The past year has been terrible for banking stocks as continued selloffs have caused the banking index to be among the worst performing sectors in the market. However, Access, Sterling and Union Banks managed to stand out among banking peers by shrugging off the weak investor sentiment bedevilling the Nigerian market to increase their shareholders’ wealth so far this year.
Out of thirteen commercial banks listed on the Nigerian Stock Exchange (NSE), only the three lenders have produced positive returns for investors in a market that has lost as much as 16.14 percent of its market value since the start of the year.
While the banking index, which gauges the performance of the most capitalized and liquid lenders, is down 20.96 percent so far in 2019, shares of Union Bank recorded the biggest gain of 25.89 percent year-to-date (YTD) to N7.05. Access and Sterling Banks have returned 10.29 percent and 5.26 percent of value to investors YTD, bringing their share prices as at the close of trading Wednesday to N7.50 and N2, respectively.
On the other hand, shares of Ecobank Transnational Incorporated (ETI) fell -49.29 percent year-to-date to N7.10; Unity Bank, -44.86 percent to 59 kobo; First Bank of Nigeria Holdings (FBNH), -33.33 percent to N5.30; Zenith Bank, -26.46 percent to N16.95; Guaranty Trust Bank (GTB), -25.98 percent to N25.50; while United Bank for Africa (UBA) shed -25.32 percent to N5.75.
Stanbic IBTC plunged -22.84 percent to N37 from the beginning of 2019; Fidelity Bank declined by -16.75 percent to N1.69; First City Monument Bank lost 14.81 percent to N1.61; while Wema Bank dropped 11.11 percent to 56 kobo.
Nigerian tier-one banks posted a combined profit of N521.92 billion in the first nine months of 2019 from N455.96 billion garnered in the same period last year, this is the first double-digit growth recorded by the lenders since Nigeria exited recession two years ago. But in spite of this, investors are apathetic towards most of the bank stocks, leading to negative year-to-date returns for their shareholders.
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“The decline is largely reflective of Nigeria’s macro because many of the results released have been good,” said Aderonke Akinsola, banking analyst at Lagos-based Chapel Hill Denham. “In as much as we are in this kind of macro-environment, investors will be cautious regardless of how good companies’ results are.”
Nigerian banks were faced with several regulations aimed at refocusing the banks to their core duty of lending which would support credit flows to the real sector of the Nigerian economy. Among the recent policies is a directive by the Central Bank of Nigeria mandating the banks to maintain a minimum loan-to-deposit ratio (LDR) of 65 percent by December 2019 – an upward revision from the initial 60 percent to be maintained by September 2019.
Some analysts have argued that the move could reduce the banks’ exposure to high-yielding low-risk Federal Government securities such as bonds and treasury bills, thereby reducing their earnings from investing activities – their major source of income – and dampening the already weak investor sentiment in the market.
Besides the challenging broader economy which grew at a slower pace of 1.94 percent in the second quarter of 2019, recent regulations by the CBN could also be weighing on bank stocks, according to Fola Abimbola, equity research analyst at a Lagos-based FBNQuest, the research arm of FBNH.
Meanwhile, analysts at CSL Stockbrokers maintained a “BUY” rating on Sterling, UBA, Fidelity, FCMB and Stanbic IBTC Banks, Meristem rated GTB a “BUY”, while those at United Capital had a “BUY” rating on FBNH as at when their respective nine-month financial results were released on the NSE.
Source: Business Day