Nigerian Stocks closed the month of February with an All Share Index of 26,216.46, the lowest since February 2017. The All Share Index is down 2.33% year to date – a massive reversal from January when it closed positively with a growth of 7.46%, making it one of the best performing stock markets.
The Stocks have now fallen for 7 straight days as investors dump equities despite a spate of impressive earnings and dividend announcements from listed companies. Data from the Nigerian Stock Exchange shows that apart from the Industrial Index, all the major sub-indexes closed the week in negative territory.
Biggest losers: Oando, Unilever and Nigeria Breweries topped the losers’ chart year to date with over 30% losses recorded. In the banking sector, Sterling Bank, Wema Bank, and FBNH led the losers with 29%, 27%, and 23.5% losers respectively. Guaranty Trust Bank hit its lowest since January 2017. About 78 listed stocks posted negative returns in the first two months of the year.
What is driving sell-offs: Intels from Nairametrics Research indicate the sell-offs being witnessed stem mostly from uncertainty in the Nigerian and global economy. Nigerian stocks are still very vulnerable and directly correlated to foreign investment inflows.
The lower the demand for Nigerian Stocks from foreign investors, the higher the losses. Throughout this month, the global economy has had to grapple with the Covid-19 aka Coronavirus as it turned into a global pandemic.
Investors fear the spread of the virus across the world could hamper supply chains and trigger a massive slowdown in growth rates. Markets across Europe, Asia, and the United States also fell sharply during the week. The fall in stock markets has forced central banks across the world to consider cutting interest rates while some governments have declared an intent to provide economic stimulus.
Another major driver for stock sell-offs in Nigeria was the drop in global oil prices falling very much below Nigeria’s oil benchmark. Brent Crude closed the week at $49, stoking further fears of its impact on the Nigerian economy. Nigeria depends on oil to fund government expenditure and keep its exchange rate stable.
The latest GDP of 2.27% released last week shows a faster but still anaemic GDP growth rate for Nigeria. The data shows the economy is still reeling from the 2014 crash in oil prices and there was another indicator that government policies were not spurring economic growth as fast as was expected.
Fewer investment outlets: As stocks skid into losses, Nigerians are left with very limited choices of where to invest their money. The risk-free treasury bills market continues to attract significant investment inflows despite offering historically low yields.
Nigeria real estate market posted strong growth of 4.23% in 2019 but rental yields continue to trail inflation rate. Most Nigerians have resorted to Agro Tech funds as an investment outlet despite their susceptibility to being classified as Ponzis.
Despite the sharp drop in the stock market valuation, listed companies continue to post profits and declare dividends. Some notable companies are declaring dividends at current market value yields as high as 14%. For example, Zenith Bank’s dividend yield topped 12% on last week’s market price.
IMF advises banks to suspend dividend payment
However, halting dividend payments may not go down well for many retail and institutional investors, who rely on bank dividends for regular income.
In an article published on its website, International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, advised banks to halt dividend payment for now. According to her, with the expectation of a deep recession in 2020 and partial recovery in 2021, banks’ resilience will be tested. Therefore, having in place strong capital and liquidity positions to support fresh credit will be essential.
According to the article, one of the steps needed to reinforce bank buffers is retaining earnings from ongoing operations which are not insignificant.
IMF staff calculate that the 30 global systemically important banks distributed about US$250bn in dividends and share buybacks last year.
In a circular dated January 31, 2018, the Central Bank of Nigeria (CBN) stipulated new conditions for eligibility of Nigerian banks to pay dividend and the quantum of dividend to be paid out by banks who are eligible. Prior to the release of the circular, dividend payout policy for Nigerian banks had been spelt out in Section 16(1) of BOFIA 2004 (as amended) and Prudential Guidelines for DMBs of 2010. The circular provided guidelines and restrictions around divdidend payout for banks based on NPL ratio, CRR levels, and Capital Adequacy Ratio (CAR).
However, there were no regulatory restriction on dividend payout for banks that meet the minimum capital adequacy ratio, have a CRR of “low” or “moderate” and an NPL ratio of not more than 5%. However, it is expected that the Board of such institutions will recommend payouts based on effective risk assessment and economic realities. Indeed, current economic realities demand caution.
Current economic realities mean that banks face asset quality threats, further devaluation threat which may impact capital in some cases, and lower profits which in turn affects the quantum of capital retained. Ideally, these should reflect in NPL ratio and CAR ratio and should immediately restrict banks’ ability to pay dividend. However, there is usually a time lag before these ratios begin to reflect the new economic realities. Therefore, IMF’s advise may come in handy for many banks.
That said, halting dividend payments may not go down well for many retail and institutional investors, who rely on bank dividends for regular income. Banks like Zenith and Guaranty Trust have a good history of consistent dividend payment with attractive yields which is a major attraction for many shareholders.
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First City Plaza, 44 Marina,
PO Box 9117,
CBN reduces MPR to 12.50%, holds other metrics
Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50% and retains CRR at 27.5%, Liquidity ratio at 30%.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50%.
Governor, CBN, Godwin Emefiele, disclosed this while reading the communique at the end of the MPC meeting on Thursday in Abuja. Meanwhile, other parameters such as the Cash Reserve Ratio (CRR) remained at 27.5%, Liquidity ratio at 30%.
Highlights of the Committee’s decision
- MPC cuts MPR by 100 basis points to 12.50%
- CRR stood at 27.5%
- The Liquidity Ratio was also kept at 30%
CBN MPC cuts policy rate by 100 basis points to 12.5 %, maintains other parameters constant.
— Central Bank of Nigeria (@cenbank) May 28, 2020
According to Emefiele, the decision of the MPC to reduce the Monetary Policy Rate was informed by the impact of the Covid-19 pandemic on the economy, increased inflationary pressure, restrictions in international trade and more.
He highlighted the decline in the nation’s GDP as well as the decline in the manufacturing and non-manufacturing purchasing index which were attributable to slower growth in production, rate of unemployment, amongst others.
Buhari seeks approval from green chamber to borrow fresh $5.5billion
FG also seek approval for the revised 2020-2022 mid-term expenditure framework (MTEF) which became necessary as a result of the crash in crude oil prices and the cut in the production output.
President Muhammadu Buhari is seeking the approval of the House of Representatives to borrow fund to finance capital projects at the federal and state (to support state governors) levels in the 2020 budget.
This request was disclosed via the official twitter handle of the House of Representatives.
The president’s letter, which indicated that the fund would be sourced locally and internationally, was read on the floor of the House of Representatives by the Speaker, Femi Gbajabiamila, during plenary on Thursday, May 28, 2020.
In the letter to the lower chamber, Buhari, is also seeking the approval for the revised 2020-2022 mid-term expenditure framework (MTEF) which became necessary as a result of the crash in crude oil prices and the cut in the production output.
Although the tweet did not contain the total amount of loan that is being requested, reports suggests that the President is seeking approval to borrow the sum of $5.513 billion from external sources to finance 2020 budget deficit and support state governments to meet challenges caused by the coronavirus pandemic.
President @Mbuhari is also seeking the House approval to borrow locally & internationally to finance capital projects as well as finance projects to support state governors in the 2020 budget
The letter was referred to the House Committee on loans & debt management. #HousePlenary
— House of Reps NGR (@HouseNGR) May 28, 2020