Nigeria’s financial markets, including capital, finance houses and bureaux de change (BDC) are inches away from turmoil and strategising for the final battle for recapitalisation.
Godwin Emefiele, CBN governor.
Bruised and grumbling over new regulations they consider arbitrary, operators are questioning regulators’ knack for recapitalisation as a tool for efficiency.
To regulators, there seems to be no way of fixing lapses to beef up the financial markets other than enforcing new capital requirements and compliance at all costs.
Deadline, extension
On June 23, the Central Bank of Nigeria (CBN) raised the capital base of BDCs to N35 million from N10 million and mandatory caution deposit N35 million from $10,000. It gave them two weeks to comply.
On July 7, the CBN extended the deadline from July 15 to July 31, in response to appeals from the Association of Bureau de Change Operators of Nigeria (ABCON) and the National Assembly (NASS).
The CBN reviewed the guidelines for existing finance companies and the registration of new ones.
Finance companies are envisaged within the middle tier of the financial system with a focus on the micro, small and medium enterprises (MSMEs).
The sub sector is to play complementary roles to banks, bridging financing gaps and meeting the financial needs of target customers.
Before now, the Securities and Exchange Commission (SEC) had set N300 million new capital base for stockbrokers with a deadline of December 31, 2014.
Stockbrokers argued against the recapitalisation of dealing member firms of the Nigerian Stock Exchange (NSE) with threat of legal redress.
Pros and cons
The CBN insisted that the new regulations are to sanitise BDCs, in part to stop the depletion of foreign reserves and ensure well-capitalised and structured entities.
CBN Governor, Godwin Emefiele, said the policy is a holistic effort to conserve foreign exchange (forex) and stabilise exchange rate.
He told the House of Representatives Committee on Banking and Currency that the policy is not targeted at operators from any section of the country, as it applies nationwide.
ABCON proposes 40 weeks’ recapitalisation timetable
Having realised the futility of kicking against the new policy, ABCON last week proposed a 40-week timeline to enable its members meet the requirements.
ABCON President, Aminu Gwadabe, disclosed other recommendations already dispatched to the CBN for consideration, indicating that operators are adjusting to the reality.
ABCON plans seminars in the six zones of the federation to educate members on options to consider, help scout for consultants to guide them on valuation of existing companies to merge or accommodate new members.
All of this cannot be achieved overnight, Gwadabe stressed.
ABCON argued that a capital base of N35 million and a caution deposit of N35 million imply N70 million capital base, since the N35 million caution deposit would not be refunded immediately.
It appealed to the CBN to allow a capital base of N35 million and caution deposit of N5 million so as to source for the caution deposit from the capital base of the company and the balance N30 million used as working capital of BDCs.
To render the caution deposit sterile, ABCON urged the CBN to consider paying to BDCs treasury bills interest rates on caution deposit, using annual average rates because of the volatility of the rate.
It suggested that an annual average rate be used when crediting the interest due on caution deposit.
Realising that all BDCs may not be able to secure merging partners, source for new investors and or raise money to meet the capital requirement, ABCON recommend that the CBN allows BDCs with N10 million capital to continue to trade but without access to weekly CBN dollar sales.
Stockbrokers against regulators
Bestworth Assets and Trust Managing Director and Chief Executive Officer, Sola Adeniyi, argued that if America, the largest economy in the world, sets $1 million (N150 million) as stockbrokers’ capital base, why should the SEC propose N300 million.
“We found it somehow odd that our capital base in Nigeria should be two times that of America whereas we have a smaller economy compared to America.
“We are proposing an amount between N100 million and N150 million for a stockbroker. Even if you want to be at the level of America, we should be talking of N150 million, not N300 millilon,” Adeniyi said.
“We feel uncomfortable that every time we talk of reform in this country, it seems the definition of the term is to drive some people away from a particular industry.
“If they want to reform the banking sector, the way to do it is to reduce the number from 50 to 25. If they want to reform insurance industry, they reduce the number of companies from about 200 to 50.
“Then if they want to reform capital market, let’s drive away 90 per cent of operators. Then we are done with a reform.”
Sam Ndata of Compass Investments and Securities reiterated that the work of the stockbroker is matching the buyer with a seller.
“Since we don’t keep investors’ money, the amount of capital a broker has does not really determine how much stock you can trade on the floor,” he said.
Instead of a new capital base, he added, regulators should seek ways to strengthen infrastructure for trading remotely in order to reach more people.
Ndata stressed that a stockbroker can have an office in Lagos and transact business with clients from any part of the country.
“What we need is to have the technology to make this happen. It is not that the average stockbroker cannot deploy such technology but the issues are about security to guard against fraud likely to occur from remote locations where the stockbroker is not present.”
Finance companies fair better
While keeping mum on the guidelines for finance companies dated July 2014, operators in the sub sector have no option but to comply. The worst scenario is to close shop.
Finance companies are to apply for licence with a non-refundable fee of N100,000 in bank draft payable to the CBN, against the non-refundable licence fee of N50,000 in 2013.
A deposit of N100 million is required, and the capital thus deposited together with the accrued interest will be released to the promoters on the grant of the final licence.
Other requirements include non-refundable licensing fee of N250,000; non-refundable annual licensing renewal fee of N20,000 (payable in the first quarter of each calendar year); change of name fee of N20,000.
The CBN said the new guidelines for finance companies should be read in conjunction with the CBN Act, the Banks and Other Finance Institutions Act (BOFIA), as well as written directives, notices, circulars and guidelines the bank may issue from time to time.
No proposed finance company shall incorporate/register its name with the Corporate Affairs Commission (CAC) until it gets a written approval from the CBN, a copy of which shall be presented to the CAC.