The performance of Nigerian stock market has not been encouraging in the past few weeks following the apathy in the market.
This has led to decline of equities on most sub-sectors of the Nigerian Stock Exchange (NSE).
In fact, the NSE market capitalisation declined by N477.3billion last week when it closed at N11.241 trillion on November 21, compared with the N11.7 trillion it stood on November 14, while average volume and value declined by 26.6 per cent and 52.8 per cent to 271.7million and N2.9billion respectively.
However, the market capitalisation has lost N1.128 trillion this month from the N12.369 trillion it stood on November 3, as against the N11.241 trillion attained on November 21.Similarly, the NSE index declined from 37,343.85 basis points to 33,926.18 basis points on November 21.
Even the NSE Banking index used to gauge the performance of equities on the banking sub-sector has fallen by 20.69 basis points year-to-date.
However, experts reason that the current performances of banking stocks that have depreciated in the past two months create ‘buy’ opportunities for investors.
They believe time would definitely heal any wound suffered by investors on the NSE and have urged investors not to remain on the sidelines.
A number of big banks are also trading at lower-than-market price-to-earnings ratios.
However, investors should expect dividends to rise further as regulators start relaxing some of the rules next year, they noted.
According to the Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, the capital market is merely reacting to a chain of economic development including the activities of financial market speculators.
Banking Stocks Performances
The performances of equities on the banking sub-sector of the NSE monitored by THISDAY showed that all the stocks have recorded some depreciation.
For instance, Access Bank Plc’s share price has fallen by 19.86 per cent to the N7.83 per share it recorded on November 21, compared with the N9.77 per share it was as at September 1 this year. The bank had recorded a profit of N44.2 billion for the nine months ended September 30, 2014, based on improved efficiency, rising market share and strong risk management practices. Its profit before tax (PBT) had also climbed by 20 per cent from N35.1billion recorded during the same period in 2013.
Also, FCMB’s shares have declined by 23.5 per cent to N3.25 per share as at November 21, as against the N4.25 per share it was as at September. FCMB’s PBT stood at N16.8 billion in the nine-month ended September 2014, up 14 per cent from N14.7 billion for the same period in 2013.The bank’s management has been pursuing strategies designed to create a business that can accommodate external pressures whilst still being able to deliver sustainable performance.
Similarly, the Fidelity Bank, which is always regarded as a penny stock, its share has also fallen by 13.3 per cent, from N1.96 per share as at September 1, to N1.70 per share on November 21. The Managing Director/CEO of Fidelity Bank, Mr. Nnamdi Okonkwo had assured investors of the continuous impact of its transformation initiatives on the balance sheet. He had expressed optimism that the balance sheet efficiency would be sustained to ensure it delivers on its return on equity in this financial year.
Zenith Bank Plc was also not left out as its share price was hit by the current market trend. Its share price declined by 12.7 per cent to N20.95 per share on November 21, as against the 24.01 per share it stood on September 1. Also, the bank had despite the headwinds faced by the Nigerian banking industry sustained its performance in the nine months ended September 2014. Its gross revenue then stood at N274 billion and profit before tax was N86.8 billion.
In the same vein, the United Bank for Africa Plc fell heavily by 40 per cent, from N7.30 per share as at September 1, to N4.37 per share on November 21. The bank is considering floating a rights issue. Its gross earnings had climbed to N210.715 billion in its nine months 2014 results, from N188 billion in the comparable period of 2013.
Also, at N23.40 per share as at November 21, GTBank share price, which is the highest priced bank stock, fell by 20.7 per cent, compared with the N29.51 per share it achieved on September 1.
Rough Ride from Regulation
The performance displayed by banking stocks the past few months is largely due to several regulations by the Central Bank of Nigeria (CBN). In order to forestall crisis in the sector, the central bank recently urged banks to shore up their capital in line with the Basel 11/111.
The tough regulatory environment is no doubt having a profound impact on banks of all sizes. Financial institutions are presently grappling with heightened shareholder scrutiny and increased regulatory oversight.
In fact, Nigerian banks are believed to be facing significant earnings-constraining regulations compared to their sub-Saharan African (SSA) peers. For instance, in comparison with other banks in the continent, the capital requirements for banks in Nigeria are higher than their peers in the continent.
Therefore, in order to overcome these challenges and protect their assets, financial institutions are gradually reshaping their business and governance models. Similarly, banks are also reassessing the way they do business as well as the way risk is managed across their enterprise. The recently released nine months 2014 results of banks clearly depicted the effects of both regulatory and monetary policy measures on the industry. According to experts, the banks were mostly affected by the increase in the cash reserve requirement (CRR) for public sector funds.
The CBN further raised the cash reserve requirement (CRR) on public sector funds to 75 per cent in the first quarter of this year, from the 50 per cent it was last year. Also, CRR on private sector CRR is at 15 per cent.
Public sector funds comprise deposits of all tiers of government as well as ministries, departments and agencies (MDAs), with the central bank.
In addition, the CBN's gradual phasing out of CoT by 2016 and the simultaneous introduction of interest on savings account also impacted on banks' gross earnings significantly. This was evidenced by the moderating growth of industry gross earnings from 40.9 per cent in 2012 to 15.8 per cent in 2013.
Another factor was the increase of banks’ contribution to the Asset Management Corporation of Nigeria’s (AMCON’s) sinking fund from 0.3 per cent of total assets to 0.5 per cent, which was payable in 2013. This was estimated to have increased most banks’ operating expenses by about four per cent in their 2013 full year results.
Also, the CBN’s new tariff structure, which took effect from April 2013 specified the payment of a minimum of 30 per cent of the Monetary Policy Rate (MPR) per annum on savings deposits. This is also expected to impact negatively on banks’ full-year 2013 funding costs.
Afrinvest West Africa Limited, in its 2014 banking sector report had noted that in order to bolster net interest margin (NIM) amid falling fees and commission income, there have been an increase in banks’ lending momentum as lending grew from N8.2 trillion in 2012 to N10 trillion in 2013. This represented a significant 22.8 per cent growth in 2013, over the 11.2 per cent recorded in 2012.
Furthermore, it pointed out that in light of the wide spread (7per cent as at May, 5, 2014) between the maximum lending rate and the prime lending rate, banks are expected to channel more funds towards SMEs to further boost their NIMs.
Nigerian banks have raised $3.9 billion from the Eurobond market as tier-2 capital since 2011. So far in 2014, over $1.9 billion has also been raised. But the central bank has regulated the amount of dollar-denominated debts to be raised by banks even as it seeks to cut banks’ dividend payout.
Better Times Ahead
To the NSE President, Mr. AigbojeAig-Imoukhuede, the Nigerian stock market is more than oil prices.
“Stock markets go up and they go down. The long-term investment case for Nigeria goes beyond oil prices gyration in so far Nigeria does the right thing if oil prices go down and also the right thing when it goes up,” he said.
Also, the Chairman, Association of Issuing Houses of Nigeria (AIHN), Mr. Victor Ogiemwonyi described the measures adopted by the federal government amid the falling oil prices as prudent.
He said the strategy of the federal government to strengthen the private sector, most especially the sectors that drive economic growth such as agriculture and housing is in a right direction.
“As properly identified by the federal government, drop in oil prices present opportunity for diversifying the economy with private sector being the major driver in order to increase non-oil revenues with less focus on oil,” he added.
Continuing, the AIHN boss stated that the recent panic sell-off in the stock market is unnecessary, noting that apart from decline in oil prices, the valuation of most of the securities in the market are far below the fair value and most of the listed companies have good intrinsic values and discerning investors will take advantage of the current market opportunities to create wealth for themselves. “A lot of initiatives have been introduced into the stock market that prevent continual bearish run in the market.
“Introduction of market-makers, good corporate governance, improved regulatory framework, good market micro-structure, improved market transparency and low leverage financing of equities investment justify the reasons why the experience of 2008 should not be the case today and the sell-off by some investors is unnecessary,” he said.
Furthermore, he added: “We as a group responsible for capital formation within the capital market believe that the economy is on course to withstand any anticipated shock.
“We would like to work with the federal government to ensure that capital market is deepened through structuring of various investment products, providing advisory services in the listing of power companies, oil and gas giants, telecommunication companies as well as marine and aviation companies.”
He also called for greater harmony in the implementation of fiscal and monetary policies at this critical time.
“We strongly believe that Nigeria should remain focused in developing infrastructure to support economic development and growth. There are still massive investment opportunities for discerning investors to fund the infrastructure gaps,” he added.
On his part, the President/Chairman of Council, Chartered Institute of Stockbrokers (CIS), Mr. Albert Okumagba said, beyond the required fiscal and belt tightening measures, the CIS would “mobilise and engage unemployed qualified finance related individuals and the lower level cadre to create continuous education for the up-coming potential investors.”
This, according to Okumagba would close the existing unemployment gap in the economy.
Also, the Chairman, Association of Stockbroking Houses of Nigeria (ASHON), Mr. Emeka Madubuike welcomed the fiscal policy plan being implemented by the federal government.
He argued that in the last two years, the Nigerian capital market structure had been technologically upgraded in line with global best practices and has the capacity to trade effectively on equities and bonds, and is currently encouraging small and medium scale enterprises for listing on Alternative Securities Market (ASEM).
“The strict adherence to good corporate governance practice put in place by the regulators and the NSE launch of a corporate governance rating system is expected to improve transparency in our market and has created easy entry and exit of various participants to the delight of the investors.
“There has also been better cohesion and robust engagement among the various capital market operators and regulators. This has enabled more meaningful and result oriented resolutions of issues and challenges.
“We have no doubt that the Nigerian capital market is still a preferred investment destination as the fundamentals of most quoted companies still present very good bargain for discerning industry investors,” he argued.
Nonetheless, the growing confidence in the Nigerian capital market engendered by various reforms in the sub-sector as well as the economy has attracted the attention of the United Kingdom. This has led to the recent signing of an agreement to strengthen cooperation and promote mutual development between the NSE and London Stock Exchange (LSE).
The move, according to representatives of both Exchanges showed that Nigeria has a lot to offer to the global market beyond crude oil.
The leader of the UK delegation, who is also the UK Lead Emerging Capital Market Taskforce, Sir Roger Gifford had described Nigeria “as the most exciting opportunity for capital markets
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