Liquidity: capital market expert tasks CBN, SEC on reintroduction of margin loans

A financial expert, Alhaji Rasheed Yussuf, on Wednesday, advised the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) to re-introduce margin loans in the capital market.

Yussuf, a former President, Association of Stockbroking Houses of Nigeria (ASHON), gave the advice in an interview with the News Agency of Nigeria in Lagos.

According to him, the current liquidity challenge in the Nigeria Stock Exchange (NSE) can only be solved with the reintroduction of margin loans.

A margin or investment loan is a form of arrangement that allows an investor to borrow to invest in approved shares or managed funds using existing cash, shares or managed funds as security.

The amount to be borrowed is determined by the securities in the investor’s portfolio and a credit limit based on an assessment of your financial position, among other criteria.

He said that the apex bank and SEC should collaborate with market operators on the modalities for reintroduction of margin loans in the market.

Yussuf attributed failure of margin loans in the past to lack of monitoring by banks.

The expert said that the commercial banks were overwhelmed and failed to monitor investors to access their margin loans portfolio.

Yussuf, who is also the Managing Director, Trust Yields Securities Ltd., said that the fundamental problem of the NSE, apart from structural issues, was liquidity.

He said that the market would not witness any meaningful growth until the issue of liquidity was resolved.

“Until we solve the liquidity problem, no matter what we create in terms of product, the market will not wake up,’’ Yussuf said.

He said that foreign investors, the major players in the market, had developed a ‘wait and see’ attitude due to current economic policies.

The expert said that lack of liquidity was affecting the volume and value of shares being traded on the exchange.

He said that “margin loan is used in every market to create the needed liquidity, even in New York.’’

Yussuf said that the market needed a scheme like margin loan to revive and not an intervention being clamoured for by some operators.