Nigeria - Efficient Capital Markets and Portfolio Investment Nigeria - Capital Markets
The NIPC Act of 1995 liberalized Nigeria's foreign investment regime, which has facilitated access to credit from domestic financial institutions. Foreign investors who have incorporated their companies in Nigeria have equal access to all financial instruments. Some investors consider the capital market, specifically the Nigerian Stock Exchange (NSE), a financing option, given commercial banks’ high interest rates and the short maturities of local debt instruments.
Notwithstanding successful national elections in March 2015 and widespread approval of the new Buhari Administration's focus on security issues, the year witnessed continuing declines in stock market value owing to declining crude oil prices, foreign exchange difficulties, and the exit of foreign portfolio investors. The equity market declined 17.36 percent in 2015, following a 16.14 percent decline in 2014. As of December 2015, the NSE claimed over 257 listed companies and a total market capitalization of USD 85.3 billion, a 5.8 percent decline from 2014. Roughly half of that figure is represented by the market capitalization value of just four companies. The GON has considered forcing companies in certain sectors or over a certain size to list on the NSE, as a means to encourage greater corporate participation and sectoral balance in the NSE, but those proposals have not been enacted to date.
The Government employs debt instruments, with the GoN issuing bonds of various maturities ranging from two to 20 years since the return to civilian rule in 1999. The GoN has issued bonds to restructure the GoN domestic debt portfolio from short-term to medium- and long-term instruments. Some state governments have issued bonds to finance development projects; while some domestic banks have used the bond market to raise additional capital. The Nigerian Securities and Exchange Commission (NSEC) has issued stringent guidelines for states wishing to raise funds on capital markets, such as requiring credit assessments conducted by recognized credit rating agencies.
Money and Banking System, Hostile Takeovers
The Central Bank of Nigeria (CBN) currently licenses 22 deposit–taking commercial banks in Nigeria. Following a 2009 banking crisis, CBN officials intervened in eight of 24 commercial banks (roughly one third of the system by assets) due to insolvency or serious undercapitalization and established the government-owned Asset Management Company of Nigeria (AMCON) to address bank balance sheet disequilibria via discounted purchases of non-performing loans. The Nigerian banking sector emerged stronger from the crisis thanks to a number of reforms undertaken by the Central Bank of Nigeria (CBN) including the adoption of uniform year-end IFRS financial reporting to increase transparency, a stronger emphasis on risk management and corporate governance, and the nationalization of three distressed banks. In 2013 the CBN introduced a stricter supervision framework for the country’s top eight banks, identified as “Systematically Important Banks” (SIBs) given they account for more than 70 percent of the industry’s total assets, loans and deposits, and their failure or collapse could disrupt the entire financial system and the country’s real economy. These eight banks are: First Bank of Nigeria, United Bank for Africa, Zenith Bank, Access Bank, Ecobank Nigeria, Guaranty Trust Bank, Skye Bank, and Diamond Bank. Under the new supervision framework, the operations of SIBs are closely monitored with regulatory authorities conducting stress tests on the SIBs’ capital and liquidity adequacy. Moreover, SIBs are required to maintain a higher minimum capital adequacy ratio of 15 percent.
The CBN supports non-interest banking. Both Jaiz Bank International Plc and Stanbic IBTC Plc have established Islamic banking operations in Nigeria. Jaiz Bank International commenced operations in 2012. There are five licensed merchant banks.