Banking Stocks Gain N749.24bn over Rally in Access Holdings, UBA, 11 Others
Kayode Tokede
As the stock market commenced 2024 on a positive note, listed banking stocks gained a total of N749.24billion in market capitalisation following investors renewed interest in Access Holdings Plc, United Bank for Africa Plc (UBA) and 11 others at the close of trades last week.
Also, the Nigeria Exchange Limited (NGX) All Share Index or ASI appreciated by 6.54 per cent Week-on-Week (WoW).
In the same vein, the NGX Banking Index during the week under review emerged as the second-best performing Index, behind NGX Insurance Index.
The Banking Index appreciated by 10.29 per cent, while the NGX Insurance Index closed at 14.08 per cent at the close of business last Friday.
Capital market analysts attributed the surge in banking sector stocks to projected impressive 2023 corporate earnings, as most of these banks are expected to reward shareholders with dividend pay out.
Speaking, the Vice President, Highcap Securities Limited, Mr. David Adnori stated that the banking stocks continued to rally as some of them are undervalued, stressing that investors are taking positions amid 2023 corporate earnings that come with full dividend payout.
“Of course, it is expected that Zenith Bank, Access Holdings, UBA, among others will declare a full dividend. With that reality, investors are taking position in these banking stocks and the impact is a reflection in the price appreciation early 2024,” he added.
He added that the proposed recapitalisation of the banking sector by the Central Bank of Nigeria (CBN) is contributing to the stock price appreciation.
At the 58th annual Bankers’ Dinner in 2023, CBN Governor, Mr. Olayemi Cardoso, had said a stress test performed on Nigerian banks revealed that while they would withstand mild to moderate stress, they would be unable to service a $1trillion economy projected by President Bola Tinubu in seven years, hence the need for recapitalisation.
Cardoso said, “Stress tests conducted on the banking industry also indicate its strength under mild-to-moderate scenarios of sustained economic and financial stress, although there is room for further strengthening and enhancing resilience to shocks. Therefore, there is still much work to be done in fortifying the industry for future challenges.”
He added, “Considering the policy imperatives and the projected economic growth, it is crucial for us to evaluate the adequacy of our banking industry to serve the envisioned larger economy. It is crucial to evaluate the adequacy of our banking industry to serve the envisioned larger economy.
“It is not just about its current stability. We need to ask ourselves, can Nigerian banks have sufficient capital relative to the finance system needed in servicing a $1trillion economy shortly, in my opinion, the answer is no, unless we take action. As a first test, the central bank will be directing banks to increase their capital.”
Findings show investors have begun positioning themselves in the bank stocks listed on the NGX following the announcement of the proposed recapitalisation of the banks in 2024.
There are reports some big banks may be eyeing smaller and weaker ones in the event the proposed consolidation in the sector fuels possible acquisitions.
According to THISDAY investigations, Access Holdings Plc, United Bank for Africa Plc (UBA), Zenith Bank Plc, Fidelity Bank Plc and FBN Holdings Plc contributed about 71.3 per cent or N534 billion out of the N749.24billon gained in the banking sector capitalisation in first trading week of 2024.
As Access Bank gained N120.85billion in market capitalisation when its stock price gained 10.4 per cent or N2.45 per share to N26.00 per share, investors in UBA gained N112.86 billiion when the stock appreciated by 12.87per cent or N3.30 per share to N28.95 per share from N25.65 per share it closed for trading in 2023.
In first trading week of 2024, the stock price of Fidelity bank added 30.88 per cent or N3.35 per share to trigged its market capitalisation to N107.24billion.
For Zenith Bank, its market capitalisation gained N105.18billiion and FBN Holdings gained N87.94billion in market capitalisation in first four-day trading activities on NGX.
Only Stanbic IBTC Holdings recorded a decline of 5.96per cent or N4.15 per share to N65.50 per share, as its market capitalisation tumbled by N53.77billion in four-day.
According to THISDAY investigations, some banking stocks hit 52-week high on the backdrop of surge investors demand as some are traded undervalue on the bourse.
For instance, Wema bank Plc, Sterling Financial Holdings Company Plc, FCMB Group Plc, and Unity Bank Plc hit 52-week high as of January 5, 2024.
Wema Bank hits N7.38 per share as of January 5, 2024 from N5.60 per share it opened for trading, while Sterling Financial Holdings Company stock price rose by 34.5 per cent or N1.48 per share to N5.77 per share.
As FCMB Group gained 31.76 per cent or N2.35 per share to close at N 9.75 per share, Unity Bank recorded the highest gain in week, as its stock price gained 45 per cent or N2.35 per share from N1.62 per share it closed for trading in 2023.
At 114.90 per cent, the banking index in 2023 was among the best performing indices following the new administration foreign exchange reforms and subsidy removal on fuel.
Investors positioned in the banking stocks between June and August following the Central Bank of Nigeria (CBN) naira unification policies that have attracted more foreign investors’ participation who rushed to take position in banking stocks that were before now undervalued.
Reacting to banking sector performance on the Exchange, a group of analysts at Coronation Asset Management in a report titled, “Investment Opportunities from FX Liberalisation,” said banking stocks might repeat the 2017 scenario when foreign exchange rates convergence stimulated the performance of banking stocks.
The report said, “Bank stocks performed well in 2017 and we think that they will perform well again in 2023, given that most of the major listed banks hold net long positions in United States dollars and will report translation gains. We also think there is a chance that bank regulations affecting naira liquidity will be eased.”
They noted that there were also many differences with 2017 pointing out that by mid-2017 the economy was emerging from a five-quarter recession and the appreciation in the parallel exchange rate improved business conditions.
The analysts added that foreign investors are still a significant factor in the Nigerian equity market in 2017; much less now, although recent data showed a net inflow of foreign investment into the stock market.
They noted that the monetary authorities were also able to engineer market interest rates above the rate of inflation, something to which investors usually respond positively.
“This begs one question about the second half of 2023. Which way are interest rates going to move? A liberalised foreign exchange rate points to elevated interest rates in order to make it worthwhile holding money in naira. Fuel subsidy removal, effective May 31, 2023 suggests that cost pressures will push inflation upwards, which also argues for elevated interest rates.
Against this, the All Progressives Congress (APC) manifesto proposed low interest rates to encourage economic growth. We do not know, at this stage, how the APC administration and the Central Bank of Nigeria will resolve this critical area of policy. On the bright side, the removal of fuel subsidies and the liberalisation of the naira foreign exchange rate are historic events, and will themselves straighten out much of the dysfunctional economic behaviour we have become accustomed to,” Coronation stated.
They added that the reforms embarked upon by the President Bola Tinubu’s administration, “are good for the economy and in the long run are good for markets”.
Drawing up a model equity portfolio, analysts included overweight for the banking sector, which they believed would benefit from liberalisation of foreign exchange rates, given that most of that large listed banks have net long positions in dollars.
