Banks seen by Vetiva Capital as returning 42% this year

Nigerian bank stocks, trading at a discount to emerging-market lenders, will probably extend gains to 42 percent this year as they boost capital and finance oil and power projects, Vetiva Capital Management Ltd said, according to Bloomberg.

The Bloomberg NSE Banking Index, which tracks Nigeria’s 10 biggest banks by market value, is trading at a price-to-book ratio of 0.8 times, less than the 1.4 times book value of assets for lenders in the MSCI Emerging Market Banks Index. The gauge for Nigerian banks has gained 34 percent this year compared with a 0.5 percent drop in MSCI EM Banks Index. Nigeria’s all-share index has rallied 37 percent this year, Africa’s best performer after Ghana’s benchmark equities measure.

“What matters to us is the valuation of the banks, their move to create risk assets and how well they manage those risk assets,” Pabina Yinkere, an equity analyst at Vetiva said in a May 31 interview with Bloomberg in Lagos.

“We’ve seen emerging market banks with similar risk profile with Nigerian banks, yet trading at higher multiples.”

Nigerian lenders are seeking to raise dollars by selling international bonds to finance oil, power and other infrastructure projects in the country after returning to profit from near-collapse in 2008 and 2009. The nation’s economy may expand 7.2 percent this year compared with sub-Saharan Africa’s 5.6 percent average, according to the International Monetary Fund (IMF).

Diamond Bank Plc said May 30 it may issue $550 million of Eurobonds this year to boost its operations, after the lender raised its annual loan-growth target to 40 percent from 20 percent.

Fidelity Bank Plc sold $300 million of five-year bonds on May 2 while FBN Holdings Plc, owner of First Bank Nigeria, plans to raise the equivalent of $500 million in Eurobonds this year.