Published On: Tue, Oct 13th, 2015

NSE: Banks’ dominance threatened

For the average economic enthusiast, the daily news broadcasts from the Nigerian Stock Exchange talk frequently of Bank X or Y leading both the gainers chart and the top trades of the day. This is a pattern that has been sustained almost non-stop from the days of the banking sector consolidation that had been engineered by the Professor Chukwuma Soludo-led Central Bank of Nigeria about a decade ago.

The reason for this is however not far-fetched. Though comprising just about five percent of all listed equities on the exchange, the extra-pivotal role that the sector has been saddled with on account of the high-import and high-speculation bent of the Nigerian economy has put the sector in a historic prime position.

Recently however, extant developments in the polity and economy and figures from the market have been signaling that this trend may be shifting. For example in the period spanning  January 5 through October 7, 2015, the NSE Banking Index slipped from 346.88 basis points to 312.48 basis points. This in itself is a second level drop given that it had opened trading in 2014 at a higher trading level of 447.84 basis points.

Conversely, the NSE Industrial Index which equally suffered from the same overall negative headwinds on the market, which had been precipitated by a slew of factors – including most importantly, the back-breaking drop in oil prices from a high of $100.55 in February, 2014, to $44.00 by March 2015 – rose from 2,079.16 points on January 5, 2015 to 2, 144.85 at the close of trading on October 7, 2015.

Analysts say that this development is not in itself unusual and may indeed be signaling the beginning of a market correction of sorts.

Opines Mr. Teslim Shitta-Bey: ‘As I see it, in the normal run of events, the profitability and health of the financial sector is largely informed by the state of affairs in the real sector of the economy. With the relative downturn that the real sector had been experiencing, it really was an anomaly of sorts for the banking sector to be posting the massive profits that was the case. It is the dog that wags the tail and not the other way round.’ 

In his own appreciation of the overall macro-economic conditions that are at play within the Nigerian market today, Dr. Boniface Chizea, Managing Consultant, BIC Consultancy Services Limited, told Business Hallmark that the source of the present ‘adjustments’ was not difficult to fathom as the economy has not witnessed any growth in the first three quarters of the year. He added that the welfare of Nigerians has not been improved any way in the past nine months of the year.

“If you look at it in over all, there is no improvement in the welfare conditions of the people.

There are many people whose salaries are not being paid as at when due across the federation. 

We had the bailout, although some of us said bailout was not the end of the story,” he elaborated.

Dr. Chizea also said inflation has also been on the increase because the gap in the exchange rate on the official market and the parallel market has widened.

Within this scenario, more people now source for foreign exchange on the parallel, which has resulted in importing inflation.

He also identified the lack of overall policy direction on the part of government as part of the cause of economic crises rocking the country.

“People are waiting for the new government to put in place policies that will help the economy grow,” the BIC Consultancy Services boss noted.

Specifically, he attributed the decline in the banking index on the Nigerian Stock Exchange (NSE) to challenges bedeviling the sector.

“It is clear to everybody that the banking sector is facing a very serious challenge. The implementation of the Treasury Single Account (TSA) has significantly impacted the banks negatively,” he declared.

According to him, in the part banks made easy money, which they uploaded on treasury bills. They were earning a lot of fee income. But now that that ‘normal situation’ has changed, banks are now being forced to do what they were supposed to do primarily. He also added that some of the policies of the Central Bank of Nigeria (CBN) have also been having telling effects on them.

“So, people are not bullish to invest in banking stocks. It is not surprising that the banking index is falling. But when you say the industrial index is increasing, that is interesting, because we don’t really have an industrial base in this country yet,” he further explained.

Dr. Chizea concluded that the evidence of his last assertion was that the overall industrial sector contribution to the GDP is still very small.

For Dr. Richard Mayungbe, an Economics lecturer with the Lincoln University, California, USA, the economy has clearly been on a recess since the beginning of the year. “The economy is on a recess because the ministers who are supposed to be the chief executives of each ministry that oversee each angle of the economy are yet to resume,” he said.

He said the country was just running a part-time kind of management, saying that when the ministers resume work the economy would likely then be boosted.

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