These are not the best of times for
banks in the country as some
developments in the economy have
negatively affected their
performance on the Nigerian Stock
Exchan
ge, SIMON EJEMBI writes
Tougher regulation and policies by
the Central Bank of Nigeria, the
devaluation of the naira and other
economic headwinds have changed
the fortunes of Deposit Money Banks
in the country significantly, it has
been gathered.
The banks, which have mostly
battled in futility to grow their profit
margins in recent times, have seen
their share prices and market
capitalisation decline as well.
Between January 1, 2014 and Friday,
February 28, 2015, the total market
capitalisation of the banking sub-
sector had declined by 24.5 per cent
or N720bn to N2.219tn. This is
despite the rights issue embarked
upon by some of the banks, which
significantly increased the
capitalisation.
ADVERTISEMENT
The dwindling fortunes of the banks
are also reflected in the Nigerian
Stock Exchange Banking Index, which
is designed to provide an investable
benchmark to capture the
performance of the banking sector.
The index, which comprises the 10
most capitalised and liquid
companies in the banking sector,
emerged the Exchange’s worst
performing sectoral index in 2014
after it fell by 21.53 per cent.
Despite the rally by equities over
the last two weeks, which has seen
the banking index improve, between
the start of 2014 and the close of
trading on Friday, the index had
depreciated by 26.82 per cent.
According to market analysts, some
bank stocks are currently at four-
year lows in terms of value.
The shares of virtually all the banks
on the banking index declined over
the 14-month period reviewed by
our correspondent.
Unity Bank Plc, whose share price
has remained unchanged at 50 kobo
per share, as well as Ecobank
Transnational Incorporated Plc and
Union Bank of Nigeria Plc that
appreciated by 1.2 per cent and
2.18 per cent, respectively as of
Friday are the only exception.
As of Monday last week, ETI and UBN
were down by 1.2 per cent and 7.4
per cent, respectively.
As for the others, Access Bank Plc
was down by 33.3 per cent;
Diamond Bank Plc had shed 46.9 per
cent; while Fidelity Bank Plc and
Guaranty Trust Bank Plc declined by
52.4 per cent and 13.03 per cent,
respectively.
Others are Sterling Bank Plc, with
4.8 per cent drop; United Bank for
Africa Plc, with a share price
depreciation of 61 per cent; and
Zenith Bank Plc, which was down by
35.8 per cent.
Skye Bank Plc and Wema Bank Plc,
which are not in the banking index,
were down by 53.9 per cent and
20.5 per cent, respectively.
Financial institutions, which have
banks as subsidiary, did not fare any
better.
The shares of FBN Holdings Plc and
FCMB Group Plc, the parent
companies of First Bank Nigeria
Limited and First City Monument
Bank Limited, declined by 52.1 per
cent and 40.4 per cent, respectively
over the review period.
Stanbic IBTC Holdings Plc, the parent
company of Stanbic IBTC Bank
Limited, however, appreciated by 17
per cent.
Analysts have attributed the poor
performance of the banking sector to
a series of negative and unfavourable
developments in the economy as
well as the failure of several of them
to focus on retail banking, among
others.
The Head, Research and Investment,
BGL Plc, Mr. Femi Ademola, said the
most important problem facing the
sector was the uncertainty about it.
Ademola traced part of the problem
to the changes at the CBN, saying,
“The typical thing in Nigeria is that
anytime we have a change at the
central bank, everyone will come
around with their own processes,
which can cause disruption in the
market.
“In 2004, we had to do capitalisation,
which was shocking because it
wasn’t planned for in terms of
magnitude. That caused a disruption
because some banks had to go under
because they couldn’t meet the
requirement to recapitalise. Since
then, we have been having
uncertainties about the banks.”
He said the uncertainties continued
when Mallam Lamido Sanusi became
the CBN governor and embarked on
reforms, which affected more banks,
with investors losing a lot.
“Since then, bank stocks have
become more like a watch-me
stock,” Ademola said.
He added that the manner in which
Sanusi exited the CBN as governor
and the subsequent appointment of
Mr. Godwin Emefiele did not help
matters, adding that there were still
uncertainties about the current
governor’s plans for the banks.
“Another thing affecting banking
stocks is that they are the most
liquid stocks in the market; banks
have the highest number of
outstanding shares and they have
the most number of investors,”
Ademola said.
What that means, according to him,
is that the shares are very volatile
and depending on the investor
sentiment, unfavourable
developments in the economy can
easily affect them.
He explained that apart from the
impact of the increase of the Cash
Reserve Requirement for banks, the
CBN had been very harsh on them,
reducing such things as the
Commission on Turnover over time,
leading to declines in their incomes.
“Also, if you check the performance
of the banks, it has been from cash
round-tripping. That is, they take
money from the public sector and
take the money back to the public
sector either through the CBN or
purchase of Federal Government
bonds and Treasury bills,” the analyst
said.
He, however, said some “discerning
investors” knew that that was not
sustainable and that banks had to
lend and perform their traditional
functions.
With some of the banks exposed to
the oil and gas sector and foreign
exchange pressure, with some of
them obtaining Tier 2 capital, their
performance is not expected to
improve anytime soon.
Global rating agency, Fitch Ratings,
which had last year predicted a drop
in the profit of Nigerian banks this
year, also expects them to have a
rough year.
In a new report entitled: ‘Nigerian
banks: Oil shock and policy moves
test bank resilience and ratings’, the
agency projected that the non-
performing loans of the banks were
expected to rise above the CBN’s
informal cap of five per cent by year-
end.
Although the rating agency affirmed
the Long-term Issuer Default Ratings
of 10 Nigerian banks, with all
outlooks being stable, it pointed out
the high credit concentration of the
banks as well as emerging risks,
particularly in the oil and gas, and
power sectors.
It also noted that “the operating
environment is affected by
persistently low oil prices, continuing
pressure on the domestic currency,
the naira, likely further monetary
policy and regulatory actions, and
increased political uncertainty.”
banks in the country as some
developments in the economy have
negatively affected their
performance on the Nigerian Stock
Exchan
ge, SIMON EJEMBI writes
Tougher regulation and policies by
the Central Bank of Nigeria, the
devaluation of the naira and other
economic headwinds have changed
the fortunes of Deposit Money Banks
in the country significantly, it has
been gathered.
The banks, which have mostly
battled in futility to grow their profit
margins in recent times, have seen
their share prices and market
capitalisation decline as well.
Between January 1, 2014 and Friday,
February 28, 2015, the total market
capitalisation of the banking sub-
sector had declined by 24.5 per cent
or N720bn to N2.219tn. This is
despite the rights issue embarked
upon by some of the banks, which
significantly increased the
capitalisation.
ADVERTISEMENT
The dwindling fortunes of the banks
are also reflected in the Nigerian
Stock Exchange Banking Index, which
is designed to provide an investable
benchmark to capture the
performance of the banking sector.
The index, which comprises the 10
most capitalised and liquid
companies in the banking sector,
emerged the Exchange’s worst
performing sectoral index in 2014
after it fell by 21.53 per cent.
Despite the rally by equities over
the last two weeks, which has seen
the banking index improve, between
the start of 2014 and the close of
trading on Friday, the index had
depreciated by 26.82 per cent.
According to market analysts, some
bank stocks are currently at four-
year lows in terms of value.
The shares of virtually all the banks
on the banking index declined over
the 14-month period reviewed by
our correspondent.
Unity Bank Plc, whose share price
has remained unchanged at 50 kobo
per share, as well as Ecobank
Transnational Incorporated Plc and
Union Bank of Nigeria Plc that
appreciated by 1.2 per cent and
2.18 per cent, respectively as of
Friday are the only exception.
As of Monday last week, ETI and UBN
were down by 1.2 per cent and 7.4
per cent, respectively.
As for the others, Access Bank Plc
was down by 33.3 per cent;
Diamond Bank Plc had shed 46.9 per
cent; while Fidelity Bank Plc and
Guaranty Trust Bank Plc declined by
52.4 per cent and 13.03 per cent,
respectively.
Others are Sterling Bank Plc, with
4.8 per cent drop; United Bank for
Africa Plc, with a share price
depreciation of 61 per cent; and
Zenith Bank Plc, which was down by
35.8 per cent.
Skye Bank Plc and Wema Bank Plc,
which are not in the banking index,
were down by 53.9 per cent and
20.5 per cent, respectively.
Financial institutions, which have
banks as subsidiary, did not fare any
better.
The shares of FBN Holdings Plc and
FCMB Group Plc, the parent
companies of First Bank Nigeria
Limited and First City Monument
Bank Limited, declined by 52.1 per
cent and 40.4 per cent, respectively
over the review period.
Stanbic IBTC Holdings Plc, the parent
company of Stanbic IBTC Bank
Limited, however, appreciated by 17
per cent.
Analysts have attributed the poor
performance of the banking sector to
a series of negative and unfavourable
developments in the economy as
well as the failure of several of them
to focus on retail banking, among
others.
The Head, Research and Investment,
BGL Plc, Mr. Femi Ademola, said the
most important problem facing the
sector was the uncertainty about it.
Ademola traced part of the problem
to the changes at the CBN, saying,
“The typical thing in Nigeria is that
anytime we have a change at the
central bank, everyone will come
around with their own processes,
which can cause disruption in the
market.
“In 2004, we had to do capitalisation,
which was shocking because it
wasn’t planned for in terms of
magnitude. That caused a disruption
because some banks had to go under
because they couldn’t meet the
requirement to recapitalise. Since
then, we have been having
uncertainties about the banks.”
He said the uncertainties continued
when Mallam Lamido Sanusi became
the CBN governor and embarked on
reforms, which affected more banks,
with investors losing a lot.
“Since then, bank stocks have
become more like a watch-me
stock,” Ademola said.
He added that the manner in which
Sanusi exited the CBN as governor
and the subsequent appointment of
Mr. Godwin Emefiele did not help
matters, adding that there were still
uncertainties about the current
governor’s plans for the banks.
“Another thing affecting banking
stocks is that they are the most
liquid stocks in the market; banks
have the highest number of
outstanding shares and they have
the most number of investors,”
Ademola said.
What that means, according to him,
is that the shares are very volatile
and depending on the investor
sentiment, unfavourable
developments in the economy can
easily affect them.
He explained that apart from the
impact of the increase of the Cash
Reserve Requirement for banks, the
CBN had been very harsh on them,
reducing such things as the
Commission on Turnover over time,
leading to declines in their incomes.
“Also, if you check the performance
of the banks, it has been from cash
round-tripping. That is, they take
money from the public sector and
take the money back to the public
sector either through the CBN or
purchase of Federal Government
bonds and Treasury bills,” the analyst
said.
He, however, said some “discerning
investors” knew that that was not
sustainable and that banks had to
lend and perform their traditional
functions.
With some of the banks exposed to
the oil and gas sector and foreign
exchange pressure, with some of
them obtaining Tier 2 capital, their
performance is not expected to
improve anytime soon.
Global rating agency, Fitch Ratings,
which had last year predicted a drop
in the profit of Nigerian banks this
year, also expects them to have a
rough year.
In a new report entitled: ‘Nigerian
banks: Oil shock and policy moves
test bank resilience and ratings’, the
agency projected that the non-
performing loans of the banks were
expected to rise above the CBN’s
informal cap of five per cent by year-
end.
Although the rating agency affirmed
the Long-term Issuer Default Ratings
of 10 Nigerian banks, with all
outlooks being stable, it pointed out
the high credit concentration of the
banks as well as emerging risks,
particularly in the oil and gas, and
power sectors.
It also noted that “the operating
environment is affected by
persistently low oil prices, continuing
pressure on the domestic currency,
the naira, likely further monetary
policy and regulatory actions, and
increased political uncertainty.”
0 comments:
Post a Comment