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The board of the Central Bank of Nigeria (CBN) on Friday rolled
out guidelines to regulate the operations and activities of banks relating to
granting of loans to investors trading in stocks in the nation’s capital
market.

The bank’s governor, Sanusi Lamido Sanusi, who was briefing
journalists on the resolutions of both the 69th Special Monetary Policy
Committee (MPC) meeting and the board of the bank, said that henceforth, bank
shares are no longer eligible for financing with margin loans.

Mr. Sanusi recalled the recent crisis in the nation’s capital
market, attributing the unprecedented decline in the share prices of most of
the banks’ shares and the resultant severe liquidity problems and shocks in
most banks to the huge losses by investors as a result of the loans collected
from various banks, stock broking firms, capital market dealers.

Loss of capital

Recently, he had attributed the loss of over 66 percent of
capital by the nation’s banking system between December 2008 and December 2009
to the reckless deployment of depositors’ funds by banks, including loans to
customers for investments in bank shares in the capital market in anticipation
of a windfall.

To forestall the recurrence of the crisis, particularly
concerning banks that were exposed to investments in the capital market and
energy sector, he said the apex bank’s Financial Services Regulation
Coordination Committee (FSRCC) resolved to adopt these guidelines to regulate
operations and activities relating to lending, specifically for trading in
stocks in the capital market.

The guidelines to regulate margin lending by banks and stock
brokers, he said, cover provisions for the minimum margin for all such loans,
eligibility rules for all operators, certification for banks and stock brokers
qualified to handle margin loans as well as shares eligibility.

According to the CBN boss, the approved guidelines are subject
to approval by the board of the Securities and Exchange Commission (SEC),
pointing out that, when approved in the next one week, the new regulation would
be jointly issued by the two regulatory institutions.

SME Credit Guarantee
Scheme

Other decisions of the Board, he said, include the establishment
of a N200billion Small and Medium Enterprises (SME) Credit Guarantee Scheme, to
promote access to credit by manufacturers and SMEs in the country.

The scheme, to be funded 100 percent by the CBN, is designed to
unlock the credit market in the country to complement the N500billion Energy
SME Fund recently established to facilitate the development of the infrastructure
in the nation’s power sector.

According to Mr. Sanusi, the primary objectives of the scheme
include the need to fast-track development of the SME manufacturing sector of
the nation’s economy as well as facilitate access to credit by providing full
guarantees to prospective beneficiaries, set the pace for industrialisation of
the nation’s economy, increase access to credit by promoters of SMEs and
manufacturers, as well as create employment opportunities.

Activities to be covered under the scheme include manufacturing,
agricultural value chain, SMEs with assets not exceeding N300 million and with
staff strength of between 11 to 300, as well as processing, packaging and
distribution of primary products.

Private educational institutions are also listed as potential
beneficiaries of the scheme in line with the apex bank’s commitment to human
capital development “The maximum amount to be guaranteed under the scheme will
be N100 million per obligor, which can be in the form of working capital, term
loan for refurbishment, equipment upgrade, expansion and overdraft, while the
guarantee of the facility shall cover 80 percent of the outstanding amount in
event of default, and shall be valid up to the maturity date of the loan, with
a maximum tenor of five years,” he said.

Injecting N500 billion

On the resolutions of the MPC, he said members considered
modalities for the injection of N500 billion into the real economy, pointing
out that, though economic reforms and human capital development remain key
ingredients for economic growth, the CBN would continue to focus on
macroeconomic and financial stability considering its strategic role in
achieving sustainable economic growth.

“The key concerns remain the speed and sustainability of the
recovery process, which is progressing at varying degrees across the different
regions,” he said. “The recovery in the advanced economies is still weak with
real output projected to remain below its pre-crisis level until late 2011.”