GLOBAL FINANCIAL TRENDS AS LESSONS FOR NIGERIAN MARKETS

Although the Nigerian financial markets, have, to a fairly reasonable extent been insulated from the global financial crisis and economic recession in recent times, there are however those tendencies which experts have identified as having caused the crisis in the global market which must be readily checked locally. These tendencies which focus on areas of operations or investment, risks involved, fundamentals of the business and the people and governance of the business have been identified as the causal factors of the global crisis and as such, Nigerian institutions have been advised to steer clear of these tendencies to remain strong.
According to Paul Fletcher, Senior Partner, Actis, a private equity firm whose area of interest is investing in emerging market, he spoke on the implications of the global financial turmoil on emerging markets recently, suggesting that the financial crisis in Europe and the United Kingdom can also happen here in the country.
This, he said, is because the Nigerian market is not immune to the tendencies which led to crisis in the developed world even though it has been certified least vulnerable by Merrill Lynch, the highly respected international risk rating agency.
The reasons for the crisis, Fletcher, meanwhile had noted, was the fact that the financial institutions in those markets failed to look at the long term view of investing with public markets demanding short term performance.
Thus, banks began to repackage high risk assets and resorted to subprime lending, mismatching between the short term and long term.
Also, banks began to accumulate so much financial assets that their response was to lower their credit standards.
These tendencies, he observed, grew the proportion of household debts to income from 100 percent in year 2000 to over 170 percent in 2008 which was far above that of the 1990’s and beyond.
Already in Nigeria, asset base of banks, according to Chukwuma Soludo, Governor, Central Bank of Nigeria has grown by approximately 418.57 percent between 2003 and June, 2008 with about 12 banks and over $1 billion in Tier 1 capital, by end June, 2008.
Figures from the CBN show that share of banks in the Nigerian Stock Exchange (NSE) rose substantially from 30 percent in 2003 to 63.5 percent in June, 2008; while credits to the core private sector by banks are increasing significantly at 70.6 per cent annualised rate by end of August 2008.
Now, with the advent of licensed microfinance banks, totaling 780 in number and with more on the way, as assured by Soludo, there is no doubt that the issue of inability to access credits from banks will soon be a thing of the past. This is all the more so as credit bureaus have been licensed to also monitor the process of banks’ credit allocation by giving credit reports of borrowers.
Fletcher’s advise borders on the need for government, the people, regulatory bodies and the corporate governance of these financial organisations to look into the fundamentals of the business in a bid to correct anomalies that may lead to such meltdown.
Commending the country’s regulatory environment for being conservative and prudent, he noted that this was characterised by good banks with strong capital base, strong supervisory and regulatory bodies which serve as its cushion against the ongoing global crisis in the first place, insisting that the slight effect of what is suffered, remains only indirect effects, at least for now.
However, he mentioned the indirect effects to include drop in investor confidence level, slow in growth levels, lower commodity prices like oil, restricted access to financial resources from the international scene, limited economic stimulus packages and restricted private sector investment; advising that other tendencies need to be checked to remain immune and avoided in the long term against any financial meltdown.–BusinessDay