CBN Should Create Incentives for People to go Cashless – Agboola

Bolade Agboola is an executive director at CashCraft Asset Management Limited. He is an Associate of the Chartered Institute of Bankers and Chartered Institute of Stockbrokers. He is a registered Issuing House Operator and has worked for about 20 years in various banks before joining CashcraftAsset Management Limited.He spoke to funmi ilesanmi on issues bothering on the capital market and other economic issues

Confidence of Nigerians in the Stock Market
Confidence in the stock market has to be built over a period of time because a lot of people lost money as a result of the prolonged economic and banking crisis perhaps because of the way we handled it.  We can now compare our crisis with that of other nations and the way those who have responsibility to manage us through has performed. It will take quite a while for full confidence  to be restored in the stock market  but certainly the worst is over .All that could gone wrong has happened  so what we will be having is good news and that should see the market stabilize and begin to grow modestly. We will begin to see this trend as 2011 corporate results is released   and when the banks that acquired the AMCON banks begin to come out with their quarterly results. What AMCON gave them was the good bank while the bad bank is still with AMCON to deal with .With the efforts of the Nigerian Stock Exchange to appoint some Stockbrokers as market makers the wild volatility in the market should be a thing of the past while we should see sustainable growth. The signs from the global economy especially US and China are  reassuring that modest growth from the leading economies is feasible this year .just as there are chances that   the Euro zone crisis would also  be resolved given the determination of leading economies in the zone to support the weakling ones . Nigeria’s outlook may not be dampened by the Boko Haram crisis which I think is being contained. I want to believe that the Federal government will eventually find a solution to the crisis before the end of the year.
Role of Euro Crisis in Fall of Nigeria Capital Market
I don’t think the Euro crisis has anything to do with the fall of our capital market but  there is  no doubt it might  have impacted on the duration of the crisis which will be 4 years old  in March 2012.This is understandable because foreign investors is believed  to  own close to  70 per cent of the investment in the stock market ,so,  if their economy is in turmoil we cannot expect new  investments  to come and stabilize the market  .In fact they may need to wind down some of their investments here to meet their obligation  at home .

Divestment of Insurance Companies
The divestment of banks from insurance companies is part of the pursuit of the CBN towards mono -line  or specialized banking. What we will have eventually  is a  disguised  management buy-out because  the economic and banking crisis has frozen credits so it will be difficult for new investors to get fresh funds to pick up the investment .  Since officially, these banks are not supposed to have shares in those companies what they  may end up doing  is to find discrete means  is to empower their management to buy the companies. It would not really have any effects on their business, it is just unfortunate that the line of banking we have chosen does not allow the kind of thinking that follows successful universal banking model that have proved to support economic development  in Germany and many other countries.
 We might have over reacted to the regulatory failures that led to the financial crisis but time would tell whether it is a good or bad decision .The school of thought that allowed banks to invest in such ventures was that at a particular time the banking industry was able to attract the most brilliant professionals from diverse human endeavors. Also they had a  lot of liquidity  which was not going into  long investments like equities ,  so CBN then encouraged them to  invest the monies in equities  and  deploy their talented manpower to support and grow  such businesses . Unfortunately, because of regulatory failures and the economic crises that came up in 2008, we have now decided to adopt a new banking model. Interestingly, universal banking is still being practiced in many parts of the world while banks in such countries were only barred from doing proprietary trading with depositor’s funds. We have chosen to do specialized banking but time will tell whether we have taken a good decision. I am circumspect about it because I know Nigerian banks are operating universal banking outside the shores of Nigeria. I also know that International banks have branches in Nigeria are also operating some elements of universal banking here , so how we are going to resolve that in the future, I do not know; but I believe that it is one of those decisions that is neither here nor there.

Directive that Registrars Stop Handling Shares of their Parent Companies
It is one of the mysteries of our system.  Two of the most effective registrars in this country in terms of performance and everything are owned by two of the leading banks First Registrars and GT Registrars. In terms of any rating in the market they come first and second whether they are handling shares of their own banks or shares of other banks.
It is also due to regulatory failure during the boom era that we are now saying they should not handle shares of their parent companies and those parent companies should divest equities in the companies  .We have forgotten that  every activity of the registrar is  regulated and they have  timelines which regulators ought to check from time to time . It is like we do not even trust our capacity to run those institutions. Whether the ownership structure of the registrars would have mitigated the disaster we had in 2008 and thereafter is debatable. As far as am concerned it was a multiple accident starting with the way we telescoped development of our banks with the  2004 consolidation  exercise  and the  style we used to manage the banks that failed the stress test in 2009 , all of which has now become history
Unauthorized Sale of Shares by Stock Brokers
Not all unauthorized sales are intentional as the brokers do make mistakes while punching their computers .Such error is supposed to be corrected before settlement date of T+3 . The most common sources of allegation of unauthorized sales is from investors who took loans from their brokers using their stocks as collateral.  When the broker sells the collateral to recover the debt   they run to SEC, the Exchange or CSCS and allege that the sale was not authorized. These bodies   have done tremendously well in resolving such   issues by digging into the facts to establish the truth while brokers were punished where they err.  With trade alert, know your customer documentation, e-banking and all other e-services, such complaints should be fading out more so as there are no margin loan at least for now. We will have some pocket of unauthorized sales due to operational errors but that will not significantly affect confidence in the market. 

ICT in Stock Broking Business
We cannot do our business without ICT. You recall that during the Fuel Subsidy crisis most people were able to trade from their homes that are how far ICT has taken us. Today you can be in Maiduguri and instruct your broker to buy or sell stock for you and pay there or collect the proceeds from there. So you do not need to physically go to your broker to transact any buy or sell transactions and that shows what ICT has done in facilitating that. I believe that as the national ICT platform improves, all these things will improve. ICT has actually helped the business tremendously.

CBN’s Cashless Policy
The cashless policy is a desirable policy for the convenience of the customer and the banker as the parties don’t want to carry bulky cash in their wallet or bullion vans respectively .This process started in 1998 or thereabout with GEM card and Value card consortium and got a boost after the consolidation exercise as banks had money to deploy ATMS and POS all over the place. We are not hearing of GEM card again.  We have made tremendous progress and the move by CBN to   accelerate the process is very courageous  . It is however strange that we are limiting the amount people can draw in a day and imposing charges for going beyond that. .I see no reason why we should limit the maximum you can take from the bank to N150,000 which is just about  $1,000.  Is it to make money for the banks which we are helping to  lower their  transaction cost ?  Majority of our traders have meager capital  which they turnover  on daily basis  with marginal profit  . That is why they keep cash to do the next business and if that is no longer possible as they have to pay extra charges to do their business electronically . I wonder what will remain if  they have to  pay COT and POS charges .. I think CBN should take a cue from the great revelation of Nigeria Bureau for  Statistics on prevalence of poverty  in Nigeria and income inequality . The cashless policy  is good but will accentuate poverty and put more money in the hands of bank investors if the compulsion and penalty charges is not abolished . Banks should provide the electronic payment infrastructure   as they are doing and recover their cost from the cash processing cost they are saving .

Tackling Fraud in e-Payment Services
I think with the technology adopted, incidences of fraud will be limited but we cannot avoid it because it is the preoccupation of some people to perpetuate fraud so the system must continuously work to be ahead of them by creating disincentive for them to succeed. The  CBN must put the banks on their toes to ensure that their system is not prone to fraud while at the same time  put adequate measures in place to ensuring the banks investigate  frauds as soon as they occur  and compensate the  innocent victims promptly.

Attaining Single Digit Inflation Rate
Inflation in Nigeria and other emerging economies is determined by so many factors. It may not be easy  to bring down inflation  in Nigeria  because  we are a mono product economy   whose fate is dependent on the interplay of demand and supply of crude oil  in the international market . Fuel price adjustment creates inflation because it is usually done in arrears out of  pressure to align it with the exchange rate and international price of crude oil . One of the things the removal of subsidy  and full deregulation of the oil sector  would have done was to  create an initial surge in  inflationary  rate    which would have  moderated later . Thereafter as local fuel prices reflect exchange rate and global crude oil price  on daily basis the inflationary rate will swing at modest rate. By the side ,I believe we need to change our transportation mode in Nigeria  to justify full removal of the subsidy . Other causative factors of inflation includes leakages in government  expenditure ,its borrowing to finance largely overheads  ,the way the federation account is handled and the massive corruption in the nation  Really, it is desirable to have single digit inflation as households ,firms and governments can plan. We need to plan for the future as a nation to  take care of the generation coming behind us and that cannot be done with  spiraling inflation