LAGOS (Reuters) - Nigeria’s central bank on Tuesday announced rules to regulate margin trading in a bid to avert a repeat of the reckless lending that led to an asset bubble and the near-collapse of the banking system last year.
The central bank said the FSRCC — a committee of financial regulators in sub-Saharan Africa’s second biggest economy — had decided to limit banks’ exposure to margin lending to 10 percent of their total loan portfolio.
Banks with exposures above that limit would be required to submit to the central bank a clear plan on how they intended to wind down the exposure. Banks and other operators interested in margin trading would have to apply for re-certification.
It said full compliance was expected by September 1.
“The committee ... discussed the need to issue clear-cut rules and guidelines on margin trading to avert a repeat of the abuses and sharp practices that bedevilled margin trading in the run-up to the capital market collapse,” the central bank said.
“The committee noted the fact that most operators that suffered losses in margin trading lacked the capacity, technology and framework to embark on margin trading, factors that contributed immensely to the fate they suffered and the spiral effect during the financial market melt-down,” it said.
The central bank last year rescued nine financial institutions in a $4 billion bailout after their reckless lending — much of it to capital markets speculators and fuel importers in a falling oil market — left them so weakly capitalised they posed a systemic risk.
The central bank said bank shares were no longer to be used in margin trading, although they could still be used as collateral for other types of bank lending.
It said operators would be required to open a dedicated margin trading account and maintain a 120 percent maintenance margin limit.