Stocks of Bank Holding companies (Holdcos) are poised to rally on renewed Pension Fund Administrators (PFA) buying, as the regulator, Pencom, looks set to relax rules earlier issued which prohibited pension funds from buying such lenders.
PenCom had over a year ago stopped PFAs from buying bank holdcos, which affected three banks – FBNH, FCMB and Stanbic – IBTC.
Sources tell BusinessDay that PenCom took the decision because there was no CBN framework for regulating the holdcos and they were not up to five years old, as stipulated in the Pension Reform Act 2004.
This has now been rectified with the release of the officially gazetted copy of the Pension Reform Act 2014, which removed the five-year dividend declaration and payment requirement for stocks eligible for PFA funds.
The CBN over the weekend also released the final version of the regulatory framework for bank holdcos.
“With the two pre-conditions now satisfied, all eyes are on Pencom to issue a circular lifting the prohibition to make it possible for PFAs to buy bank holdcos. This is very important, considering the attractive upside potential in FBNH and FCMB at the moment. Furthermore, the fact that most banks are in capital raising mode makes it imperative that the prohibition is lifted, as access to pension funds will be critical to the success of their capital raising efforts,” said Renaissance Capital, in a note released yesterday.
Nigeria’s N4.419 trillion ($27.2 billion) pension fund is one of the largest pools of capital available in the domestic economy which can have an impact on equity values.
Pension assets in Africa’s largest economy have surged twelve-fold from N265 bn or about 1.4 percent of Gross Domestic Product (GDP) in 2006 to today’s level, equivalent to 5.3 percent of GDP.
Assets are currently growing at $2.5bn a year, or roughly 0.5 percent of GDP, per annum.
The share of equities in PFA portfolio is capped at 25 percent by the regulator PENCOM, while they are allowed to hold up to 70 percent in government fixed income securities.
Latest data from PenCom show PFAs are underweight equities with only 14.43 percent of assets allocated to stocks as at June 2014.
The low free float in most listed Nigerian stocks suggest that a modest movement by PFAs towards increased equities allocation would have an outsized impact on stock prices.
“The actual free float of stocks available to invest in on the NSE is closer to the N4 trillion mark, than the markets total capitalisation of N12 trillion,” Sadiq Mohammed, MD, ARM Pension Managers, whose firm manages N340 bn in pension assets (Dec. 2013) said in a conference in Lagos last November.
“If you count what the PFAs already hold, it reduces it further,” he said.
FBNH stock has lost – 6.93 percent this year, while FCMB and Stanbic IBTC have gained +15.18 percent and +40.52 percent, respectively ytd.
This compares with the +0.49 percent gain in the benchmark NSE-ASI, this year.
In March 2010, the CBN announced its plans to dismantle the universal banking model in Nigeria. Banks were allowed to maintain their non-bank subsidiaries, provided they adopt a holdco model and ring fence capital for subsidiaries operations from the core retail banking capital.
PATRICK ATUANYA
