The money will help revive the stock market, the coordinating minister for the economy said.
The Federal Government on Monday unfolded a N22.6 billion forbearance package for 84 stock brokers to boost the capacity of operators and resuscitate the country’s stock market.
In the wake of the unprecedented global financial meltdown and banking sector crisis in 2008, the Nigerian Stock Exchange, NSE, all share index took a massive plunge 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 about 70 per cent) of the total capital base of the country’s stock exchange.
According to the Minister of Finance and Coordinating Minister for the Economy, Ngozi Okonjo-Iweala, stock market activities have since then remained sluggish in spite of some signs of recovery of about 26,494 points as a result of efforts by both NSE and the Securities and Exchange Commission, SEC.
The minister said in Abuja that the forbearance package to brokers is part of measures to resuscitate the capital market and make it sufficiently vibrant to help drive the government’s economic transformation agenda by facilitating the much-needed long-term financing for critical infrastructure and the housing sector.
The package is part of a two-point recommendation by a committee constituted by the Minister, and presided over by the Deputy Governor of the Central Bank of Nigeria, CBN, on Financial System Stability, Kingsley Moghalu, to identify measures to resuscitate the capital market.
The recommendation, which is in accordance with the provisions of Section 6(5) of the Asset Management Company of Nigeria, AMCON, Act would help wipe off the debt overhang in the capital market as a result of the negative impact from margin loans obtained during the crisis.
In line with the deal, AMCON acquired the margin loans from banks for about N42.6 billion, even as the real value of the underlying assets or collateral declined to about N19.96 billion.
To discourage excessive borrowing by capital market operators, the minister said beneficiaries from the forbearance package have been barred from providing any professional services to AMCON for at least three years, while ensuring greater disclosure to SEC on any security dealings valued at a minimum of N25 million executed in a single or multiple deals on the same day.
Other conditions accompanying the package include limitation on the beneficiaries barring them from allowing their aggregate indebtedness to exceed 100 per cent of its net capital; mandatory report on the firms forwarded to the Credit Bureau Agency; use of custodians of assets; control for brokerage services and/or future margin facilities; and prohibition from taking proprietary positions or trade on their own account for one year.
Similarly, the committee recommended the removal of the current stock market transaction fees, which include seven per cent for stamp duties and five per cent as value added tax, VAT, considered a major disincentive to investors in the country’s capital market.
The minister said the government has equally approved the waiver of the 0.075 per cent stamp duties payable on stock exchange transaction fees as well as exemption of operators from VAT and commissions earned on traded values of shares, payable to the SEC, NSE and the Central Securities Clearing System, CSCS.