Though the financial services sector led the activity chart at the Nigerian Stock Exchange on Thursday, with 224.316 million shares exchanged for N1.941 billion, experts are worried by happenings in the domestic and global economies that are hitting banking stocks left, right and centre.
For instance, the banking sector last week led sectorial losses to close at 13.3 per cent week-on -week (W-o-W) as investors appetites are dampened from possible weaker earnings in 2014 financial year result, falling oil prices and weakening naira. Access Bank and Diamond Bank joined UACN and Unilever to top the losers chart on Monday. On Tuesday, Diamond Bank and Union Bank also topped the losers chart.
Saturday Tribune checks on share prices of 10 banks reveal that the banking stocks have maintained downward trend over the past six months. Access Bank’s shares which stood at N9.88 as of August 5, 2014 has dropped to N4.71. Diamond Bank dropped from N6.30 to N4.28 while Zenith Bank came down from N25 to N15.60. First Bank which was once at N23 has dropped to N7.30.
Why have these stocks remained on the lows for so long? Experts said the reasons vary, but most especially, banking sector makes up about 60 per cent of market capitalisation, so when the sector experiences downturn, the entire market feels it.
At the moment, mass exodus of foreign portfolio investors, falling oil prices, devaluation of the naira and fear of a repeat of the 2008/2009 banking crisis are dealing serious blows on investors confidence.
Analysts at Afrinvest West Africa Limited, in their recent report, linked the sharp drop in oil prices to the 2008 banking crisis, noting that recent developments in the banking sector point to a repeat of such situation.
As such, most investors are already afraid. Giving a bank-by-bank analysis of the ratio of oil sector loans versus shareholders’ funds of the banks, Sterling Bank, according to the analysts, recorded 157.1 per cent; FBN Holdings — 131.7 per cent; Diamond Bank — 128.8 per cent; Access Bank — 93.9 per cent and Guaranty Trust Bank — 87.2 per cent.
Others are: First City Monument Bank — 65.1 per cent; Stanbic IBTC — 56.9 per cent; Fidelity Bank — 45.5 per cent; Zenith Bank — 38.4 per cent and Union Bank Nigeria — 31.8 per cent.
The analysts also added: “In the light of the incessant drop in crude oil prices, we have reviewed the exposure of some Nigerian banks to the oil and gas sector as a proportion of the total loan portfolio and Shareholders’ Funds (SHF) as of financial year:2013.
“Looking back, the 2008 banking crisis can be linked to the sharp decline in oil prices, resulting in the sudden accumulation of huge toxic assets, which wiped out banks’ capital. As observed in the ratio of oil sector loans versus total loan portfolio of the banks, some banks may have begun to follow that same path with huge exposure to the oil and gas sector relative to SHF.”
Also, Jude Fejokwu, Senior Africa equity analyst, attributed the situation to exit of foreign investors who dominated equities stake in the Nigerian capital market.
“I do not blame foreign investors for the performance of the Nigerian stock market. I blame the over obsession with them by market participants that has left the retail investor (the spine of the market) floundering and literally forgotten,” he said.
He said not only banking, but other stocks are falling because of over-reliance on high profile foreign investors at the expense of their domestic retail counterparts.
“There is a risk to the investment of foreign portfolio investors by the fall in oil prices. In order to preserve their capital, they’re dumping Nigerian stocks,” Sewa Wusu, an analyst at Sterling Capital Markets, said. “The ability of the Central Bank to keep up with the intervention in the foreign exchange market will depend on the extent of pressure it gets.”
The analysts further stated that the country’s economy remains vulnerable to external shocks, due to the volatility in oil prices, for its continued reliance on crude oil receipt for foreign exchange earnings.
Going by the current situation in the market and the prevailing environment, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, lamented that bearish sentiments prevailed in the capital market for most of last year as foreign investors divested from the market, citing currency risk.
“Foreign investors steadily withdrew from the Nigerian market due to currency risk and the recovery of developed economies, and the effects of the US Federal Reserve tapering of its Quantitative Easing (QE) policy. Several macroeconomic developments also contributed to the decline in market performance. These include fall in crude oil prices and related pressure on the naira; the impact of CBN’s monetary policy changes introduced at various points throughout the year; Nigeria’s declining foreign reserves; insurgency in the nation; uncertainty surrounding the 2015 elections and weak corporate earnings.”
According to him, the air of uncertainty that hovered around the capital market throughout 2014 caused investors to increasingly adopt a ‘flight to quality’ strategy.
Senior Consultant/Chief Executive Officer, RTC Advisory Services Limited, Mr. Opeyemi Agbaje, said there was significant uncertainty across variables.
According to him, the stocks are falling because,“the oil prices are still falling and we don’t know where the exchange rate is heading to. But the reality is that whoever wins the election by February 14 and whoever comes into office by May 29 will have to deal with serious economic issues
For instance, the banking sector last week led sectorial losses to close at 13.3 per cent week-on -week (W-o-W) as investors appetites are dampened from possible weaker earnings in 2014 financial year result, falling oil prices and weakening naira. Access Bank and Diamond Bank joined UACN and Unilever to top the losers chart on Monday. On Tuesday, Diamond Bank and Union Bank also topped the losers chart.
Saturday Tribune checks on share prices of 10 banks reveal that the banking stocks have maintained downward trend over the past six months. Access Bank’s shares which stood at N9.88 as of August 5, 2014 has dropped to N4.71. Diamond Bank dropped from N6.30 to N4.28 while Zenith Bank came down from N25 to N15.60. First Bank which was once at N23 has dropped to N7.30.
Why have these stocks remained on the lows for so long? Experts said the reasons vary, but most especially, banking sector makes up about 60 per cent of market capitalisation, so when the sector experiences downturn, the entire market feels it.
At the moment, mass exodus of foreign portfolio investors, falling oil prices, devaluation of the naira and fear of a repeat of the 2008/2009 banking crisis are dealing serious blows on investors confidence.
Analysts at Afrinvest West Africa Limited, in their recent report, linked the sharp drop in oil prices to the 2008 banking crisis, noting that recent developments in the banking sector point to a repeat of such situation.
As such, most investors are already afraid. Giving a bank-by-bank analysis of the ratio of oil sector loans versus shareholders’ funds of the banks, Sterling Bank, according to the analysts, recorded 157.1 per cent; FBN Holdings — 131.7 per cent; Diamond Bank — 128.8 per cent; Access Bank — 93.9 per cent and Guaranty Trust Bank — 87.2 per cent.
Others are: First City Monument Bank — 65.1 per cent; Stanbic IBTC — 56.9 per cent; Fidelity Bank — 45.5 per cent; Zenith Bank — 38.4 per cent and Union Bank Nigeria — 31.8 per cent.
The analysts also added: “In the light of the incessant drop in crude oil prices, we have reviewed the exposure of some Nigerian banks to the oil and gas sector as a proportion of the total loan portfolio and Shareholders’ Funds (SHF) as of financial year:2013.
“Looking back, the 2008 banking crisis can be linked to the sharp decline in oil prices, resulting in the sudden accumulation of huge toxic assets, which wiped out banks’ capital. As observed in the ratio of oil sector loans versus total loan portfolio of the banks, some banks may have begun to follow that same path with huge exposure to the oil and gas sector relative to SHF.”
Also, Jude Fejokwu, Senior Africa equity analyst, attributed the situation to exit of foreign investors who dominated equities stake in the Nigerian capital market.
“I do not blame foreign investors for the performance of the Nigerian stock market. I blame the over obsession with them by market participants that has left the retail investor (the spine of the market) floundering and literally forgotten,” he said.
He said not only banking, but other stocks are falling because of over-reliance on high profile foreign investors at the expense of their domestic retail counterparts.
“There is a risk to the investment of foreign portfolio investors by the fall in oil prices. In order to preserve their capital, they’re dumping Nigerian stocks,” Sewa Wusu, an analyst at Sterling Capital Markets, said. “The ability of the Central Bank to keep up with the intervention in the foreign exchange market will depend on the extent of pressure it gets.”
The analysts further stated that the country’s economy remains vulnerable to external shocks, due to the volatility in oil prices, for its continued reliance on crude oil receipt for foreign exchange earnings.
Going by the current situation in the market and the prevailing environment, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, lamented that bearish sentiments prevailed in the capital market for most of last year as foreign investors divested from the market, citing currency risk.
“Foreign investors steadily withdrew from the Nigerian market due to currency risk and the recovery of developed economies, and the effects of the US Federal Reserve tapering of its Quantitative Easing (QE) policy. Several macroeconomic developments also contributed to the decline in market performance. These include fall in crude oil prices and related pressure on the naira; the impact of CBN’s monetary policy changes introduced at various points throughout the year; Nigeria’s declining foreign reserves; insurgency in the nation; uncertainty surrounding the 2015 elections and weak corporate earnings.”
According to him, the air of uncertainty that hovered around the capital market throughout 2014 caused investors to increasingly adopt a ‘flight to quality’ strategy.
Senior Consultant/Chief Executive Officer, RTC Advisory Services Limited, Mr. Opeyemi Agbaje, said there was significant uncertainty across variables.
According to him, the stocks are falling because,“the oil prices are still falling and we don’t know where the exchange rate is heading to. But the reality is that whoever wins the election by February 14 and whoever comes into office by May 29 will have to deal with serious economic issues
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