April 9, 2015

SEC Nigeria is preparing capital markets for an era of securitization

Dolapo Omidire

SEC Nigeria is laying the fundamental groundwork to begin an era of securatization in Nigerian capital markets. The new rules, shown in a circular released on the 7th of April were created to allow for the process of transforming an asset or a group of assets into securities through financial engineering. These rules also provided the definition of terms, the structure, special types of securitization, motives for securitization and guidelines for Special Purpose Vehicles (SPV).

The SEC expects the rules on securitization to have a positive impact on housing and infrastructure finance while the Codes of Conduct will strengthen investor protection and improve market integrity.

The securitization process allows banks and financial institutions increase loan origination more than they would typically be able to. If these banks and institutions are able to provide loans, pass to an SPV, securitize and sell, it increases the amount of funds they have available to lend, which will ultimately benefit governments and companies that need to borrow. Assuming it is implemented properly and there is capital market participation, these new rules will allow banks lend to many more prospective home buyers at lower rates.

The eligible assets in securitization transactions were also stated in the circular. See below:

In a single securitization transaction, the underlying assets shall represent the debt obligation of a homogeneous pool of obligors. Subject to this condition, all on balance sheet standard assets may be securitized, except the following:

  • Revolving credit facilities (credit card receivables)
  • Encumbered Assets
  • Securitization exposures
  • Loans with bullet repayment of both principal and interest

Download the Circular.

Approved New Rules and Amendments to the SEC Rules and Regulations

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