For failing to adhere to corporate governance practices, and refusal to submit their accounts and operational reports as and when due, the Nigerian Stock Exchange has fined 51 companies N429.5million in the 2017/2018 financial year.
Sanctions are given to companies that file their audited and interim financial statements after the regulatory due date. Such default is marked out by the Exchange as a corporate governance failure, which attracts monetary fines, ‘naming and shaming’ tag, suspension of shares from trading and delisting in incurable cases of default.
Market experts have said late filing of financial statements can affect investors, the market and shareholders, who invest in those companies, adversely. This, according to them, creates grounds for avoidable doubts regarding companies’ performances.
The action is great and it shows that the NSE management is becoming alive to its responsibilities. Besides, it is a signal to the companies in particular and the capital market in general that we must always abide by the rules
Analysis of erring companies
Checks by The Point showed that under the banking industry, eight financial institutions were fined. Unity Bank Plc got the highest share, at N79.7million. The bank was fined N40.7million for year-end, 2017; N29million in the first quarter; N9.8 in the second quarter; and N200, 000 in the third quarter of 2018.
Diamond Bank followed with a N7.3million fine, while Fidelity Bank is to pay N6.2million.
Union Bank was fined N4.7million for late filing of its audited 2017 and first quarter 2018 financial statements, while FBN Holdings Plc was fined N2.1million for failing to file its audited 2017 financial statements as and when due.
Sterling Bank, Wema Bank, and FCMB Groups were fined N1.3million, N800, 000, and N100, 000, respectively, for late filing of their audited 2017 financial statements.
The Point’s findings also revealed that the insurance industry was responsible for about 50.4 per cent of the total penalties given by the Nigerian Stock Exchange, amounting to N339.5million for offences that included default in timely release of operational reports and financial statements, covering the 2017-2018 interim reports.
Some notable Insurance firms that were fined for flouting the Exchange’s regulatory rules were Sovereign Trust Insurance Plc, Equity Assurance Plc, Linkage Assurance Plc, and Mutual Benefit Assurance Plc.
Others were Great Nigeria Insurance Plc, Niger Insurance Plc, Royal Exchange Plc, Universal Insurance Plc, Veritas Assurance Plc, Corner Stone Insurance Plc and Standard Alliance Insurance Plc.
Further analysis showed that apart from the financial institutions, 15 other companies were currently under suspension for failure to meet scheduled submission of financial statements. Forty-one monetary fines have so far been placed on companies in 2018, while more than 38 monetary fines were slammed on others in 2017.
The sanctions for non-compliance with periodic financial disclosure obligations are clearly spelt out in the Rules for Filing of Accounts and Treatment of Default Filing, Rulebook of the Exchange.
Under the rules, a late submission attracts a fine of N100, 000 daily for the first 90 calendar days of non-compliance; another N200, 000 per day for the next 90 calendar days; and a fine of N400, 000 per day, thereafter, until the date of submission.
With these, late submission, under the first instance of 90 days, could attract N9million; the additional 90 days will attract N18million; while such delay beyond the first 180 days to the next 180 days could attract as much as N72million, bringing fines payable by a defaulting company within a year to N99million.
The Exchange, in its X-Compliance report, explained that the initiative was designed to maintain market integrity and protect investors by providing compliance-related information on all listed companies.
Analysts back NSE’s action
A capital market analyst, and Managing Director, APT Securities and Funds Limited, Mallam Kasimu Kurfi, said the action of the NSE would boost investors’ confidence in the capital market because the action would send a signal that the management of the Nigerian Stock Exchange “understands the need for investors to get companies’ financial reports as and when due.”
Kurfi noted that investors needed to take informed decisions before choosing which stock to buy and this could only be achieved if quoted companies adhered to good corporate governance.
An Economist, Mr. Gabriel Adesanya, said penalising erring companies was a signal that it was no longer business as usual.
“The action is great and it shows that the NSE management is becoming alive to its responsibilities. Besides, it is a signal to the companies in particular and the capital market in general that we must always abide by the rules,” he said.
He noted that the penalties would make other companies to sit up and post their results as and when due, thereby providing investors, analysts and stockbrokers the platform to predict the real value of the companies.
The Managing Director, Highcap Securities Limited, Mr. David Adonri, said the stock market was information driven, and that violating listing rules should not be encouraged to enable investors take the right investment decisions.
Shareholders differ
Reacting, the Founder, Independent Shareholders Association of Nigeria, Chief Sunny Nwosu, explained that the sanctions by the NSE were too alarming.
According to him, most of the companies did not pay dividends because the little profit they have made is being used to pay the penalty fees imposed on them.
“I also believe that stiff penalty fee is not the solution to the issue of not meeting up with submission of annual accounts to the NSE. Again, this can force some of these companies to delist from the Exchange, and once they delist, it will be difficult for us the shareholders, to recover our investment in these companies,” Nwosu said.
NSE’s zero tolerance stance
The Chief Executive Officer of the NSE, Mr. Oscar Onyema, had said the Exchange would sustain a zero-tolerance stance on dealing member firms and listed companies’ violations to help boost confidence in the market.
“The Exchange is monitoring the compliance status of these companies very closely and is engaging the affected companies accordingly. We encourage investors to always check the X-Compliance Report and Released Financials on the Exchange details of the compliance status of listed companies before making investment decisions,”
Onyema said.
