Cash scarcity threatens to erode investor confidence in capital markets

The cash scarcity challenge currently plaguing large swaths of the Nigerian economy has not affected the capital markets.

However, some market operators have called on the federal government to urgently address the issue before it completely erodes inventors’ confidence in the financial market.

The operators in an exclusive chat with Nairametrics said investors are already losing confidence due to doubts over the security of their investment.

Market confidence: The Managing Director of Arthur Steven Asset Management Limited, Mr Olatunde Amolegbe, said the currency of the financial market is confidence and trust and anything that shakes the confidence and trust of the public will affect the financial market.

Amolegbe noted that while the cash swap policy is good, its implementation hasn’t been satisfactory.

He said: “If implantation is not carried out seamlessly it will affect the public confidence. People will be doubtful to trust the financial system because when they put their money in the system they can’t get it when they need it. This will also impact their willingness to take a risk by investing in the market.
“If investors are not willing to take a risk by investing in the market, it will impact negatively on the market, just as we have seen foreign investors depart from the market because they couldn’t get their money in dollars when they needed it.
“We could also see local investors shying away from the market due to the cash crisis. The authorities need to quickly arrest the situation before it erodes investors ‘confidence completely.”
Almost zero impact: On the operational side of the stockbroking, Amolegbe said the impact of cash swap will almost be zero because the industry has been cashless in the last two years.

He noted that if there is going to be any impact on the industry, it will be on the part of investors reducing their exposure due to a lack of confidence in the financial system.

In the same vein, the President of the New Dimension Shareholders Association, Patrick Ajudua speaking to Nairametrics said the market has since embraced the use of technology and stockbroking transaction by cash has been limited to a maximum of N50,000 for a long time.

He added that issuing mandates has been done electronically while payment for sales has been through bank transfers.

“Since from the point of giving mandates through to receiving payment of sales have not required investors to physically visit stockbroking firms, I do not see how this will affect the market.

Client deposits for share purchases also are done via bank transfers except for the fact that investors will be affected psychologically, as this time is a shift from the norms, the effect of the current happening on the stock is negligible,” he said.

The Chairman of Progressive Shareholders Association of Nigeria, Mr Boniface Okezie, said the scarcity of cash is impacting negatively on the financial system especially the investors and listed companies.

Limitations for investors: Okezie noted that investors who executed contracts are finding it difficult to get contract fees paid and invest part of it in the market due to scarcity of cash and constant network failures.

“For instance, if I place an order to my broker for shares purchase, the broker can only buy the shares if my money hits his account, if there are network issues, it has affected my movement to buy equity. Because the network services are failing the broker won’t buy the shares,” he said.

Impact on quoted companies: Okezie noted further that the listed companies are also being affected in no small measure because they cannot pay their suppliers and consumers in turn cannot also purchase their products due to cash scarcity.

Need to improve network services: He called on the CBN should liaise with the Nigeria Inter-Bank Settlement System (NIBSS) to improve service delivery from one bank to the other.

“They should also form a synergy with network service providers to make sure that network services are working seamlessly,” he said.