Despite the effort of the Central Bank of Nigeria to downplay the impact of the regime of tight monetary policy on banks’ performance, feelers from the Nigerian stock market last week showed that the fear of a possible decline in bank’s results might have triggered a gradual loss of appetite in the value of bank’s stocks with the attendant marginal fall in bank shares.
Industry operators had predicted a lull in banks’ performance at the end of 2013 financial year as a result of a number of policies said to be putting banks on edge in recent times.
Apart from the sterilisation of public sector funds, other policies said to be constraining banks’ activities include those on gradual phase out of Cost of Transaction and the five per cent levy paid to Assets Management Corporation of Nigeria (AMCON).
The CBN in July raised the Cash Reserve Requirement (CRR) on public sector deposits from 12 per cent to 50 per cent. The trend was sustained at last week’s MPC meeting.
However, an analysis of price movements on banking stocks has shown that some of the banks, which enjoyed remarkable price appreciation especially after the release of their second quarter and half year results have been recording decline in their share valuation in recent times.
For instance, Access Bank Plc, which recorded a share price of N9.46 at the trading on January 4, enjoyed share appreciation after its second quarter result was made public as its unit of share was sold at N11.20 on May 31 whereas the price tumbled to N9.70 at the trading on November 19.
The same goes for Ecobank Transnational. Its share price moved from N11.14 on January 4, to N15.28 and N13.95 on May 31 and November 19 respectively.
A unit of Fidelity Bank share attracted N2.72 on January 4 appreciated to N3.08 on May 31 but came down to N2.54 on November 19.
United Bank for African Plc was not spared as the bank’s share, which enjoyed a tremendous increase moving from N4.50 on January 4 to N8.51 on May 31 was sold at N7.80 per unit on November 19.
Capital market operators had said the banking sector might witness a lull as investors were bound to shift investment to other sectors.
National coordinator of Independent Shareholders Association of Nigeria (ISAN), Mr. Sunny Nwosu, described the decline in banks’ share value as a direct response of shareholders to the mood in the banking industry.
He explained that a number of regulatory policies and pronouncements of the CBN were giving investors cause for concern, hence the loss of appetite for banks’ shares.
He recalled that apart from the policy on cash requirement ratio, banks are only allowed to charge three per cent commission on transaction at a time when AMCON fund was increased from 3 per cent to five per cent. These policies, according to him, are disrupting banks projections.
He also feared that the pronouncement of the apex bank on the eight banks categorised as too strategic to fail would send wrong signals to investors and depositors about the health of other banks not in that category.
A capital market analyst who is also Executive Director, Dunn Loren Merrifield Securities Limited, Mr. Idowu Ogendengbe, in an interview with THISDAY, reasoned that the prevailing tight monetary environment in the banking industry might have been largely responsible for the dip in performance of banks stocks.
He believed that in terms of profitability, especially in banks’ nine -month performance, it is obvious that there was a decline in comparison to what obtained in 2012.
He listed issues like the policy on public sector funds, gradual phase-out of COT and fall in yields on government securities as reasons for the falling performance of banks’ stocks.
Chief Executive Officer, Lambeth Trust & Securities Ltd., Mr. David Adonri, was quoted by the News Agency of Nigeria last week as saying that the lull in the sector might slip into 2014, should the banks pay out low dividends at the end of this financial year.
“Investment emphasis has shifted away from banking stocks due to the Central Bank of Nigeria (CBN) monetary policy.
“This is because investors are afraid that banks’ earnings will decline following the tight monetary policy.
Adonri said that consumer goods and petroleum sectors would likely dominate the market, till the end of 2013 as emphasis shifts from the banking sector.
He said that investors had developed a ‘wait-and-see’ attitude following fears that bank profits and dividends payout would decline in the 2013 financial year.
Another market operator who noticed the loss of enthusiasm for banks’ stocks was the Managing Director, Calyx Securities Ltd., Lagos, Mr. Wale Onigbode.
He said the rush for bank stocks had slowed down in the last two months.
Onigbode said that investors had embarked on portfolio swap to minimise their exposure to banking equities due to the policy.
He added that the 2013 financial results of the sector, when released, would determine the direction of the capital market and banking equities.
Meanwhile, some bank operators maintained that the impact of the sterilisation of public funds might have minimal effect on banks.
Managing Director, GTBank Plc, Mr. Segun Agbaje, said he was not surprised by the decision of the CBN not to lower the existing monetary rates, saying the effect of the CBN’s decision on had been over-exaggerated.
On his part, Managing Director, Proshare Nigeria, Mr. Olufemi Awoyemi, said the downward trend in performance of banks shares was a function of many factors.
He explained that the current trend could be attributed to the mood of the market, saying there is dearth of liquidity in the system.
He said bank shares usually appreciate when there are corporate decisions like declaration of dividend and publication of positive reports, among others.
Some investors usually take positions when there are positive activities in banks in order to make profit.
He said the fact that some institutional investors are not selling for now could be attributed to the current lull in banks’ stocks.As a result, in subsequent investigations launc to legally engage them.”
When President Goodluck Jonathan postponed the presentation of the 2014 budget to the National Assembly last week, I knew he had missed a golden opportunity to win the business community to his side on the fight for an appropriate oil benchmark. Quite a number of economic affairs commentators who spoke on the budget impasse said the President should have gone ahead with the presentation because it was obvious the National Assembly was merely out to settle scores.
One of those who spoke on the issue is the Chairman, Subsidy Re-investment and Empowerment Programme Committee, Dr. Christopher Kolade. Kolade said it was not the responsibility of the lawmakers to decide the benchmark when the actual budget was yet to be formally presented, wondering what stopped the Executive from making the presentation.
Like Kolade, I believe the only person Nigerians will hold responsible for economic performance is the President. Although the National Assembly has the right to tinker with the budget, I believe making an issue out of the oil benchmark before the presentation of the budget will continue to be seen as an unnecessary confrontation with the Executive, which can only remind Nigerians of the long drawn impasse over 2013 budget.
Sale of Refineries
The Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) last week advised the Federal Government against the planned sale of the nation’s refineries. The Lagos Zonal Chairman of NUPENG, Mr. Tokunbo Korodo, who gave the advice, said government should not sell the refineries. Rather, the government should bring in those who first built the refineries for repairs and returned them to their original status.
Korodo’s position, informed by the planned sale of the refineries, came as a surprise. Apart from the trend of the time, which does not support government’s ownership and running of business outfits, past experience has shown that the performance of these refineries could not justify the funds allocated to them for turnaround maintenance of the facilities from time to time. The union will serve the interest of its members better by ensuring a proper privatisation programme, which will make it easy for Nigeria to join the league of refiners of its crude oil. This cannot be achieved by holding on to the assets.
First African ICAO President
A Nigerian and aviation expert, Olumuyiwa Bernard Aliu, was last week elected president of the International Civil Aviation Organisation (ICAO), the world aviation standards body. His tenure will commence on January 1, 2014 and end on December 31, 2016. Since then stakeholders in the aviation industry have been commenting on the election. Those who spoke on the development hailed the election, saying it would in no small measure raise Nigeria’s bar in the aviation global market. It is a thing of joy that a Nigeria could clinch the global aviation authorities’ topmost job. But one can only hope this will translate into a regime of sanity in the Nigerian aviation industry after all, as they say, charity begins at home.