By Peter Egwuatu
DESPITE sustained negative impacts of economy headwind on the banking industry, banking sector index has led performance in the Nigerian Stock Exchange, NSE , accounting for N1.484 trillion or 9.3 per cent of total investment value on the NSE from Year to Date, YtD.
This is also as the banking sector outperformed the NSE All Share Index. Though the sector index declined marginally to close lower at 273.97 points on Friday 24, 2017, about 0.12 per cent from 274.32 points it opened January 3, 2017. It showed a massive positive gap against the NSE All Share Index which dropped by 6.04 per cent to close at 25,250.37 points from 26,874.62 points.
Financial Vanguard’s review of the stock market for the period show that Unity Bank Plc led the banking sector and the tier-2 bank segments in share price appreciation with 38.6 per cent or N0.22 per share share to close at N0.79 per share last Friday 24, 2017, from N0.57 per share it opened at the beginning of the year.
Access Bank Plc led the tier-1 bank category, appreciating by 15.32 per cent or N0.89 to close at N6.69 per share, from N5.81 per share it opened at the beginning of the year, while United Bank for Africa, UBA appreciated by 10.3 per cent or N0.46 per share to close at N4.91 per share from N4.45 per share it opened at the beginning of the year.
Furthermore, the market capitalisation, which represents the total value of investment by investors in the market declined to N8.738 trillion, representing 4.59 per cent or N420 billion drop from N 9.158 trillion at the beginning of the year.
Reacting to the stock market situation and the banking sector performance in the first two months of 2017, shareholders and operators who spoke with Vanguard, stated that the slow economic performance has been affecting the entire market but noted the resilience that signposted the banking index.
In his comment, Mr. Olalekan Olabode, the Head of Research, Vetiva Capital Market Management said “The banking stocks have historically been the most liquid stocks in the market. Asides the liquidity, their strong earnings profile and rich dividend payout make them the investors’ toast.
They also account for a significant portion of the investment universe on the Nigerian Sector Exchange (NSE). Expected earnings release is the main driver of the banking sector at the moment. We expect earnings to hit the market from next week. We believe that weak asset quality will continue to pressure earnings in the near term – much in line with the trend observed earlier.”
Mr. Afolabi Folayan, Managing Director, Securities Africa Financial Services Limited, said “Investors would want to invest where they will get higher return and less risk, so from the look of things they felt banks will declare higher returns. So this is one of the reasons why you see investors patronising the banking stocks. Also, the perception that banks’ stocks are undervalued attracts investors to buy more of them with the hope of reaping from its appreciation”
Mr. Segun Afolabi, a Chartered Stockbroker, said “the banking sector is the most active because the banks have good fundamentals that stand the test of economic crisis, since capital market has been passive; the only alternative to drive our economy is money market. The business strategy of our banks has changed since the advent of recession.
Banks are coming up with sophisticated products to attract depositors. That is not alone; competition has been on cutting edge, so that is a need on the part of the banks to wake up to the realities of the time. Secondly, the unit price of the banks has dropped, thus making it attractive for investors to buy.”
Mr. Boniface Okezie, Chairman, Progressive Shareholders Association of Nigeria, PSAN stated “The Banking sector will continue to dominate other sectors in as much as we continue to have harsh operating environment that makes the real sector to function. As long as the banks continue to declare profits, investors will continue to patronise their shares.
In banks, we hardly see profit warnings like in other sectors; somehow there is stability in the banking sector because it is well regulated. So investors rush for the stocks because they have taken positions that the banks will declare positive earnings at the end of the financial year.”
Mr. Taiwo Oderinde, National Coordinator, Proactiva Shareholders Association of Nigeria, PROSAN , said banks’ stocks remain toast of investors because most of the banks declare dividend. ‘‘The shareholders are interested on what comes to their pocket at the end of the year. So those banks that consistently declare dividend, investors would also patronise them, that is why you see the banking sector driving the entire market,” he declared.