Nigerian Bourse closes lower, down by 0.11%

Okey Onyenweaku

Banks sub-sector (NGXBNK) of the equities market declined by 11.59 points, representing 2.83% from 409.38 on January 4, 2022 to 397.79 points in half year ended June 30,2022.
The subsector had stood at 407.47points in January 4, 2021.

The drop in the banking sector index may not be unconnected with the weak economy. Looking critically at the stocks of the banks, though the major market indices including the Allshare Index and Market capitalization are up by 20.49% and 20.4% respectively in half year, businesses have been relatively low. Over the years, the banking subsector of the equities market has always been the most active and most liquid.

However, as at year to date, the banks stocks are reflecting the macro-economic challenges in the country. For instance, Access Bank stock price has dropped by 4.6% from N9.70 per share on January 4, 2022 to 9.25 on June 30, 2022. UBA stock eased down by 3.2% from N7.70 per share on January 4, 2022 to N7.45 per share on June 30, 2022.

Similarly, Zenith Bank stock fell 3.12% from N22.40 per share on January 4, 2022 to N21.70 per share; FBNH stock depreciated 4.91% from N12.20 per share to N11.60; Ecobank also lost 11.66% to N12.00 per share to N10.60; Fidelity Bank stock rose 0.29% from N3.43 per share to N3.42; GTCO stock slid by -4.65% from N21.50 per share to N20.50; Jaiz Bank inched up +30% from 0.70 per share to N0.91 per share; Sterling Bank stock also gained +0.66% from N1.51 per share to N1.52 per share; Union Bank gained marginally by +2.5from N6.00 per share to N6.15 per share; Unity Bank eased up +2.2% from N0.44 per share to N0.45 per share; Wema Bank also gained 18.14% from N2.70 per share to N3.19 per share; Stanbic IBTC stock also dropped -1.7% from N34.15 per share to N33.55 per share and FCMB Group appreciated +1.8% from N3.30 per share to N3.36 per share.

Flash Back

Banks had suffered a huge set back in 2008/2009 and that does not seem to have been fully overcome. Till date, the banks are yet to resolve the issue of their huge non-performing loans (NPLs) despite activities of the Asset Management Corporation of Nigeria (AMCON) which lifted over N5trillion of bad loans off their books. Banks are still paying AMCON charges till today.

During the last global recession in 2008, the banking system was the central protagonist and arguably suffered the most. As many as 465 banks closed in the United States between 2008 and 2012. Likewise, Nigerian banks suffered following the 2016 recession, ultimately leading to the creation of Polaris Bank to takeover Skye Bank’s operations and assets.

This authoritative declaration may be true, but industry analysts are not deceived that that picture may not be exactly so. In fact, the banks were thought to be sound when the banking consolidation collapsed the number of banks from about 90 to 25 through mergers and acquisition when many could not meet the mandatory N25 billion capitalization.
The banking industry was again seemingly sound when Sanusi’s focus on risk management caught most of them pants down and they failed the joint stress test of the CBN/NDIC and became failed banks.

Unfortunately, the Asset Management Company(the bad bank) is still carrying the burden of over N5 trillion toxic assets of the industry.

Being a major player in the capital market, the banking sub-sector lost 69% from a high value of N4.52billion on March 3, 2008, to N1.41billion on February 24, 2009. Individual share prices of each of the banks have also crashed and nobody knows when they would level out. For instance, Access Bank which share price was N24.30, in March 2008 lost 79% or N19.22 to close at N5.08 of February 24, 2009.

For Fidelity Bank each shareholder lost N8.9 or 75.2% on the shares which sold at N11.94 and fell to N2.96 during the review period. First Bank shed 66% or N33.01 within 11months while GT Bank Plc declined by 72.5%, representing a loss of N26.84.

Ever since, 2008 when stocks attained unprecedented heights before the crash of the world economy and markets, market stakeholders have remembered that boom time with nostalgia.

But market observers point out that that was a different time and period which was not even sustainable.

While some people made a kill (smiled to the banks) at that time, others lost all that they had when the reverse (market crash) was the case.
In the subsequent years, stocks not only bank stocks have rarely been able to recover or attain such unprecedented prices again. And analysts say that such boom time comes once in every ten year cycle. In 2013, 2017 and 2020, the equities market had gained significantly at 47.19%, 42.30% and 50.03% respectively. These times, banks stocks also grew significantly but not as bullish as the boom time of 2007/ 2008.

Analysts believe that the general weakness of the economy in Nigeria is not favourable to any sector. Especially the banking sector which has suffered serious setback of High Non-performing loans, harsh macro-economic environment and stiffer regulation by the CBN.

Also, apart from the apprehension in the market, foreign investors have also pulled out a substantial part of their funds from the market for fear of deeper losses. Many observers think there is huge uncertainty in the air given the coming 2023 election. Whereas the Nigerian currency ‘the Naira’ is weakening against other currencies of the globe, Broad street analysts blame the crunch in the economy as the major challenge in the market.

Other challenges are dwindling access to foreign exchange, loans defaults and shrinking profits with threats of insolvency. The CBN’s low interest rate regime, though recently adjusted up to 13% is also not healthy for the banks as reduced income and low profitability have followed. These dislocations have not only forced banks to close some of their branches in the far Northern Nigeria, movement are now restricted as both bank staffers and customers fear for their lives.

The price of crude, though currently high at over $100pbd, keeps fluctuating, shrinking incomes, high unemployment and biting poverty have all conspired to keep the economy down and by extension the banks.

Just recently, Fitch Ratings warned that Nigeria’s operating environment for banks could deteriorate in 2022–2023 given adverse global economic conditions sipping through to the local economy. There are serious pressures on banks’ profitability and asset quality, the report noted.

Banks in addition suffer challenges of Ethics and professionalism, Poor corporate governance practices, Reliance on public sector funds, Slow GDP growth and
also operational, regulatory issues.

The fear of Many

The Nigerian economy is in dire straits. About 40%(80-100m) of Nigerians are wallowing in extreme poverty ;food production is expected to decline given to fertilizer shortages due to Russia/Ukranian war; Nigeria has also not fully recovered from the devastating impact of Covid-19; the growing insecurity which has hampered agricultural activities is taking a different toll on Nigeria’s food security; food inflation according to NBS stood at about 18%; over N6trillion deficit is tugging at the N17trillion budget for 2022 and the bulk of debt servicing will also come from that money; the value of the naira keeps declining and the Country remains unproductive; unemployment and underemployment rates stood at 33% and 22% respectively.

The Country’s total direct remittances dropped ; FG targets total debt stock of about N46.63trn which it services with about 95% of its revenue. And most problematic is political instability in the Country.

This scary scenario does not favour equities market growth as market participants are wont to be lethargic about their investments. But that is far from being the case in recent times.

In the absence of 11th hour miracle, when an assessment of performance of the Executive arm of government will be carried out on May 29 next year, using the economy, security and corruption as index, President Muhammadu Buhari may likely go down as a failed President.

If this happened, the legislative organ of government should largely be blamed. Firstly, for failing to invoke the doctrine of checks and balances to ensure the President discharges his statutory obligations in line with national interest and aspirations.

Secondly, for failing t halt breach of federal character principle by the President. Thirdly, for failing to interrogate the Executive for sliding economic indices, worsening corruption, rising insecurity, capital flight, mounting loans, multiple tax burden, unemployment, and decaying infrastructure, including poor electricity and education’’—Dr. Michael Owhoko’s, an author and Publisher said.

There is a consensus that market is naturally volatile. It can move up or down depending on what is propelling it or dampening it. But many believe that the economy still does not have a clearly defined growth pattern to be able to drive the market to significant levels. Banks stock not excluded.

Market performance in the last 20 years
+65% in 2003;
+18.5%in 2004;
+1.01% in 2005;
+37.80% in 2006
+74.73% in 2007.
-45.77% in 2008
-33.80% in 2009
+18.50% in 2010.
-17% in 2011,
– 35.4% in 2012,
+47.19% in 2013,
-16.14% in 2014
-17.36% in 2015
-6.% in 2016
+42.30 % in 2017,
-17.81% in 2018
-14.6% in 2019
+50.03% in 2020
+6.07% in 2021
+20% in July 2022
BH/Cordros analysts


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