Market Sheds N1.1tn in Three Months on Bleeding Banking Stocks

Goddy Egene

The Nigerian stock market shed N1.1 trillion in the first quarter of 2016 as banking stocks bled following investors’ negative reactions to profit warnings and huge impairment charges recorded by banks for the 2015 financial year.

The market, which opened January with a value of N9.8 trillion, closed at N8.7 trillion at the end of March, showing a dip of N1.1 trillion or 11. 2 per cent. Similarly, the Nigerian Stock Exchange (NSE) All-Share Index declined by 10.9 per cent in the quarter, falling from 28,335.01 to 25,306.22.

Although the market grew by 3.0 per cent in March boosted by relatively attractive dividend yield, losses by the banking sector led to a massive dip in market value.

Investors have remained on the sidelines due to lull in the economic activities following continual fuel scarcity, sliding value of naira and dwindling federal government revenue.
However, the  Banking sector remained under pressure, shedding  6.3 per cent  in March 2016  and   recorded highest sectoral decline of  19.25 per cent  in Q1 of 2016.

Market analysts said this was not surprising given the number of profit warnings and un-inspiring performance scorecards submitted during the period as most players in the sector booked huge impairment losses amid tougher economic environment.

Five banks sent profit warnings to the market, saying they would record lower earnings. The banks are FCMB Group, FBN Holdings Plc, Diamond Bank Plc, Ecobank Transnational Incorporated and Skye Bank Plc. Investors’ reactions to the profit warnings were highly negative as indicated in the performance of the stocks in Q1.

For instance, the shares of Diamond Bank shed dipped 47.8 per cent while FCMB went down by 47.4 per cent. Skye Bank lost 42.4 per cent of its value, while FBN Holdings closed the quarter 36 per cent lower. ETI shed 9.5  per cent.

FCMB Group was the first to send a profit warning to the market. The banking group had said  earnings and profitability for the third quarter ended September 30 ,2015 would be lower than the figures of same period in corresponding period of 2014.

The Managing Director of  FCMB Group Plc, Peter Obaseki,  had said  the lower earnings would result from  spike in impairments particularly in the energy sector and the significant reduction in trade finance-related revenues due to foreign exchange illiquidity.
And when the bank released its audited results for the full year ended December 2015, last week,  profit after tax (PAT)  fell by 78 per cent  from N22.1 billion in 2014 to N4.8 billion in 2015.

Commenting on the performance, the Group Managing Director/CEO, First City Monument Bank Limited, a key subsidiary of FCMB Group Plc, Mr. Ladi Balogun, said: “The commercial and retail banking arm of the group saw a significant drop in profitability for the full year to N6.5 billion PBT, following the impairments from two significant defaulting obligors reported in our Q3 audited results. The full year’s performance was also adversely affected by a 44 per cent drop in foreign exchange income and a 12 per cent drop in net interest income, largely caused by foreign exchange policy and impact of cash reserve requirement ratios till Q4.”