Investors on Monday dumped banking stocks, plunging the sector’s index into a daily loss of 4.78percent, its biggest loss since the beginning of the year, at the close of trading on the nation’s bourse on Monday.
Despite a decent result by tier-1 Zenith Bank on Friday, its shares tanked 3.78percent to close at N19.10. United Bank for Africa shed 7.43percent to N6.85, Guaranty Trust Bank dropped 3.76percent to close at N26.90, First Bank dropped 7.83percent at N5.30, while Access Bank also dropped 6.38percent.
Consequently, the All-Share Index declined by 1.27percent to 27,041.03 points – the largest 1-day decline since falling by 1.55percent on 23 December 2019.
The Month-to-Date loss increased to -6.25percent, while the Year-to-Date return moderated to 0.74percent.
Over the weekend the Bankers Committee of the apex bank, the umbrella body of Central Bank of Nigeria’s (CBN) officials and managing directors of deposit money banks in the country rolled out sanctions to some banks for breaching FX rules on using wired funds to finance banned/prohibited items.
The affected banks include Fidelity, Stanbic, FCMB, FBN, UBA, and GTB.
The committee also announced another set of 14 banks that violated FX rules, including Access, Ecobank, Fidelity, FBN, FCMB, Polaris, Heritage, GTB, UBA, Zenith, etc.
In what could be termed as stifling the revenues of the banks, the apex bank has now declared the high-yielding Open Market Operations as poison for banks henceforth.
“OMO has now become poison as against honey that it used to be. Banks are enjoined to remove its eyes from OMO and play responsibly,” CBN said.
The committee also warned that that Cash Reserve Ratio which is the share of a bank’s total deposit that is kept with the CBN, shall continue at discretionary application and can be as high as 30-40percent if the apex bank detects that the banks bid for Open Market Operations (OMO). The apex had last month raised the CRR by 500bps to 27.5percent from 22.5 percent.
Amid regulatory pressures, analysts at Renaissance Capital suggest that banks in the country willing to deliver higher sustainable earnings and create shareholder value should scale growth in extant operations outside Nigeria; evolve into a holding company model with sizeable subsidiaries in fast-growth sectors, and build low-cost business models to penetrate the bottom of the pyramid.
According to the report titled Nigerian Banks: Surviving the squeeze, evolving into a holding structure would give Nigerian banks a route to explore earnings growth outside of the challenging banking sector, as well as room to explore cross-selling opportunities across a larger group,
“One key benefit to investors from a bank adopting this structure is the earnings see-through it gives as it allows investors to value the group on a sum of the parts (SoTP) basis,” the report said.
