By Chinwendu Obienyi and Chukwuma Umeorah
The Central Bank of Nigeria (CBN) has expressed its willingness to collaborate with the Chartered Institute of Stockbrokers (CIS) to establish an institutionalised structure aimed at enhancing transactions in the nation’s capital market.
This decision came following discussions during a courtesy visit by the Chartered Institute of Stockbrokers (CIS) to the office of the CBN Governor, Olayemi Cardoso, in Lagos recently.
Highlighting the importance of support from the apex bank in optimizing operations and attracting more participants to the capital market, the President and Chairman, CIS, Oluwole Adeosun, affirmed the capacity and willingness of stockbrokers to support the proposed recapitalization of banks in the next 24 months.
He expressed confidence in the Nigerian capital market’s capacity to support such exercises, citing past experiences dating back to the 1972 indigenization exercise and subsequent banking sector recapitalizations.
Furthermore, Adeosun proposed allowing securities of publicly listed banks to serve as marginable securities, subject to specific criteria, to drive capital market growth.
“Margin lending drives the growth of capital markets in the advanced countries by enabling investors to acquire securities in excess of their direct savings within a regulated market framework. Our market will not be able to match the required growth rate if investors remain restricted to just their own funds for investments.
Our perspective is that bank stocks be allowed, but a specific borrower should not invest in the shares of the bank that gave them the margin loan. The banking sector is one of the most active sectors in the Nigerian stock market and the first choice for most investors’ portfolios”, Adeosun explained.
He also highlighted the underinvestment of pension funds in the equity market despite regulatory enhancements and urged for increased engagement between the CBN and PENCOM to address the issue.
“Pension funds are globally the foundational base that drive sustainable liquidity for the local equity market. While the Pension Act permits the Pension Fund Administrators to invest up to 25 per cent of their pension assets in the equity arm of the capital market, we have noticed that about 10 per cent of the funds are invested in the equity market, despite the enhanced regulation, investor protection, and high return in the market.
Given the critical role of pension fund investment in galvanizing liquidity in the domestic equity market, Pension Fund Administrators (PFAs) should be investing a substantially higher proportion of their funds on equities. We therefore seek the support of the CBN to engage with PENCOM in this regard”, Adeosun said.
In response, Cardoso appreciated the visit and assured the institute that their concerns would be carefully considered.
He thereafter pledged that the CBN will be willing to collaborate with the CIS in establishing a lasting institutionalized structure to address the raised issues trending in the capital market.
