How to Survive Economic Crisis Stock Market Collapse - PowerPoint

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					                  Managing the impact of the global
                 economic crisis on Nigeria: The role
                           of the media.
                                  By
                 Boniface Chizea Ph.D, FCIB, MNIM,
                                KSM.



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                          Sections of the paper
• The global economic crisis; its genesis,
  meaning and causative factors.
• The impact of the crisis; globally and in
  Nigeria.
• Measures taken to manage the impact
  globally and in Nigeria.
• The role of the media in managing this impact.


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   Global Crisis? What really happened?
• There was unprecedented recession in the economies of
  the developed world which affected other countries across
  the glob.
• The early signs of the crisis manifested in credit crunch with
  banks reluctant or may be disabled to lend due to illiquidity
  and some extreme cases insolvency.
• This development was traceable to what has been dubbed
  as sub-prime loans particularly to borrowers in the
  mortgage sector.
• It was generally thought that this was due to greed,
  excessive risk taking, unsustainable compensation schemes
  underpinned by lax regulatory environment consistent with
  the free market environment. etc.

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                          Global financial crisis.
  Following a period of unprecedented economic
  boom, a financial bubble, global in scope burst!
• A collapse of the US Sub-Prime mortgage market
  and the reversal of housing boom in other
  industrialized economies had a ripple effect
  around the world.
• Some financial products and instruments have
  become so complex, that things started to
  unravel and trust in the whole system started to
  fall.
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             Securitization and the crisis!
• The crisis came about in large part because of
  financial instruments such as securitization
  whereby banks pooled their various loans into
  sellable assets, then off loading risky loans
  into other assets.
• The security buyers got regular payments
  from such investments.
• Securitization was seen as perhaps the
  greatest innovation of the 20th century?

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• Rating agencies were engaged to rate these
  products, risking conflict of interest, which
  invariably awarded good ratings encouraging
  people to take them up.
• When people eventually started to see problems
  confidence fell quickly, lending slowed, in some
  cases ceased.
• Assets plummeted in value so lenders wanted to
  take their money back. But some investment
  banks had little deposit, no secure retail funding,
  so many collapsed quickly and dramatically.

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• The problem was so large, banks even with large
  capital base ran out, so they turned to government for
  bail out. There has been an ongoing debate whether a
  bank could be too big to fail!
• New capital was injected into banks to in effect allow
  them to lose more money without going burst. That
  was not enough and confidence was not restored.
• Hedge funds, credit default swaps, could be legitimate
  instruments when trying to insure against default but
  the problem resulted when the market became rather
  speculative.

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• Despite the benefits of a market system, it is
  far from perfect. The market suffers from a
  few human frailties such as confirmation bias;
  always looking for facts that support our views
  and superiority bias ( the belief that one in
  better than others ). Trying to reign in these
  facets of human nature remains the challenge.



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                          The developing world.
• The crisis has impacted on the developing world in
  degrees dependent on the extent of their exposure to
  the world market.
• Commodity dependent economies in consequence
  were exposed to considerable external shocks resulting
  from price boom and bursts in the international
  commodity market.
• Foreign investments reduced as a result of the crisis,
  also foreign aid declined.
• Debt service obligations came under increased
  pressure often arising from depreciated currencies.

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                          Nigeria and the crisis
• Initially we were sold the dummy of insulation.
• Then there were denials and finally admission. Recall the setting up of the
  Presidential Committee on the crisis! There is now a stimulus funding of
  200 billion Naira for commercial agriculture and 300 billion to Ministry of
  Works and Housing for public works to boost employment. There is also an
  aggressive attempt to boost availability of infrastructure through the PPP
  scheme.
• The impact is directly felt in the sharp drop in the price of petroleum
  products which has considerably affected the 2009 budget and revenue
  from the Federation Account accruing to the other tiers of government
  resulting in contestations regarding the excess crude account. The issue
  currently in the oil market is whether or not to deregulate!
• The crash at the Stock Exchange, the depreciating Naira, and now doubts
  about the viability of banks and also the increasing marginalization of the
  real sector.



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                          Nigerian banks.
• Again we were told that the banks are insulated from
  the crisis because of the Consolidation exercise. Banks
  are now vaunted to be in a position to absorb all the
  shock that could be thrown at them?
• The banks continued to declare robust profit positions
  which did not even impact their stock prices. The crash
  in the values of bank shares is unprecedented.
• There is now worry about the extent of banks exposure
  to margin lending and to operators in downstream
  petroleum sector.


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• Nigerian banks were at the receiving end as the Central
  Bank struggled to stabilize the exchange rate of the Naira.
• De-marketing phenomenon is on the rise! And the Central
  Bank has threatened severe sanctions if caught in the act.
• ‘ if you substitute margin lending to finance the purchase of
  stocks at the Stock Market to those who do not have
  enough income to service the loan for dodgy sub-prime
  lending overseas to the mortgage sector the similarities are
  confounding’..... Atedo Peterside.
• Internationally credit to Nigerian banks is becoming very
  expensive observed Dr. Barth Ebong of Union Bank. The era
  of LIBOR+1 and so on would seem to be in the past. And of
  course confirmation lines will be at a premium if available.

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• Usually at the end of the financial year some
  banks would approach foreign banks for loans to
  shore up their balance sheet. Such facilities
  would no doubt be difficult to come by
  particularly in the context of uniform year end.
• Post consolidation some banks partnered foreign
  banks in a bid to swallow the bait of managing
  the country’s external reserves. It is quite likely
  that such relationship would lead to increased
  exposure and therefore vulnerabilities.

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                CBN response to the crisis so far.
• Attempts have been made to improve liquidity in the
  financial system through: the introduction of the
  expanded discount window.
• Adjustment of key monetary policy ratios which
  include; liquidity and cash reserve ratios, adjustment
  of the Monetary Policy Rate
  ( MPR).
  An attempt to reconfigure the regulatory
  arrangement to have one regulatory set up. And
  whether or not to divest the CBN of its banking
  supervision functions?
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    Weakness of corporate governance in Nigeria.
    To survive banks in the country must embrace the
    tenets of good corporate governance as articulated
    by the Central Bank and avoid the following.
•   Ineffectiveness of Board’s oversight functions.
•   Overbearing influence of chairman or MD/CEO,
    especially in family controlled banks.
•   Weak internal controls.
•   Ignorance of and non-compliance with rules, laws
    and regulations for banking.


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• Non compliance with laid down internal controls
  and operating procedures.
• Poor risk management practices resulting in large
  volumes of non performing credits including
  insider related credits.
• Succumbing to pressure from other stake holders
  e.g. Shareholders appetite for high dividends and
  depositors request for high interest rates.
• Inability to plan and respond to changing
  business circumstances.
• Ineffective management information system.
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                          Dealing with the recession
• Economic stimulus package; increase borrowing,
  reduce interest rates, reduce taxes, and grow
  employment by embarking on public works on
  infrastructure development.
• Rethink the international financial system; WB and
  IMF to give more voice and power to poor countries.
• Reform international banking and finance
• Reform International trade and The WTO.



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• Investments are needed in safety nets, infrastructure
  and small and medium-scaled companies to create
  jobs and to avoid social and political unrest.
• It is now opportune for the authorities to set up the
  proposed asset management company to excise toxic
  assets from banks balance sheets and avoid systemic
  crisis.
• Warren Buffet has a simple rule: ‘ Be fearful when
  others are greedy; and be greedy when others are
  fearful. Recall also that every cloud has a silver lining!




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                          Prospects.
• The prospects: there would be reduction in expected
  economic growth across all economies in the world.
  There would be recession verging on depression.
  Nigeria will not balk this trend.
• If extreme protectionism is avoided and the stimulus
  thrusts are allowed to work through economic
  system across the globe there would be a rebound of
  economic growth. We must recall the great
  depression of 1929/33 which the world transcended.


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• This time for instance is most opportune to
  invest in the stock market provided you are
  using funds in excess of your immediate
  requirements; most certainly not borrowed
  funds! Share values would inevitably rebound.
• Economic prosperity would return and the
  world would get carried away until the next
  round of problems. That is the spice of life.
  Could you imagine a world without problems?


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                          I THANK YOU ALL
                           FOR YOUR KIND
                             ATTENTION

                          GOD BLESS US ALL

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