Business News (Nigeria) ? The Federal Government of Nigeria on Monday 3, December 2012, announced a N22.6 billion debt relief on the margin loans debt of 84 stock brokers, to re-invigorate activity in the stock market, made sluggish by the global financial meltdown and the Nigerian banking crisis.
Ngozi Okonjo-Iweala, Co-ordinating Minister for the Economy and minister of finance, who announced this in Abuja said it was done in accordance with Section 6(5) of the Asset Management Corporation of Nigeria (AMCON) Act, and in line with the recommendations of the Kingsley Moghalu-led committee on the capital market.
Okonjo-Iweala also announced the elimination of stamp duties and value added tax (VAT) on stock market transaction fees.
Following the 2008/2009 global financial crisis and the banking crisis, the Nigerian Stock Exchange (NSE) All Share Index (ASI) plummeted 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 capitalisation of the stock exchange.
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.
She said 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 the minister stated clearly that this debt relief would be accompanied with sanctions, to discourage excessive borrowing by capital market operators in future. The sanctions, according to her, include prohibition from services to AMCON, meaning that brokers benefiting from the relief would not be allowed to provide any professional services to AMCON for a period of not less than three years.
Another sanction, according to her, is that there must be greater disclosure by the brokers, which would require firms to reveal to the Securities and 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.
There would also be a limit on Debt Financing which is part of their net capital requirement. Here, she said no broker that has received forbearance shall permit his aggregate indebtedness to exceed 100 percent of his net capital.
Another sanction, she said, is that details of the firms would be forwarded to the Credit Bureau Agency and a strict requirement that imposes separation of assets and control for brokerage services and/or future margin facilities through the use of custodians.
Also, the brokers will be prohibited from taking proprietary positions, or trading on their own account, for one year.
She stressed that for 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 their good standing in due course.
AMCON had purchased the margin loans from banks for about N42.6 billion, but the underlying assets, or collateral are worth only N19.96 billion today.
The second measure is the elimination of stamp duties and VAT on stock market transaction fees.
Iweala explained that 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.
She commended the Moghalu committee for its work, and also re-emphasised government?s renewed commitment to making Nigeria?s capital market one of the most vibrant in the World.
At the press briefing, the Coordinating minister also highlighted that the Federal Government has cash-backed N170 billion of the N300 billion released for the fourth quarter.
According to her, about N111 billion of that has gone straight into the accounts of MDAs as cash, and the balance of about N59 billion is going in through Authorisation to incur expenditure ?because those entities actually have to apply specifically to us to effect the release of their resources.
?As at the end of October, of the amount that we have cash-backed from the last three quarters, 71 percent has been utilised, leaving about 70 percent or so not utilised, we believe that by the end of November, this would have been fully utilised by the MDAs?, she explained.
She mentioned that the ministry has been careful to ensure that about N44 billion of this goes to works, because they have been charged to ensure that certain key roads are ready and made motorable for Christmas, so N44.7 billion has gone to the ministry.
The co-ordinating minister further assured that there should be no issue of fuel shortage due to non-payment of claims to marketers and that they were preparing to make payments now that the final verifications have been made.- Businessday
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