CBN Blames Capital Market Collapse on Insider Trading

Testifying before the House  Ad hoc Committee on  Causes of the Near-collapse of the Nigerian Capital Market, the Central Bank of Nigeria (CBN) has blamed the banking industry on the insider abuse that plagued the system.

Kingsley Moghalu, Deputy Governor of Financial Systems Stability at the CBN, disclosed to the committee of lawmakers how several erring banks utilized depositors funds to prop up their share prices by utilizing several stock-broking companies to purchase the shares.

The CBN senior official cited institutions like Afribank loaned three separate brokerage firms depositors’ funds to buy back its shares using 1,258 false subscribers information.

He said, “So, we had a situation whereby 66 % of the bank’s [Afribank] offer was non-existent, but they used depositors’ funds.”

He also said Intercontinental bought back 3.4 billion units of its shares using the same fraudulent process.

Moghalu disclosed that the fraudulent practices were blown open when the global financial crisis hit and foreign investors withdrew their funds from the Nigerian market, bursting the bubble.

This snowballed into a situation where a lot of the banks had non-performing loans. Spring Bank Plc had 85 % non-performing loans, FinBank had 47.5 %, Bank PHB Plc had 40.8 %, Oceanic Bank International Plc, 44.35 %; Afribank Plc, 47 %; Intercontinental Bank Plc, 48 %; and Equitorial Trust Bank Limited had 57 %.

Moghalu said despite this, the CBN intervened to ensure that no depositors lost money and that the situation was remedied since the CBN did not allow any banks to fail.

Unimpressed by his disclosures, Abimbola Daramola, a member of the Committee blamed the CBN for poor oversight in allowing the malpractices to occur in the first instance.

He also accused the CBN of Nationalizing the banks. The allegation was refuted by Moghalu who clarified that CBN did not nationaloze the banks as there were still private individuals on the board.