- What is a Discount House?
- When did Discount Houses begin operations in Nigeria?
- Why were Discount Houses created?
- Who regulates the Discount Houses?
- How effectively are Discount Houses regulated?
- How many Discount Houses are there in Nigeria and who are they?
- Who are the owners/major investors in Discount Houses?
- How secure is my money when I invest through a Discount House?
- In what ways have Discount Houses contributed to the development of the Nigerian economy?
- What services do Discount Houses offer?
What is a Discount House?
A Discount House is a specialist financial institution, which intermediates in the money market by accepting short-term monies for onward investment in short-term financial securities from commercial, universal, investment and development banks, building societies, financial institutions and high net worth individuals.
When did Discount Houses begin operations in Nigeria?
Discount Houses were set up by the provisions of Section 28, of the Central Bank of Nigeria (CBN) Decree No.24 of 1991 and sections 61 of Banks and Other Financial Institutions (BOFID) Decree No. 25 of 1991. Three Discount Houses commenced operations in 1993 while two others joined between 1995 and 1996.
Why were Discount Houses created?
- Promotion of rapid growth and efficiency in the money market.
- Acting as an intermediary between the CBN and licensed banks in Open Market Operations (OMO) transactions and other eligible transactions.
- Facilitating the issuance and sale of short term Government securities.
- Providing discount/re-discount facilities for Treasury Bills, Government Securities and other eligible financial instruments.
- Accepting short-term investments on an intermediary basis from banks and wholesale investors.
- Providing short term financial accommodation to banks.
The CBN injects or withdraws funds from the money market through the Discount Houses, whose operations will enable them serve as a mirror with which the CBN gauges the liquidity position in the market.
Discount Houses help banks to adjust their books on a daily basis, resulting in the stimulation of the money market and paving the way for healthy growth, efficiency and professionalism.
In 1999, the functions of a Discount House were expanded to include:
- Providing portfolio and funds management services
- Providing financial Business Solutions
- Other functions that may be prescribed by the CBN from time to time
Who regulates the Discount Houses?
The Central Bank of Nigeria and the Securities and Exchange Commission (SEC) regulate the Discount Houses.
How effectively are Discount Houses regulated?
In a bid to keep Discount Houses secure, the CBN strictly regulates them through daily, weekly, monthly, semi-annual and annual reporting of their statement of affairs while relevant quarterly reports are sent to SEC. This keeps the Central Bank continuously informed of the situation in the Discount Houses on a daily basis.
How many Discount Houses are there in Nigeria and who are they?
- Kakawa Discount House Limited
- First Securities Discount House Limited
- Express Discount Limited
- Consolidated Discounts Limited
- Associated Discount House Limited
Who are the owners/major investors in Discount Houses?
The ownership structure of a Discount House is restricted to local banks and other financial institutions including insurance companies. However, the maximum permissible equity holding for any single investor is 40%. This rules out the possibilities of key-man or key-institutional risks and gives room for qualitative ownership of the companies.
How secure is my money when I invest through a Discount House?
- According to CBN regulations, Discount Houses are mandated to keep at least 60% of all their assets in Government Securities while the balance of 40% could be invested in commercial bills. This means Discount Houses only invest in secured assets as the commercial bills have to be from reputable and highly rated companies with very good track records of repaying.
- Due to the high level of security prevalent in Discount Houses, the CBN acts as a "lender of last resort" to Discount Houses through the use of a repurchaseable facility which is not available to other financial institutions.
- According to CBN regulations, Discount Houses do not give out loans and over-draft facilities. They only invest in Government securities and commercial bills of highly rated companies. This safeguards the investors funds since the funds are invested in risk free or highly secure companies.
- Discount Houses constantly interact and dialogue with the CBN through various fora where the views of the Discount market are formally presented. This makes problem resolution very swift and provides an opportunity for the Discount Houses to continuously contribute to the development of the market.
- Due to the high level of security that exists in Discount Houses, placements by Banks with Discount Houses are treated as liquid assets of the Banks by the CBN.
- Discount Houses act as the ultimate measure of liquidity in the banking system and therefore the window of regulation of the level of liquidity in the system.
In what ways have Discount Houses contributed to the development of the Nigerian economy?
- Deepening of the secondary market for trading in treasury bills and commercial bills. Since the advent of Discount Houses in Nigeria, banks holding of Treasury Bills has risen from 6.00% in December 1992 to about 60% in 2004. This is in spite of the current low yield on treasury bills.
- It must be noted that the main reason for the increase in banks' holdings of Treasury Bills was the introduction into the money market of Treasury Bills related products by Discount Houses which relieved banks of the rediscounting risk and enabled them to invest their short term funds callable without notice. Accordingly, rather than leave overnight and short-term funds idle in their CBN accounts, banks invest these balances with the Discount Houses.
- Providing banks with avenues that enable them to adjust their liquidity as conveniently as possible through intermediated funds between the CBN and the banks.
- Acting as the primary movers in actively promoting the secondary market in Government Securities, which usually constitute the bulk of their investment portfolio.
What services do Discount Houses offer?
Securities trading which includes buying and selling of:
- Treasury Bills
- Treasury Bonds
- Government Bonds
- Commercial Bills
Accepting short-term investments from banks and providing short-term accommodation to banks
Short-term financial intermediation through the acceptance of funds and simultaneous investment of the funds in:
- Commercial Papers
- Bankers Acceptances
- Government Securities
Providing personalized wealth management to high net-worth individuals through a network of investment managers, financial consultants and other specialists.
Effective portfolio management on both discretionary and non-discretionary basis through the provision of medium to long term investment management services to:
- Pension funds
- Private clients
- Employee Schemes
- Trustees of family settlements and charities
Providing Business Solutions in:
- Financial Arrangement and Management
- Mergers and Acquisitions
- Business Assessment
- Business Structuring
- Data Resource and Management