These are not the best of times for investment bankers operating in the financial services industry of the Nigerian economy as dampened investor appetite in Nigeria’s stock market further submerged the subsector into recession.
Financial institutions in the country shrank by 9.21 percent in the first three months of 2019 from the same period a year earlier, and sustained the downturn with a contraction of 3.52 percent on a year-on-year basis in the second quarter of this year, according to figures released Tuesday by the National Bureau of Statistics (NBS).
As a result, the financial institutions, a subsector of the finance and insurance sector, continued to wallow in recession, having recorded four consecutive quarters of negative growth. This impacted negatively on the performance of the broad sector to mirror woes of Nigeria’s financial institutions.
“With the weak investor sentiment more or less, activities on that segment have not been impressive,” said Omotola Abimbola, macro and fixed-income analyst at Lagos-based investment bank, Chapel Hill Denham. “We haven’t seen capital market issuances, activity in the stock market shows things are not so good.”
The Nigerian Stock Exchange (NSE) lost as much as 12.23 percent of its value since the start of the year despite the listing of MTN Nigeria and Airtel Africa to the bourse. This compares with 8.96 percent wiped off from the NSE’S market capitalisation within January and September 3, 2018.
From a 12.58 percent growth in Q1 2018, activity in the financial institutions subsector decelerated by 0.81 percent in Q2 2018. However, in the third quarter of the year, the segment contracted by 5.67 percent and slumped into recession in the last quarter of 2018 after shrinking by 2.13 percent.
Businessday analysis of data obtained from NSE shows the activity level in the market, measured by the total volume of trade and value of traded stocks, slumped by more than half to 21.63 billion shares worth N212.73 billion in Q1 2019 compared with 44.91 billion shares valued at N435 billion transacted in the corresponding quarter of 2018.
However, there was an improvement in the second quarter of 2019 as 32.42 billion shares worth N450 billion exchanged hands, all thanks to the listing of MTN Nigeria Communications Plc on the local bourse on May 16, 2019.
Half-year gross earnings of United Capital Plc, a financial and investment services company listed on the NSE, fell for the first time in at least 7 years to N3.23 billion in 2019 from N3.88 billion recorded in 2018.
The weakened earnings were driven by a 48 percent decline in investment income on fixed deposits to N315.6 million, and fees and commission income earned from charges which fell by more than a quarter to N772 million in the period. This pulled the firm’s after-tax profit to a 3-year low of N1.67 billion.
On the other hand, Nigerian commercial banks which are also part of the nation’s financial intuitions posted impressive results in the first half of the year. Available data gathered by Businessday show that twelve listed banks which have released their financial results for the first six months of the year jointly grew profit by 6.88 percent to N414 billion against N387 billion achieved in the comparative period last year.
Abimbola pointed out that despite the increased activity in the commercial banking space, it was not enough to offset the unimpressive performance recorded by other components of the financial institutions.
The banks also improved on their core responsibility of lending by boosting loans to customers in the review period. Guaranty Trust Bank grew deposits from customers by 6 percent to N2.4 trillion in H1 2019, while First Bank of Nigeria Holdings increased customer loans by 3.5 percent to N1.7 trillion.
