First, it was N116.2 billion and then shivers as investors wondered what just ensued. By the close of business on Tuesday the losses had parred to N76.5 billion. Guaranty Trust Bank (GTB), the darling of the Nigerian Banking was seeing red as investors dumped the stocks in early trading before it rallied back.
Last week, the Nigerian Banking Index closed the week losing 5.44%. The banking index is down 13.04% year to date and is one of the worse performing indexes this year. One of the major reasons for the poor performance is in part due to the uncertainty facing the economy following the national elections and the delay in appointing its cabinet. However, last week’s fall is now being blamed on the CBN’s latest policy forcing banks to lend.
Several investment newsletters tracked by Nairametrics attribute GTB’s near sell-off today to foreign investors. Stockbrokerage houses typically publish newsletters stating their view of the markets. According to one Newsletter, foreign investors have instructed their local fund managers to slash their portfolio holding in large-cap Nigerian banks especially GTB and Zenith Banks.
Why rush to sell? Another report claims investors are reacting to the uncertainty trailing last week’s decision by the Central Bank to force banks to lend 60% of their customer deposits by September 2019.
- Investors are apparently spooked by this decision and the bank’s knack for imposing regulations on banks without due notice.
- Banks are also about to release their half-year annual reports. With the likes of GTB and Zenith Bank currently being audited the outcome of the results may not meet the expectations of investors.
- Over the weekend Nigeria signed the African Continental Free Trade Agreement (AfCFTA) opening its markets to the rest of Africa. Investors are still grappling with the implication of this move and may as well be reacting spuriously.
- Ironically fundamentals for most emerging markets appear strong but foreign investors are still wary about the political landscape across the world.
What this means: Despite GT Bank’s strong fundamentals and relatively low valuation (PE;4.1x), investors are not having it. External factors such as political risk far outweigh strong fundamentals in the eye of foreign investors. With demand for Nigerian stocks weak, equities remain a no go area for investors thinking in the short term. However, where others flea, opportunities abound.
In addition to this is sub-optimization position of CBN Management which is becoming common attitude of public office Holders; they personalize their Offices at detriment of general interest.
The recapitalization plan is an example of sub-optimization because CBN did not consider its effect on capital market that suffered severely after the failure of 2008 recapitalization. I will not think CBN would print money to provide the required capital; fund would migrate from available sources in the economy to raise the required capital which would cause disequilibrium and consequential effects to these sources. Appropriate collaboration by all Regulators would have identified attendant effects of bank recapitalization and provided solutions.
Let us note that under the regulatory watch of CBN Banks had written-off non performing loans which consequently eroded the share investment of capital market; performance of such loans could have contributed immensely to operating capital of Banks
CBN should please collaborate with other Regulators in financial system to evolve excellent policies for management of Nigeria economy.