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CBN soon to release the Margni Loan Guidelines

Sanusi Lamido Sanusi, governor, Central Bank of Nigeria (CBN) has assured that the apex bank and the Securities and Exchange Commission (SEC) would soon fine-tune the guidelines for margin loans.
Although likely to appear as a guideline which aims at clearing varied perceptions from different individuals and corporate bodies over margin loan, it will go further, in a matter of weeks, to ensure that involvement in margin loans by banks and capital market players will not be business as usual. Literally, the word "margin" implies you have provided a margin for a transaction and your maximum loss/gain is that margin which you provided.
In a margin facility, stock brokers are supposed to maintain 120 percent coverage at all times to enjoy margin facility and anytime the value falls below 120 percent of the coverage, the bank is empowered by the rules to call for more funds or sell the shares. Sanusi, who made the new guidelines disclosure over the weekend at a "sunrise programme" on the banking sector reforms where he was engaged by other economic analysts, insisted the guidelines would be out this month (next two to three weeks).
Before the global financial crisis exposed a lot of abnormalities relating to how banks traded on their own equities with their own monies as loans, there were revelations from most brokers that only three Nigerian banks understood what margin loans actually meant - namely Stanbic IBTC, Ecobank and GTBank. "They all kept to the rules," a broker had disclosed in confidence.
A financial sector analyst said that when CBN and SEC come out with the margin loans guideline, "it will help in the near term to put straight, issue on margin loans, especially with current varied degrees of belief on how conditions for margin loan should look like."
The analyst, who spoke on condition of anonymity, explained that: "In margin loan, banks give a broker facility say N100million and the stock broker contributes 30 percent of the said sum. The total sum does not go out of the banking systems including the one the stock broker contributed.

The broker is left to pay other charges including regulatory charges. The bonus and the dividends go to the banks' coffers including all accruing benefits, even the correspondences because the bank uses its address for such. Now with the market crash, both the broker and the bank made losses on the assets and the banks have now asked the brokers to make good the 100 percent as debt forgetting that the broker has lost his 30 percent stake as well."

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