Investors in the Nigerian stocks are not showing much excitement about the latest performance of lenders despite the biggest banks growing their nine months profit at the fastest pace since 2017.
The banking index, which gauges the performance of the most capitalized and liquid lenders including all tier-one banks, halted its reversal from the sector’s year-low and has declined 3 percent since mid-October, when the banks started reporting their result for the three quarters to 30, September 2019.
So far the banking sector has declined 21 percent compared to the broad market which has lost 16.5 percent, as at the close of trading Tuesday.
“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.”
Experts have warned year-long that reforms to stimulate the domestic economy above population growth of 2.6 percent, alongside measures to encourage private investment are necessary to spur interest in the economy-and the currently undervalued stock market.
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Asides the challenging broader economy, recent regulations by the Central Bank of Nigeria (CBN) could also be weighing on bank stocks, Fola Abimbola, Lagos-based Equity analyst at FBNQuest said.
Banks, through several recent policies, have been discouraged from piling depositors’ fund in high-yielding low-risk government securities, a move which some analysts explain would pose a challenge to the sectors’ profit and could affect investors’ sentiment.
Policies by the banking regulator, however, have been aimed at refocusing the banks to their core duty of lending which would support Nigeria’s real sector, the CBN has explained.
The tier-one banks which are among the ten banks on the NSE banking index grew their 2019 nine months profit in double-digit for the first time since Nigeria exited recession two years ago.
First Bank of Nigeria Holdings (FBNH), United Bank for Africa (UBA), Guaranty Trust Bank (GTB), Access Bank, and Zenith Bank posted a combined profit of N521.916 billion, which is 14 percent more than they made in the same period last year.
Across the board, the big banks saw improvement in their net interest income which outperformed non-interest income.
Most mid-tier banks on the index grew profit, even though at a slower pace from last year.
Ecobank Transnational Incorporated (ETI) grew its profit (reported in Naira) by 4 percent to N78.84 billion while Wema Bank grew profit by 55 percent to N4 billion.
Fidelity Bank grew nine months profit by 20.19 percent to N21.46 billion while Sterling Bank pared profit to N7.58 billion in nine months reported in 2019.
On the other hand, Jaiz Bank and Union Bank had not released at the time of reporting.
While analysts across the board say banks valuation continues to remain at attractive levels for investors to buy into, there have been divergent views on how CBN’s directive to restrict OMO market to only banks and foreign portfolio investors would affect inflow into the equity market.
Banking sector closed 0.94 percent lower on Tuesday to emerge the second-worst performing sector after industrial goods (-0.95%).
