already passed on the market leaders. To add insult to injury, the now suspended president of the Stock Exchange, Alhaji Aliko Dangote, accused its leadership of making a mess of the market by dipping its hands into the accounts of Central Securities Clearing System (CSCS) and took about N900 million to support its cash deficit position, among other stinkers that even border on the issue of corporate governance.

About N6 trillion investors’ fund is tied to one instruments or another in the market.Because of this, the Commission came out to take a far reaching decisions that have been hailed as the beginning of reforms in the market

The big stick

In a release signed by its Head of Media, Mr Lanre Oloyi, SEC said “it has closely followed the developments in the Nigeria Stock Exchange, particularly with respect to inadequate oversight of the Exchange, ongoing litigation, allegations of financial mismanagement, governance challenges, and the inordinate delays in the implementation of the succession plan for the Exchange. The Commission has decided that it is in the interest of the public and necessary to protect the investor to sack its Director General, Professor (Mrs)Okereke-Onyiuke and

suspended its president, Alhaji Aliko Dangote.

But market watchers believe that the root cause of the problem is the status granted the bourse as a self-regulatory organisation (SRO) .They are of the view that the leadership exploited this for long before the bubble finally burst .What they are now clamouring is a situation where The Exchange will be fully subordinated to SEC for all its activities so that they-NSE and the banks-would stop making mess of our financial system .

Why making mess of financial markets?

By OMODELE

“Call it what you like, money matters. To Christians, the love of it is the root of all evils. To generals, it is the sinews of war; to revolutionaries, the shackles of labour”-These words of Niall Ferguson, in the book, The Ascent of Money, aptly situate the current happenings in the nation’s financial markets.

Lest we forget, for those who are not well accustomed to this terrain, when we talk of the Nigerian financial system, it is broadly divided into two sub-sectors, namely the formal and informal sectors. The informal sector comprises the local money lenders, the thrifts, savings associations etc. This sector is poorly developed, limited in reach, never regulated as it was not integrated into the formal financial system.

But the formal financial system, on the other hand, is made up of the money and capital market institutions, comprising the banks and non-bank financial institutions. An example of the latter is the Nigerian Stock Exchange (NSE).

The regulatory institutions for this formal system are the Federal Ministry of Finance, Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Securities and Exchange Commission(SEC), National Insurance Commission, Federal Mortgage Bank of Nigeria (FMBN) and the defunct National Board for Community Banks.

The major activity in these financial markets- money and capital markets-is trading, which, in the words of the Nobel laureate, Professor Wole Soyinka, is simply “commodity exchange, either by barter or through convenient value correlation.”

He, however, cautioned: “if you permit market regulations to be adjusted at will, observing them when it suits you and rejecting them when not, then the society itself collapses.”

Why should the society collapse like that? You may ask. It is because money is at the centre of the problem. Little wonder then the popular saying: when you lose your money, you lose your life. As if to explain this notion , Soyinka said that “Social existence virtually spins on the axis of money.”

That is why money matter is never taken lying down .To buttress this assertion,

the erudite scholar observed that “money, inseparable from its value with its value is, of course, only one of the many assets jealously guarded by society.”

Come to think of it, why did the Central Bank of Nigeria (CBN) had to take over eight banks last year? Of course, just because money of money matter.

According to Dr Kingsley Moghalu, the Deputy Governor of the apex bank in charge of Financial System Stability, the affected banks had N3.6 trillion deposits of nearly 10 million customers.

The Central Bank has since launched far-reaching reforms in the Nigerian banking system, “the reforms followed a comprehensive audit of the country's 24 commercial banks and stress tests that revealed fundamental weaknesses in corporate governance and risk management, huge levels of non-performing loans, malpractices and capital impairment that left eight banks in a fragile condition,” he added.

All the aforementioned issues did make a mess of the money market, and to avoid a spill-over effects, Moghalu called for the extension of the reforms to other sectors of the economy

According to him, this is to ensure that banks will have outlets in the real

economy to which they can lend with lower levels of risk. “If other areas of the economy, do not open up, bank assets may go again into various kinds of

speculative lending and create another asset bubble that will burst in due time.”

This is exactly the context in which the intervention by SEC in the second market-the capital market-can be properly situated. Earlier, a couple of years back, a former President of the Chartered Institute of Stockbrokers(CIS), Mr Oladipo Aina, had called for the change in the leadership of the Nigerian capital market as investors had lost confidence in their ability to revitalize the market.

According to him, investors who should have invested in stocks are taking their money elsewhere because of no-confidence vote they had already passed on the market leaders. To add insult to injury, as they say, the now suspended president of the Stock Exchange, Alhaji Aliko Dangote, accused its leadership of making a mess of the market by dipping its hands into the accounts of Central Securities Clearing System (CSCS) and took about N900 million to support its cash deficit position, among other stinkers that even border on the issue of corporate governance.

About N6 trillion investors’ fund is tied to one instruments or another in the market.

Because of this, the Commission came out to take a far reaching decisinons that have been hailed as the beginning of reforms in the market

In a release signed by its Head of Media, Mr Lanre Oloyi, SEC said “it has closely followed the developments in the Nigeria Stock Exchange, particularly with respect to inadequate oversight of the Exchange, ongoing litigation, allegations of financial mismanagement, governance challenges, and the inordinate delays in the implementation of the succession plan for the Exchange. The Commission has decided that it is in the interest of the public and necessary to protect the investor to sack its Director General, Professor (Mrs)Okereke-Onyiuke and suspended its president, Alhaji Aliko Dangote.

But market watchers believe that the root cause of the problem is the status granted the bourse as a self-regulatory organisation .They are of the view that the leadership exploited this for long before the bubble finally burst .What they are now clamouring is a situation where The Exchange will be fully subordinated to SEC for all its activities so that they-NSE and the banks-would stop making mess of our financial system .

Lamido Sanusi’s reforms, a floating particle?

Isn’t it strange that after seven months, the reforms introduced 

by the Central Bank Governor, Sanusi Lamido Sanusi, into the 

Nigerian banking sector can be adjudged as a floating particle? 

A strange object in the sky with no clear direction, tossed here 

and there by every gust of wind! That is exactly the imagery painted

 by his employer, the Federal Government of Nigeria, after what 

can be described as careful examination of his performance.

Background

Sanusi, a risk management expert, was hired by President Umaru

 Musa Yar'Adua on June 3, 2009, shortly after his nomination was 

ratified by the Senate. He replaced Chukwuma Soludo, a professor

 of Economics, whose major achievement in office was the consolidation

 of the banking sector. Before the Bobshell, let’s take a quick snapshot of

 his views during his screening at the National Assembly and compared

 them with his performance.                                                       

“What we need do is to build on corporate governance and the risk 

management system with individual banks, disclosure requirement; 

ensure that banks actually recognize their losses”                                                                                                                      

Views                                                                                                                          

On risk management: "Risk management is ultimately about asking

 yourself when the terms are good, what could go wrong ? When the 

capital market was going up and banks were lending to the capital market, 

somebody should have asked: what happens if the market crashes? 

Will these banks survive? The risk managers in the banks did not ask those

questions; the regulators didn't ask those questions.                                                                                                            

On consolidation: "I think it is a true statement that a good bank requires a lot 

of capital. But having said that, consolidation was not and should never have

been seen as an end in itself because while it is true that a good bank needs

a lot of capital, it is not true that every bank that has capital is a good bank. 

How you use that capital, how you manage it, whether that capital is placed 

in the hands of fit and proper persons who should be trusted with people's 

money are the critical questions that should always be asked. What we need 

to do is take consolidation as a foundation; now, build on the other things that

were actually set up in the first two-point agenda - the corporate governance 

and the risk management system with individual banks, disclosure requirement; 

ensure that banks actually recognize their losses. When people talk about stock 

market and confidence, we all know that there is N1 trillion out there. That number 

has to show up as non-performing loans; if they are not showing up, people do not 

trust the numbers. We need to ask: where are those non-performing loans and we 

need to enforce provision and if banks need more capital, then we should recapitalise

those banks. But the solution is not to pretend that they are there and they are strong. 

I think the system as a whole is non-capitalised. I think the liquidity in the system as a 

whole is good, but I think there will be a few weak points in that system.There are a few

banks that are weak spots and we need to help those banks correct the problems; 

otherwise the system will not regain the confidence."                                                                                                   

On lending to Small and Medium Scale Enterprises: "It is always extremely 

important to remember that the financial system is a transmission mechanism for

monetary policy to the real sector. It does not provide other access. 

The constant theme was that if you cannot show that your economic policies

have improved the wellbeing of the majority of the people, you cannot claim that you

have succeeded. I think it was valid in 2005; it is valid today and it will be valid 

tomorrow.”                                                                                                    

         

On Soludo: “In terms of the overall direction and the overall policies, 

I think he has done a very good job. Whether I will succeed as much as him, 

we have to wait for the next five years to judge.”                                                                                                

Scorecard                                                                                                                              

On August 14,2009, he sacked the Managing Directors(MDs) of five banks: 

Erastus Akingbola of Intercontinental Bank, Cecilia Ibru of Oceanic Bank, 

Okey Nwosu of Finbank, Sebastian Adigwe of Afribank and Barth Ebong 

of Union Bank. Offence? Their banks failed stress test. He arrested and 

is currently prosecuting them; he published list of bank debtors, injected N420 billion

 as bailout funds and appointed new management teams for the banks. 

On October 2, 2009, the Managing Directors of three other banks kissed 

the dust for same offence. They are Francis Atuche of Bank PHB; 

Charles Ojo of Spring Bank and Mr Ike Oraekwuotu of ETB. He also 

announced new management teams and injection of N200 billion. 

He ordered Wema and Unity Bank to recapitalize by next June and 

prescribed 10-year tenure for bank MDs.                                                                   

Ripples

Sack gale in banks. Banks’  refusal to lend to businesses led to fuel 

scarcity, shut down of companies’ , cash crunch in the economy 

and worsening of the unemployment rate in the country.  

We want a blueprint of the reforms  to be sure that its actions are not just taken ‘as the spirit directs ’                                                                                                                                                                                 

Verdict                                                                                                      

           

Because his policies were adjudged to have failed so far to improve 

the wellbeing of the majority of the people, the Federal Government 

asked the Central Bank to furnish it with the blueprint on the banking 

reforms to allow assessment of the direction of its policies and also 

ensure that they are in line with government’s long-term economic programme. 

Disclosing this, the Minister of  State for Finance, Mr Remi Babalola, said that 

Sanusi’s employer wants “ a blueprint of the reforms to know where the CBN 

is headed and more importantly to be sure that its actions are not just taken 

‘as the spirit directs’.”The minister said the government was fully in support 

of the CBN reforms in line with its strategic focus on the growth and development 

of the economy but added that government was trying to back the CBN to the 

extent that its actions do not jeopardise the confidence level in the economy. 

Babalola stated that the Federal Government had in the past abandoned some 

crucial decisions to the CBN in the name of protecting its autonomy, noting 

that the situation contributed to the crisis in the sector, adding that the government 

would “now be more involved”. Does this mean that the man, Sanusi, 

has no clear road map on his mission at CBN? Or does it mean that his 

blueprint for the sector is just a fly leaf? Sanusi, over to you.