Shareholders of Nigerian banks lost N345.223 billion in market value in the first nine months of the year 2020. During the period under review, shareholders in the 11 biggest commercial banks in the country had their worth eroded by approximately 12 percent cumulatively, induced by the outbreak of the COVID-19 pandemic which saw most banking stocks hit their lowest valuations in 2 years, as investors flock to safe haven assets to hedge against the negative implications of the pandemic.
While ten of the eleven banks were negatively affected by the Covid-pandemic just one bank – First City Monument Bank (FCMB) – stood out with a relatively impressive performance.
During the period under review, FCMB was up 18.38 percent, delivering a real return of 5.18 percent when adjusted for 13.2 percent inflation as at August 2020. The bank’s progress despite the pandemic is truly a breath of fresh air.
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The year 2020 can be described as a bad year for Nigerian banking stocks, especially, coming from a strong performance in the fourth quarter of 2019. Nigerian banking stocks saw a short-lived gain from the artificially low-interest-rate environment triggered by the CBN’S repression policy until the COVID- 19 pandemic struck. Most banking stocks especially Tier- one banks recorded gains above 15 percent from October when the policy took effect through December 2019. First Bank stock price rose 40 percent, Access Bank (50.65%), UBA (43.90%), Zenith Bank (16.58%) and GTB (7.02 percent) respectively.
Mid-tier banks weren’t excluded also from the excess liquidity which flooded into the stock market. Being a safer bet for investment, banks such as FCMB, Fidelity, Unity Bank and Stanbic IBTC also benefited from buy pressure. Stock prices rose 26.06 percent, 39.41 percent, 26.98 percent and 11.84 percent respectively.
However, the outbreak of the COVID-19 pandemic and decline in global oil prices, however, saw banking stocks consistently trended downwards through April. For example, First Bank stock price declined 39.83 percent. This means erosion by the same rate in investors’ shareholding value. GTB dipped 41.75 percent, UBA (- 32.17%), Zenith (-40.86%) and Access Bank (-45%).
As crude oil prices began recovering in Mid- April, domestic investors began taking advantage of cheap banking stocks which provided some form of respite for banking stocks.
On the average, all other banks excluding FCMB shed 14.53 percent in market value during the 9-month period. This indicates that N465.88 billion was wiped off the combined market capitalisations of these ten banks.
When FCMB is added to the mix, the average decline of stocks yield improves to -11.57 percent, thereby indicating that the presence of this singular bank reduces the overall market stock loss to N362.93bn.
Tier-1 banks like GTB, Zenith, Access, UBA and First banks bore 76 percent of the brunt losing a whooping N253.29bn loss signalling the COVID-19 induced selloff on these banks.
The other 6 banks combined lost N91.93bn, 26 percent of overall losses.
Given that the big banks account for about 71 percent of combined market capitalisation, with smaller banks taking 29 percent, the proportion of loss-sharing is almost equivalent to the market value distribution.
ETI and Access bank had the greatest losses of over 30 percent, to the tune of N174.17bn combined while Stanbic Bank saw the least dip of just – 1.2 percent, amounting to a mere N5.56bn.
However, Access bank saw the largest decline in its stock market value by N117.3bn, which was double of the value lost by GTB who had the second greatest stock market loss of N56.87bn and 143 times over that of Stanbic bank.
The outlook for Nigerian banking stocks remains bleak given the CBN’S reluctance to undergo the most advocated FX reform which has kept foreign investors on the side-line despite cheap valuations of banking stocks. Banking stocks are most considered a safer bet for foreign investors and marks their first destination before considering other stocks in the market.
Foreign investors must be sure when they come in they can exit at any time. The current CBN’S dollar management and naira obsession is a major disincentive for foreign investment and will weigh on the quick recovery of banking stocks.
Although the banking index plunged by 38 percent to 219.94 index point in the first 3 months of the year, the index has sluggishly improved to 310.39 points with year-to-date performance of -12.7 percent.
