Bond Valuation on Current Prices, A Big Threat to the Investors

Thursday, June 7, 2012 Print Email

A big deficit will occur in the balance sheets of the banks that are carrying a huge amount about N 2.85 trillion in security investments, after the employment of the International financial Reports (IFRS) rule, according to which trade bonds will be considered high, ranked in market in the economic reporting.

According to the method of mark-to-market the bonds which will be help until their maturity will be cashed at their full value but the bonds that will be traded before the maturity will be treated at the current price which is very low fr om last two fiscal years. It means those banks that have purchased those bonds at higher rates should now consider those bonds at the current rate. If they do so it will create a huge difference in their balance sheet by increasing the loss ratio.

Truth of the matter is that banks are not treating their bonds at the current prices according to the survey of Business day. Most of the banks are showing these assets at their originally purchased higher prices. So it means these organizations are providing false information just to increase the values of their financial position and balance sheet.

Almost all of the stockbrokers are being forced to consider the values of their capital at the current prices by the Pencom, which has almost destroyed their balance sheets. The managing Director of the ATP Securities and Funds lim ited has indicated that if all the banks count their bonds at today’s price then they also not be able to show healthy balance sheets.

Approx N2.85 trillion is being capitalized by the bonds and securities in Nigeria after bad slump equities in 2009. If the bonds will be traded at the current price then a large number of investors in this field will be facing a huge loss.

The President of FIRST Securities Discount House has mentioned that this correction should be made in accordance to the rules and regulations IFRS which is, if you will keep these bonds till maturity than you can get the purchase price.

IFRS is being used to create accounting standards same for entire world. It will make sure that every organization is following a same set of rules and regulations which will increase the accuracy of the financial position of the organizations and will also simplify the reporting procedure remarkably.

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