Nigeria Content Online

North Korean
leader, Kim Jong II, headed to Beijing by train on Tuesday to talk to
Chinese leaders about economic reforms and a return to nuclear
disarmament negotiations, but any bold move is unlikely.

Reclusive Kim’s
last visit to China in 2006 brought effusive promises of economic
cooperation between the two neighbours, as well as broad vows from the
North Korean leader to seek progress towards “denuclearisation.” There
have been few signs of either.

Neither Beijing nor
Pyongyang has confirmed Kim’s latest trip abroad, but there was little
doubt the short, frizzy-haired leader entered China on Monday, staying
in Dalian, a northeastern port promoted as a showcase of market reforms.

A train that
resembled plane-shy Kim’s chosen transportation then left a city
station early on Tuesday evening and a source with ties to China’s
leadership said he was going to Beijing for talks with President Hu
Jintao and other officials.

North Korea is keen
to learn from China’s success but any changes would be “gradual,” said
the source, who declined to be named because the visit is politically
sensitive.

China will also urge a return to six-party talks on nuclear disarmament that Pyongyang has boycotted for over a year.

Economic concerns

But Zhang Liangui, an expert on North Korea at the Central Party School in Beijing, said that the economy is the key.

“I think the North
Korean leader will be most concerned about economic relations, because
the domestic economy there is in trouble,” Zhang said.

Chinese Foreign
Ministry spokeswoman Jiang Yu refused to confirm or comment on the
trip, saying only that “China and North Korea have a tradition of
high-level mutual visits.”

The choice of
Dalian, with its foreign companies and industrial parks, showed that
Beijing wants to nudge Kim to grapple with his feeble economy, said
Zhang.

A South Korean
official, speaking on condition of anonymity, said that Kim, who left
his a Dalian hotel in a motorcade of limousines, mini-buses and
security escorts, visited a dock facility near Dalian.

A mismanaged
currency re-denomination last year paralysed much of North Korea’s
nascent private business and sent shivers of unrest through the brittle
economy.

“China hopes that
Kim will learn from it, but North Korea doesn’t think that way,” said
Zhang, citing Pyongyang’s adherence to a doctrine of “juche” or
self-reliance.

“It would be childish to expect that Kim Jong II will change his mind because he has visited a few projects.”

China is a crucial
economic and political backer of its smaller neighbour, which it fears
could become a dire burden if 68-year-old Kim’s regime falls apart and
spills refugees into northeast China.

In 2009, trade between China and North Korea, which has an estimated
GDP of $17 billion (11.2 billion pounds), was worth $2.7 billion.

U.S. regulators
seized three Puerto Rican banks on Friday and sold their deposits to
other banks, costing the Federal Deposit Insurance Corp (FDIC)
insurance fund $5.3 billion — one of the largest hits in the banking
crisis.

The FDIC said
regulators had seized the banking operations of EuroBancshares Inc,
R&G Financial Corp and W Holding Co in a move that will consolidate
the struggling area’s financial sector.

By seizing and
selling the banks’ deposits to stronger banks, the FDIC said it saved
$3.5 billion over the cost of outright liquidation. A spokeswoman for
the FDIC said the agency received 18 bids from five bidders.

The seized banks in
Puerto Rico dwarfed in size the failures of four other banks also
announced Friday, bringing the number of failed U.S. lenders this year
to 64. The quartet of U.S. banks included CF Bancorp of Port Huron,
Michigan; Champion Bank of Creve Coeur, Missouri; BC National Banks of
Butler, Missouri; and Frontier Bank of Everett, Washington.

Figuring out what
to do with the weakest of Puerto Rico’s banks had been a thorny problem
for the FDIC, which expects to sink about $100 billion into shoring up
wobbly banks between 2009 and 2013.

An accounting
scandal weakened many of the island’s biggest banks beginning in 2005,
making it difficult for the FDIC to find local buyers strong enough for
the assets, people briefed on the matter said. But most buyers from
outside Puerto Rico were reluctant to gain exposure to an island with
16 percent unemployment that has been in recession since 2006.

The three banks
being shut down suffered from a surfeit of construction loans, and
other bad loans, a legacy of a housing boom on the island in the middle
part of the decade.

Oriental Bank and
Trust is assuming the deposits of Eurobank, Scotiabank de Puerto Rico
is assuming the deposits of R-G Premier Bank of Puerto Rico, and Banco
Popular of Puerto Rico is assuming the deposits of Westernbank Puerto
Rico, the FDIC said.

Scotiabank de
Puerto Rico is a unit of Canada’s Scotiabank, marking the third time in
recent weeks that the FDIC has sold failed lenders to Canadian banks.

In transactions
announced on Friday, the FDIC has seized lenders controlling about 20
percent of the banking assets on the island, and about a quarter of the
deposits.

Even after sorting out these deals, Puerto Rico is wrestling with difficult issues.

The local
government is spending less and boosting taxes, and many banks are
still wrestling with bad assets, so credit is still tight on the
island, said Sergio Marxuach, policy director at a Puerto Rican
economic think tank.

“If banks are not lending, and the government is not spending, it’s very hard for the economy to grow,” Marxuach said.

The Puerto Rican
government is forecasting 0.4 percent growth for the fiscal year
beginning July 1, but meeting that forecast may be tough, Marxuach said.

Emergency provisions

The Federal Reserve used emergency provisions to okay one of the transactions.

Banco Popular, the
largest of Puerto Rico’s banks by assets, had about 27.4 percent of the
area’s total insured deposits. After the acquisition of Westernbank, it
will have a 31.4 percent share. Typically the maximum for a state is 30
percent.

The Fed said, “the
anticompetitive effects of this proposal in the relevant markets are
clearly outweighed in the public interest by the probable effect of the
Banco Popular proposal in meeting the convenience and needs of the
communities to be served in Puerto Rico.”

FDIC Chairman
Sheila Bair said the cost of the failures to the FDIC’s insurance fund
was much less than initial estimates, due to the interest of acquirers.

All three of the
buyers are receiving the deposits of the banks they’ve acquired, and
are sharing losses with the government on some assets.

Deutsche Bank acted as the lead strategic adviser to the FDIC for these deals.

Some of the acquiring banks have problems of their own.

Nearly 10 percent
of Banco Popular’s loans were bad at the end of 2009. For Oriental, it
was around 9 percent. For most healthy banks, nonperforming loans make
up closer to 3 to 4 percent of the loan book.

Oriental is in
better shape than Popular, because loans make up less than 20 percent
of its overall assets. That means just 1.7 percent of the bank’s total
assets are nonperforming.

But it also means
the bank is putting most of its funds in securities like Treasuries
that — unlike loans — don’t fund growth on the island.

Banks that wanted
to bid had to prove they could raise capital first. Doral Financial
Corp, the fourth-largest bank on the island, raised $420 million of
capital contingent on its buying a bank from the FDIC, but it failed to
win.

Other banks that
failed on Friday include CF Bancorp, which was taken over by First
Michigan Bank; Champion Bank, taken over by Bankliberty; and BC
National Banks, taken over by Community First Bank; and Frontier Bank,
taken over by Union Bank, National Association, San Francisco.

Collectively, those four failures cost the FDIC’s insurance fund just over $2 billion.

Reuters

Eco Bank Nigeria
Plc on Tuesday released its audited results for the year end 31
December, 2009 revealing a loss before tax of N5.944 billion and a loss
after tax of N4.588 billion, disclosed Jibril Aku, its managing
director yesterday at a press conference.

Mr. Aku said the
bank had faced challenges just like every other bank in the industry
following the banking industry crisis and the required provisioning for
non performing loans.

“A major reason for
the results is from the Fees and Commission section (which consists of
trade transactions, payment turnover, compensation) which rose to N17
billion, from N10 billion the previous year and the provisioning we had
to do.” The bank had an increase in its turnover to N59, 864.0 billion
from N55.156.0 billion in its financial year end, 31 December, 2008.
Fixed assets also rose to N21.382 billion from N18.818 billion in
December 2008. Cash and other balances however fell to N9.524 billion
from N18.768 billion in December 2008. Other credit balances fell to
N38, 297 billion from N89.966 billion in December 2008 but the banks
working capital increased by about 400 per cent from N33.416 billio in
December 2008 to N172.442 billion in December 2009.

Mr. Aku said the
bank did not really suffer any imbalance arising from the common year
end as it has usually closed its books in December, yearly.

Moving forward

The managing
director said the bank has experienced a few changes in the last one
year, including the takeover of a new managing director, the
introduction of three executive directors from other countries to shore
up its Nigerian base and meet the present challenges.

“There were also changes in the local board like the board chairman and so on and some other people have also joined the board.

“We have slightly
amended our businesses, following the happenings in the industry. Our
services are now divided into two, corporate banking and domestic
banking. The credit process is stronger now. There are now more
portfolio reviewers, stress testing have improved, it’s a whole new
remake now of the credit process to tighten it”.

“We want to promote
the strength that we have. We hope that we see very strong trade links
in Africa very soon. Our companies in about 30 African countries and
alliances with NED Bank in South Africa and a representing company in
Dubai and Eco Bank France are positioning us to be able to bridge
financial businesses within and outside Africa.

Mr. Aku became the
bank’s helmsman in March this year taking over from Offong Ambah who
was elevated to Group Executive Director, Ecobank Transnational
Incorporated in charge of Ecobank Capital.

Prior to this appointment, Mr. Aku was the Executive Director in charge of Treasury & Financial Institutions.

The two weeks
continuous downturn at the Nigerian Stock Exchange threatens the much
anticipated recovery in this year’s second quarter.

The Exchange’s
All-Share Index and market capitalisation, the two main parameters for
measuring market performance, bounced back on Tuesday, but could only
gain marginally by 1.45 per cent.

Meanwhile, about N585.937 billion was lost during the bearish period last two weeks.

The market
capitalisation of the 198 First-Tier equities closed yesterday, at
N6,491 trillion after opening the day at N6,398 trillion, reflecting
over N93 billion upturn. The NSE All-Share Index was also up by 383.83
units to close at 26,837.03 basis points, overturning the 26,453.20
points recorded on the last trading day.

New regulations

Analysts said the
outlook at the close of trading session was encouraging because all
other market performance parameters recorded positive figures.

Gbenga Emmanuel, a
finance analyst at WealthZone Company, said the new rules and
regulations recently released by the Securities and Exchange Commission
“is expected to further drive the market to positive trend.”

Also, equity
analysts at Proshare Nigeria Limited, an investment advisory firm,
said, “The positive performance recorded could be attributed to the
fact that investors are taking advantages of the massive decline
recorded in many stocks in the previous month most probably for capital
appreciation as the rebound continues.”

Gainers and losers

At the close of
Tuesday’s trading, a total of 67 stocks appreciated in price while 27
stocks shed their prices. Over 500.301 million shares, valued at N3.913
billion, were traded in 6,668 deals.

UAC Nigeria and
Cadbury topped the price gainers’ table with an increase of N2.51 and
N1.18 on their initial prices of N50.31 and N23.61 per share,
respectively.

UAC Property and
Dangote Flour followed in the chart with an increase of N1.18 and N1.08
respectively, to close at N24.91 and N22.82 per share.

On the flip side,
Conoil Nigeria and Flour Mills led the price losers’ chart with a loss
of N2.80 and N2.79 respectively, from their opening prices of N56.13
and N73.99 per share. ENAMELWA and NNFM followed with N2.38 and N1.95
losses respectively, to close at N45.32 and N37.19 per share.

Zenith Bank, Equity
Assurance, and Aso Savings & Loans were the most traded stocks
yesterday, followed by United Bank for Africa and International Energy.

Active sectors

The banking sub
sector led the most active sub sectors’ chart with 220.650 million
volumes of shares, valued at over N2.508 billion.

Volume in the sub sector was driven by trading in shares of Zenith Bank, United Bank for Africa, and Guaranty Trust Bank.

Trading activities
in the Insurance sub sector followed, with 153.686 million shares
valued at N116.582 million. Deals in shares of Equity Assurance,
International Energy Insurance, and Staco Insurance boosted volume in
this sub sector.

The mortgage sub
sector came third in the activity chart, with 29.996 million shares
worth N16.450 million. Volume in the sub sector was largely driven by
trading in the shares of Aso Savings & Loans and Union Homes
Savings & Loans.

Egypt opened
bidding for two cement production licences on Monday but will not allow
existing cement firms in Egypt to bid in an effort to boost competition
and bring down prices, the industrial authority said.

Egypt’s
construction industry has grown even as it stalled elsewhere in the
region due to the global economic downturn. Cement demand rose 25
percent last year, driven largely by housing needs of a growing
population and a cash-fuelled economy.

The two licences
will replace ones that had been held by El Wadi Cement and North Sinai
Cement but which were cancelled late last year over start-up delays and
financing shortfalls. Both firms were granted their licences in 2007.

“Companies that
were given licences in 2007 or are currently producing cement will not
be allowed to enter the game for these two licences,” Amr Assal, head
of the Industrial Development Authority, told Reuters. “We want new
competitors.”

The licences will
be for projects in North Sinai, east of Cairo, and El Wadi to the
southwest. The authorities earlier said the two firms which lost
licences might be allowed to submit a new bid, but Mr. Assal has since
said they would be excluded.

Egypt would welcome
participation from industrial firms that might have operations
elsewhere or in other building materials, but no existing cement firms
in Egypt would be allowed to participate. The bidding will close in
early July.

El Wadi Cement and
North Sinai Cement were granted two of the six greenfield cement
factory licences offered in late 2007, in a bid to boost production
after rising local prices drove the government to impose an export duty
in February.

A regulatory
committee that cancelled their licences had previously extended the
licences of three firms, al-Arabiya al-Wataniya, indirectly owned by
private equity firm Citadel Capital, El-Nahda Industries and Assiut
Cement, a local unit of Mexico’s Cemex.

“We want to create
and strengthen competition, to move away from five or six firms that
control the market, because we want better competition on prices,” Mr.
Assal said.

Separately, Egypt
is planning to issue eight additional new cement licences this year, as
it aims to boost production capacity to 80 million tonnes a year by
2015 from 50 million.

Bidding for the eight new licences is due to start by the middle of the year.

Those who have expressed an interest in bidding for the eight new
licences include the Egyptian unit of Lafarge and Egypt’s largest
listed cement firm Suez Cement, which controls Helwan Cement and Torah
Cement. Suez is a subsidiary of Italcementi.

Finance
experts have stated that the government should adopt gender responsive
budgeting which seeks to measure the gaps between policy commitments
with respect to human rights and women’s rights instruments for better
outcomes of policies.

Azuka
Menkiti, a faculty member of the Centre for Budget & Policy
Advocacy, ActionAid Nigeria, said inequalities exist between men and
women and in recognition of unequal gender relations that put women in
a subordinated position, various declarations and conventions have been
adopted to redress the situation.

According
to her, Gender Aware Policy Appraisals (GAPA), seeks to find out how
policies and programmes reflect women’s and men’s different needs and
in what ways they are likely to increase or reduce gender inequalities,
Sex-disaggregated Public Expenditure Benefit Incidence Analyses,
estimates the distribution of budget resources among males and females.

Husseni
Abdu, country manager of ActionAid said all significant changes in
human history have been propelled by the struggle of people who have
directly or indirectly been disempowered in the socio-economic and
political construct of society.

“It
is in this context that ELBAG seeks to build information and education
that empowers citizens to take action and create the desired change.
This engagement should be seen as a process of empowering citizens to
demand and claim their rights” he said.

“We
at ActionAid understand that the structural constraints that shape the
everyday life of poor people are found at all levels of decision
making, therefore we continue to strive to link these policy
environments and ensure that the concerns of people are reflected in
major decisions. With the market driven nature of globalisation, ELBAG
provides a veritable tool not just for understanding its dynamics, but
also how to critically engage it in the interest of the poor” he said.

Monitoring National Budgets

Bimbola
Akinwunmi, in a presentation at the training said citizens should also
monitor the National budget for better participation and for them to be
in an enlightened position to challenge corruption.

“There
are three categories of budget monitors, beside specific persons and
institutions required by the laws of the country to monitor the budget.
These are the executives, the legislature and the citizens. Other
actors carrying out public expenditure monitoring in Nigeria include
the pressure groups”.

According
to her, citizens can do this through sourcing for the budget and
documents on the budget; the speech of the president, governor or
chairman, categorising budget votes into sectors and determining the
priorities of government and investigating how and when monies are
being released for implementation of projects.

“They
can also observe budget implementation by documenting the name of
contractor, nature of project, where project is located, when project
started, progress report on project and when project is completed and
analyse the level of compliance or deviation from budget votes based on
observations already made”.

Information
on budgets can be sourced from the Ministry/ department of Finance,
Office of Executive Head of Government, Office of Finance and
Appropriation Committee of the legislature, Ministry of information,
Federal Office of Statistics, Government Printers, Public Libraries,
University Libraries, Internet & Research Centres including NGOs
with such facility and the media especially newspapers and magazines
among others.

According
to Mr. Abdu, access to these information, which is the ability of the
citizens to obtain budget related information from the government and
public authorities, would aid their access to participation and help
citizens provide informed, timely and meaningful input and influence
policies (budget) from formulation to implementation and review stages
and access to justice.

Nigeria’s
Acting President, Goodluck Jonathan on April 22, signed into law a 4.6
trillion naira budget for 2010. The budget increases expenditure by 50
percent from last year as Nigeria tries to spend its way out of a
downturn, but it also risks pushing the OPEC member to a budget deficit
of more than 5 percent.

Analysts
have welcomed the government’s move to boost the economy but cautioned
the quality of spending would be key, given Nigeria’s reputation for
inefficient budget implementation. They also believe that the poor
level of execution of previous budgets should not be discounted.

Omar
Oosman Jobe, the policy and budget analyst, Pro Poor Advocacy Group,
Gambia said he hopes to be better positioned to address budget related
issues. “Our Company, as well as some other non governmental
organisation, have built a strong relationship with the National
Assembly over there. I have come to share what we do in the Gambia, the
National Assembly and community based assessment issues and also to
learn from others. I would be better empowered in this field when I get
back”.

ELBAG is an attempt by ActionAid to demonstrate change in action, a
change that is premised on mobilizing active agencies for the purpose
of social transformation. Governance as an arena where policy is
formulated, legitimized and implemented must bear the hallmark of
participation and social justice driven by strong principles of
democratic allocation and management collective resources.

United Airlines
parent UAL Corp. will buy Continental Airlines Inc. for $3.17 billion
to form the world’s largest carrier, to withthstand the hazards that
have battered airlines in recent years.

The Deals

The merger, if
approved by regulators, would create a sprawling global airline
designed to lure more well-heeled business travelers.The combined
carrier, with over $29 billion in annual revenues, would carry the
name, United Airlines, and be based in Chicago. The deal, announced by
the companies on Monday, is expected to produce $1 billion to $1.2
billion in annual revenue and cost benefits by 2013. “It’s really a
classic end-to-end kind of merger where both companies benefit from the
transaction,” said Michael Derchin, principal at CRT Capital Group. The
deal is the first major U.S. airline merger since Delta Air Lines’ 2008
purchase of Northwest, after months of speculation that more industry
consolidation was ahead. However, the merger, while transformative for
the two airlines involved, promises little, if any, capacity cuts that
might bolster ticket prices for the industry, which struggles with
overcapacity, low-fare competition, and volatile fuel prices. And
experts say the deal probably will not inspire similar mergers among
the remaining hub-and-spoke carriers.

United and
Continental said their merger would expand service with minimal
domestic and no international route overlap. The combined company will
have 10 hubs, with Houston as its largest, and a workforce of nearly
90,000. Shares of UAL were down 0.6 percent at $21.47 on Nasdaq.
Continental shares were off 1.3 percent at $22.06 on the New York Stock
Exchange.

All- Stock Deal

According to the
terms of the deal, Continental shareholders will receive 1.05 shares of
United common stock for each Continental common share they own. Based
on United’s closing price of $21.60 on Friday, and Continental’s 139.6
million outstanding shares as of April 21, United would pay $3.17
billion for Continental, or $22.68 a share. That represents a 1.5
percent premium over Continental’s closing price on Friday. Based on
current shares outstanding, the combined company would have 314.5
million shares, and UAL shareholders will own roughly 55 percent.
Continental Chief Executive, Jeff Smisek, will be CEO of the new
holding company, which will be called United Continental Holdings Inc.
UAL CEO, Glenn Tilton, will be non-executive chairman. Smisek, 55, will
become executive chairman when Tilton steps aside, expected two years
after the merger closes. One-time merger costs of about $1.2 billion
are expected over a three-year period. The companies said they expect
to receive government approval and complete the transaction by the end
of 2010. “We do not believe there are any material anti-trust
concerns,” Smisek said. “We have a high degree of confidence that this
transaction will close.”

No Big Job Cuts Planned

Tilton said in a
message to employees on Monday that “some reductions in the salaried
and management workforce” for both companies would result. But Smisek
told Reuters in an interview that rank-and-file employees would see
little impact on their numbers.

“To the extent
there are some degree of overlaps at airports where we can achieve some
efficiencies, we would anticipate handling those in the interim through
normal attrition, retirement and voluntary programs,” he said.

The Air Line Pilots
Association, which represents pilots at both UAL and Continental, has
indicated its tentative support for the deal. In a statement on Monday,
the UAL ALPA chapter said support from the pilots is “pivotal” to the
merger’s success. The International Association of Machinists and
Aerospace Workers said in a statement that it was concerned about the
effect of the merger on benefits and job security of its more than
26,000 members at both carriers. Both ALPA and IAM have seats on UAL’s
board of directors.

“The major issue is
going to be whether labour supports the deal, and I think they will
because I think they’ll see that the combined company is going to be
much more profitable than either one individually is as a stand-alone,
and they’ll view that as a way of recouping some of their lost wages
more quickly,” CRT’s Derchin said.Consolidation OutlookUAL previously
was in talks with US Airways Group. It was those talks that prompted
Continental to enter discussions with UAL.

“When I saw in the
newspaper that they were talking to another company – and since they
are the best partner for Continental – I gave Glenn a call and we began
our talks,” Smisek said.

Now, analysts are speculating on other merger prospects. “It leaves
(AMR Corp’s) American Airlines really out of the gold, and that’s kind
of funny in light of the fact that not too long ago, they were the
largest of the legacy carriers,” said airline consultant, Doug Abbey.
Morningstar equity analyst, Basili Alukos,s said AMR might be a good
match for JetBlue Airways. The companies recently announced a
code-share partnership. “I would imagine that’s a first step toward a
merger,” Alukos said.

Some operators at
the Nigerian Stock Exchange have argued that the nation’s capital
market does not really follow the trend of the economy like its
counterparts across the globe.

Referring to the
bullish trend which the market had witnessed in the past, Egbo Amaechi,
an executive member of the Shareholders Association of Nigeria, said,
“Whether the Nigerian government is spending or not, it doesn’t really
reflect in our capital market.”

Market performance
in the first quarter of year also shows that while economic activities
were slow due to no budget allocation or implementation, the capital
market witnessed bullish trend; an indication of inequality in the
nation’s economic system.

Mr. Amaechi said
the liquidity driving the market does not come from the budget because
“the banks, before now, have been the main driver of the market which
is not so in other countries,” adding that “presently, the source from
the banking sector has dried up.” However, he said that fund managers
and institutional investors are the ones driving performance because
“they now see kickers of hope in the market.”

“Hopefully on the long run, budget implementation will trickle down to the market and further enhance liquidity,” he added.

Not true

Meanwhile, Rasheed
Ola Yussuff, chief executive officer of Trust Yields Securities
Limited, said the market reflects the situation of the economy at any
particular time. “Even when the budget is not formally approved, the
ministries are still allowed to spend up to certain percentage of what
they spent the previous year, and that is what is keeping the economy
going,” he said.

However, Mr.
Yussuff, who is also the chairman of the Association of Stockbroking
Houses of Nigeria, said that budget approval does not necessarily mean
the market is going to be more liquid. “The market will only be more
liquid if as a result of the approval, each ministry starts to execute
the projects of which the budget is signed,” he said.

Explaining the
situation in the market, the stockbroker said, “What has been happening
since the first quarter of the year is that some institutional
investors have turned to the capital market to make money.”

This he said is as
a result of the money sitting with the banks that are not been loaned
out because the Central Bank rate went down. “Banks are not anxious to
take more deposit from customers. And to discourage us, they lower
their interest rate. That is why attention has been shifted to the
market,” he added.

The managing
director of Financial Derivatives Company Limited, Bismarck Rewane,
also believes the “expansionary nature of the 2010 budget should have a
positive impact on the equities market” since “it is designed to
stimulate the economy out of the recent global economic crisis.”

Asset Management Bill

In its “Monthly
Economic Update” for April, Financial Derivatives said, “The passage of
the Asset Management Company bill by the senate and its expected accent
by the Acting President will establish a basis for cleanup of bank
balance sheets of toxic assets. Cleaned up balance sheets should make
the affected banks attractive and meet acquisition targets from local
and foreign investors. We can expect to see investors taking position
in some of the troubled banks in anticipation of mergers, acquisition
and consolidation.”

According to the
report, it should take up to six months for the framework of an Asset
Management Company to reach an advanced stage upon passage of the bill.

Restoring confidence

Meanwhile, the new
rules and regulations issued last week by the Securities and Exchange
Commission (SEC) are expected to further boost confidence in the
capital market.

Arunma Oteh,
director general of the SEC, said, “The new rules are part of the
efforts to transform the Nigerian Capital Market into a more efficient
and internationally competitive market with high level of integrity and
investor confidence. It is our hope that these efforts will further
strengthen the market and restore the confidence of both local and
foreign investors.”

Some of the key
provisions in the new rules include the following: the requirement for
approval by the Commission of appointment of Executive Directors of
market operators; the rule on validity of accounts submitted to the
Commission requires that it should not be more than 9 months for
corporate bodies and not more than 12 months for governments and
supranational bodies; the requirement to make underwriting of issues
the discretion of the issuer has made underwriting of issues in the
market no longer mandatory.

Others are: issuers
are now required to list their securities not more than 30 days after
allotment clearance; another key amendment relates to a reduction in
the cost of issuance; separate rules now issued for corporate bonds;
new rules issued for the regulation of money market funds, etc.

Ms. Oteh said it is
a well known fact that in financial markets, periodic crisis bring
forth regulatory reforms. “It was as a result of this that the
Commission in September 2008 constituted some industry-wide committees
with the objective of repositioning the market for greater efficiency
and international competitiveness.”

“One of such
committees was the Dotun Sulaiman Committee on the Review of the
Capital Market Structure and Processes. The committee submitted its
report in March 2009 and the implementation of the accepted
recommendations has since commenced. The rules being presented today
are in furtherance of the implementation of the recommendations of that
committee and in fact with these new rules, about 95 percent of the
rule-based recommendations of the committee have been implemented,” she
said.

She added that the
present amendments, which comprise 23 new rules and 8 amendments to
existing rules, cover a wide range of issues in the market.

The Commission is empowered under section 313 of the Investments and
Securities Act (ISA) 2007 to, from time to time, make rules and
regulations for the purpose of giving effect to the provisions of the
Act.

Some finance experts have said that the losses declared by some
of the banks in their December 2009 common year end result was not an
indication of a systemic risk in the industry.

According to the experts, majority of the concerns in the
industry have been captured in the joint audit carried out by Central Bank of
Nigeria Nigerian Deposit Insurance Corporation special audit of the banks last
year.

Akintola Akinbamidele, finance research analyst, Renaissance
Capital, West Africa, said there is no systemic risk in the industry.

“A lot of the concern in the banking sector have been captured and
brought into perspective during the CBN/NDIC audit in September 2009,” he said.
“Our outlook is fundamentally positive as we expect real GDP growth in Nigeria
to accelerate in 2010, and now that the expansionary budget has been approved
and the Asset Management Company bill has been passed while oil is still
trading at an average of 80 dollars to the barrel.”

Mr. Akinbamidele said a survey of the banks that have released
results, revealed that a majority of them were in the green.

“First Bank declared a strong set of numbers in the first
quarter, (1Q) and a lot of the other first quarter results from banks have been
in the green,” he said. “We expect concerted effort towards loan recovery in
2010 by the banks and we expect that Nigerian Bank’s 2010 profit forecasts are
well supported, as we forecast robust loan and deposit growth, a wider net
margin, an improved efficiency, lower loan loss provisions and a lower tax rate
of 20 per cent.”

Except for a few banks, majority of banks have declared losses,
especially in their December 2009 common year end results, raising concerns as
to the actual state of the banks and their ability to scale through after such
provisioning.

However, most of the banks have declared profits in their
released first quarter results, in contrast to the losses declared last year,
attributing this mainly to the success in the recovery level of otherwise
non-performing loans.

Diamond Bank Plc released its 2009 results, revealing a loss
before tax of N12.4 billion for the period, due to large one-off provision,
compared to profit before tax of N17.3 billion for the comparable prior year
period (December 2008).

Access Bank also released its 2009 results with a loss before
tax of N3.5 billion Naira.

Eco Bank Nigeria Plc also released its audited results for the
common year end revealing a loss before tax of N5.944 billion and a loss after
tax of N4.588 billion, following a tax rebate, among others.

Managing the risk of
loan-loss provisioning

Razia Khan, regional head of research, Africa Head of
Macroeconomic Research, Standard Chartered Bank said recent measures in
addressing banks’ loan provisioning have included a review of existing
prudential guidelines, in particular the one per cent general loan loss
provisioning regime which was considered to be too pro-cyclical.

“At the end of last year, in order to lessen the burden of the
crisis on banks, the CBN announced that it would be waiving the 1 per cent
general loan loss provisioning requirement for a year,” she said.

“The regime is now being refined further. According to the
monetary authorities, a strong argument exists for implementing a different
provisioning regime for small and medium enterprises financing, agriculture,
and project finance that counters the pro-cyclicality in existing provisioning
guidelines.”

Ms. Khan also added that reforms are aimed at spreading risk
over a longer period of time, which should encourage more lending to the real
sector, despite the economic cycle.

“A framework for collateral adjustments to be taken into account in the
provisioning regime is also being developed,” she said. “With realisable
collateral, transparently valued at regular intervals, the hope is that a more
sound banking sector that is less subject to the volatility seen in the recent
past -when record loan-loss provisioning wiped out the capital of several
banks- will finally emerge.”

Some investors at
the Nigerian Stock Exchange (NSE) have called on the managing directors
of the eight rescued banks to present progress reports of their
stewardship to the Nigerian public.

Wole Adetunji,
chairman of the Centre for Shareholders’ Enlightenment Limited (CSE),
said that there are issues which the banks, rescued by the Central Bank
of Nigeria last year, needed to clarify with their shareholders and the
general public.

The former director
general of the Securities and Exchange Commission (SEC) said his
organisation has therefore invited the concerned banks for presentation
on the 3rd of June.

“In the absence of
annual general meetings of these banks where shareholders could ask
relevant information about their financial reports, we (shareholders)
feel a one day conference on their financial reports will be a very
credible avenue of presenting their challenges and issues germane to
the continued existence of these banks rather than personalities issues
the problems of these banks has degenerated into of late,” said Mr.
Adetunji, who is also the chairman of the ChartWell Securities Limited,
a stock broking firm.

Gbenga Idowu,
managing director of the CSE, said the organisation believes that the
problems and challenges of these banks are the overall problems of
Nigerians, adding that shareholders of the troubled banks should all be
allowed to contribute their own efforts at finding solutions to some of
the problems.

Dematerialisation

Meanwhile, Mr.
Adetunji has also called on the management of SEC and NSE to set a
deadline for the full actualisation of dematerialisation of share
certificates “because without this process the capital market cannot
move forward.”

“Other countries
have gone past this stage while we are still struggling with
certificate verification -believing that we can join the developed
nations by the year 2020.”

Share
dematerialisation is the process of converting share certificates to
electronic share lodgment and allotments. The NSE said the process will
increase efficiency and transparency of activities at the capital
market.

The Lagos State
coordinator of Independent Shareholders Association of Nigerian,
Anthony Omojola, said the delay shareholders get from verification and
transfer of share certificate from issuing houses will no more be there
if dematerialisation takes full effect.

“Stock broking
houses that charge for the lodging of share certificate when the value
of the shares is lower than the charge will be force to stop,” he added.