Nigerian lenders which make up about 30 percent of the stock market have gotten off to a bad start in 2014.
The sell-off in bank stocks is across the board with no hiding place for investors as negative sentiment runs rampant on financials.
The bank names are down -14.5 percent on average collectively, compared with the NSE – ASI which has lost -4.72 percent year to date.
Bank stocks selling off on the prospects of lower earnings growth in 2014, as a slew of regulatory actions look set to impact their bottom lines.
The non release of full year 2013 results for any of the lenders may also be contributing to the sell-off as investors seem unwilling to catch a falling knife at this point without the greater clarity that the results and accompanying earnings calls would provide.
· Central bank of Nigeria Governor, Sanusi Lamido Sanusi hinted at the Renaissance Capital conference last week that it may increase the cash reserve requirements (CRR) on public sector deposits to 100 percent from 75 percent. The CRR private funds may move to 15 percent from 12 percent, Sanusi said.
· The IMF estimates that a 2 percent increase in the level of the CRR adds approximately 0.5 percent to the spread between deposit and lending rates.
· The increase in CRR comes on top of a regulator-mandated rise in the interest rate paid on savings deposits to a minimum of 30 percent of MPR and a reduction in commission on turnover (COT).
· The CBN also published two circulars in December 2013, which indicated that it expects banks to begin adopting elements of Basel II and III relating to market and operational risk, which may require them to raise more capital.
· Some of the regulatory impact have begun to show in the nine month to September 2013 results of the banks, which collectively grew pretax profits by the slowest pace of growth in about two years.
· For banks to reverse the anemic growth in profitability and boost stock performance, they would have to ramp up lending while keeping bad loans from ballooning.
While lending should expand together with the Nigerian economy, credit growth lagged nominal GDP in 2013.
Data from the CBN show that borrowing by companies in the private sector rose by 9.7 percent to N16.5 trillion in December, from N14.99 trillion in January 2013, less than last year’s projected nominal growth (GDP plus inflation) of about 14 percent.
Private sector credit in Nigeria was equivalent to 38 percent of GDP in 2013, compared to 150 percent of GDP in South Africa.
Nigerian businesses said access to financing was the third most problematic factor for doing business in Nigeria after infrastructure and corruption, according to the World Economic Forum, global competitiveness report for 2013, meaning credit demand is not being matched by supply, as lenders largely remained risk averse.
Looking at our chart (Fig 1) Zenith Bank, Fidelity, UBA, Wema Bank and First Bank were the worst performers in the year to Feb. 14.