Uptick in the market is attributed to positive macro-economic sentiment
Investors in banks quoted on the main board of the Nigeria Stock Exchange (NSE) reported a gain of about N966 billion in the first 10 months of 2017 following strong financial results, improvement in the economy and relative stability in the foreign exchange.
Checks by New Telegraph showed that the stocks recorded a gain of N966 billion or 66.99 per cent to close at N2.408 trillion in market capitalisation on the last trading day of October 31, 2017, as against opening figure of N1.442 trillion at the beginning of trading in January 2017.
Market watchers believe the investors are taking positions on banks due to good fundamentals and in a bid to benefit from expected dividend the lenders may declare as the economy improves gradually.
Majority of Nigerian banks have demonstrated their resilience in the last two years amid macro-economic challenges, which weighed on credit expansion, asset quality and capital adequacy, to record positive performances for this year.
According to analysts at Afrinvest, the financial performance of the sector was principally affected by monetary policy decisions tied to the management of the FX market, which had ripple effects on earnings across the industry.
“This was positive for banks’ non-interest income, especially Tier-1 lenders with aggregate long Net Open Positions (i.e. higher foreign currency denominated monetary assets than liabilities), which recorded massive jumps in FX revaluation gains. Furthermore, in a bid to attract private capital flows and shore-up the Naira and external reserves, the CBN drove up policy and market interest rates, resulting in higher fixed income yields, which bolstered interest income for banks.
“Consequent on the higher interest and non-interest income, industry gross earnings (for the 14 banks within our coverage) rose faster at 16.4 per cent in FY: 2016 (better than 10.4 per cent in 2015). However, the industry still faced significant cost pressures, particularly impairment charges, which surged 91.8 per cent within the period as a result of weaker asset quality and the one-off forbearance on writing off fully provisioned loans granted by the CBN in 2016. Nonetheless, profitability metrics improved as industry PBT expanded 9.8 per cent in 2016, an improvement from a 28.4 per cent decline recorded in the prior year, while Return on Equity (ROE) strengthened to 12.3 per cent from 9.1per cent in 2015”.
Besides, the experts noted that similar to earnings performance, the impact of prudential guidelines and monetary policy reflected on balance sheet and capital adequacy of banks.
“Following the devaluation in June (last year), capital adequacy level took a hit as FX-denominated risk weighted assets were revalued upwards while CBN gave banks a soft-landing by relaxing prudential rules. The effect of currency depreciation was also evident in the industry gross loan book, which grew nominally by 23.0 per cent Y-o-Y given that 39.5 per cent of industry loans are foreign currency denominated. In addition, Total Deposits grew 19.3 per cent in 2016, following a decline of 1.8 per cent in 2015, while Total Assets and Total Liabilities expanded 20.7 per cent and 21.8 per cent respectively,” Afrinvest said.