Value of Banks’ Stocks Dwindle by N81.04bn on Weak Earnings, FX Challenges

.Otedola, EIB news lift FBN Holdings, ETI . Zenith Bank down N26.6billion
Kayode Tokede
Amid foreign exchange challenges, weak corporate earnings and foreign investors exit, the value of listed banks’ stocks on the Nigerian Exchange Limited (NGX) tumbled by N81.04billion in the first 11 months on 2021.

As at the close of trading in November 2021, the overall market capitalisation of 14 listed banks on the NGX was at N3.53trillion as against N3.6trillion it opened for trading this year.

Consequently, the NGX banking index between January and November 2021 also dropped by 0.6 per cent to close at 390.78 basis points from 393.02 basis points when the stock market opened for trading.
The decline in the banking index is contrary to the domestic market benchmark this year, with the NGX All-Share Index in the 11 months under review appreciated by 7.4 per cent to 43,248.05 basis points from 40,270.72 basis points the stock market opened in 2021 for trading.

A capital market analyst, Mr. Rotimi Fakayejo noted that banking sectors on NGX witnessed mixed sentiment trading as investors’ trade in stocks with improved corporate earnings, dividend pay-out and expectation of impressive yield.

He noted that the macro economy challenges coupled foreign exchange bottleneck and double-digit inflation have also compounded investors’ dumping banking stocks for money market instruments, fundamentals oil/gas and telecommunication companies on the NGX.
The interbank market of foreign exchange market of the Central Bank of Nigeria (CBN) in 11 months depreciated by 8.3 per cent to close November at N41166 (central price) against the dollar from N380 against the dollar it opened in 2021.
Meanwhile, out of the 14 listed banks’ stocks on the NGX, seven recorded decline in stock prices in 11 months under review as investors’ trade the banking stocks with caution.

Analysis of trading numbers revealed that FCMB Group leads the banking sector in most impressive appreciation in 11 months, gaining 1092 per cent or N56.24 billion in market capitalisation when it opened at N0.26 per share to N3.10 per share, followed by FBN Holdings and ETI that gained 67 per cent and 39.2per cent respectively.

FBN Holdings and ETI gained N172.3billion and N43billion in market capitalisation in the 11 months under review.
The stock of FBN Holdings Plc has witnessed a steady increase to N11.95 from N7.15 the market opened for trading, following the announcement that Femi Otedola had acquired 5.07 per cent stake in the company.

As a result of signing a long-term credit agreement with the European Investment Bank (EIB), ETI that has not paid out dividends for many years, closed November 2021 at N8.35 from N6.00 it opened for trading.
Access bank’s market value added N37.3 billion; Fidelity Bank, N289.7million; Jaiz Bank Plc, N345.4million; Wema Bank Plc, N3.86billion

The likes of Guaranty Trust Holdings Company Plc (GTCO), Zenith Bank Plc, United Bank for Africa Plc, Stanbic IBTC Holdings Plc, Sterling Bank Plc, Union Bank Nigeria Plc, among others have depreciated in market value in 11 months under review.
The stock price of GTCO and Stanbic IBTC Holdings depreciated by 7.75 per cent and 6.05 per cent to close November 2021 at N24.60 and N44.05 respectively in 11 months.

As gathered, GTCO market value dropped by N228.09billion; Zenith Bank, N26.6billion; UBA, N20billion; Union Bank of Nigeria, N23.3billion; Sterling Bank Plc, N16.12billion Stanbic IBTC Holdings, N78.4billion, and Unity Bank Plc, N1.4billion
THISDAY can report that despite a pessimistic start to the year, the Insurance index performance has gained N1.75trillion in 11 months, influenced by sector’s recapitalization by regulating body and impressive corporate earnings by the likes of Consolidated Hallmark Insurance, AXA Mansard Insurance Plc, LASACO Assurance Plc, among others.

On a flip side, the NGX Insurance Index has depreciated by 0.99 per cent to close at 187.62 basis points as at November 2021 from 189.50 basis points it opened this year.

A total of eight insurance stocks traded flat at N0.20, while nine appreciated in prices. In addition, AIICO Insurance Plc, Cornerstone Insurance Plc, Linkage Assurance Plc, Mutual Benefits Assurance Plc, and Sunu Assurances Nigeria Plc depreciated in stock prices in the 11 months under review.

Further findings by THISDAY revealed that Consolidated Hallmark Insurance, Custodian Investment Plc, Lasaco Assurance Linkage, Assurance Plc, Prestige Assurance Plc, and AXA Mansard Plc are the only six companies that declared 2020 dividend to shareholders.

By market capitalisation, AXA Mansard Insurance added N917.14billion, while Coronation Insurance gained N599.79billion in 11 months. The likes of LASACO Assurance also appreciated by N361billion by market capitalisation as Regency Assurance Plc gained N545.63billion in the months under review.

In December 2020, the House of Representatives asked the National Insurance Commission (NAICOM) to suspend the December 31, 2020 deadline, while two legal actions in Abuja and Lagos, instituted against the regulator, were still pending in courts.
This, coupled with the court actions, led the commission to suspend the first phase of the recapitalisation, leaving the second phase scheduled to end by September 2021.

However, some insurance companies had declared on their own that they met the requirements before the first phase of the recapitalisation was suspended. While the second phase was still pending, some companies had also assured their shareholders of meeting the regulatory requirements.

Analysts have expressed that the decline in financial institutions stocks is a wakeup call for retail investors to take position, stressing that the price tends to appreciate since the capital market is long-term investment.
They noted that NAICOM suspension of the recapitalisation exercise played a critical role on listed insurance companies stocks on NGX, stressing that retail investors were taking position when NAICOM announced its policy on recapitalisation.

Commenting on insurance companies’ performance in 11 months, the Head, Retail Investment, Chapel Hill Denham, Mr. Ayodeji Ebo attributed mixed performances in the sector to inactivity amid the suspension of the recapitalisation exercise.
According to him: “The recapitalisation was supposed to increase insurance companies to take over bigger transactions but with the suspension, most of them are still dealing with traditional insurance products. Investors expectation is blink within that sector.”

On his part, the Chief Operating Officer, InvestData Consulting Limited, Ambrose Omorodion said the sector has not performed badly amid decline in 11 months of 2021, stressing that the low priced insurance stocks has created room for retail investors to take position.

“Most retailers are taking profit in the financial institution stocks as some of their prices are low. Retail investors are moving from those companies that are not paying dividends to dividend paying stocks as most of them are not attractive.

“Market in 2021 has witnessed mixed performances and investors are taking profit to reposition their portfolios against next year. Institutional investors do not trade in insurance stocks due to low prices. The recapitalisation has also boosted some of these companies this year and we might likely see a merger once the suspension is lifted.

“However, the potential in the sector has not been tapped as key drivers have not performed to attract more inflows into the sector. The decline in financial institutions’ stocks is all about how the market operates and it does not call for panic trading, ”he said.

Analyst at PAC Holdings, Mr. Wole Adeyeye said: “Investors dumped some insurance stocks that may not meet the new capital requirement, despite the suspension of the planned recapitalisation of the sector by NAICOM. Also, most investors dropped insurance stocks, between January and September, due to late filing of quarterly financial statements and poor earnings of some insurance companies.”