Nigerian Bank stocks collapse widens valuation gap from Kenya to SA

The recent sell-off in Nigerian banking stocks is widening a valuation gap that existed between them and other lenders in Africa’s major economies.

The market capitalisation of Nigeria’s 15 listed banks has fallen to a mere $8.9 billion (N1.78 trillion), compared to $6.1 billion (KES 628.34 billion) for listed Kenyan Banks and $43.7 billion (ZAR 726.3 billion) for the six components of South Africa’s FTSE/JSE Africa Banks Index.

At the recent stock market peak of July 2014 when the benchmark NSE all share index briefly crossed the 43,000 points mark, Nigeria’s top five lenders (FBN holdings, Zenith Bank, Guaranty Trust Bank, UBA, and Access Bank), had a combined market capitalisation of $13.3 billion (N2.664 trillion).

Today, South Africa’s FirstRand Bank with a market capitalisation of $13.3 billion (ZAR 221.6 billion), is more valuable than the 15 Nigerian banks combined, after a stock market rout that has seen the Nigerian Stock Exchange (NSE) enter a bear market (-21 percent) in 2016 after losing 17 percent in 2015.

“The dismal performance of the equities market has been primarily influenced by declining crude oil prices and foreign exchange volatility amid weak macro-economic indicators,” Olutola Oni, head of research at investment firm, WSTC financial services Ltd, said in response to questions.

“Whilst it is difficult to predict when and at what point the equities market will eventually bottom out, we believe that the movement of crude oil prices and the way the CBN handles the current volatility in the forex market will determine the course of the equities market in the meantime.”

Nigerian banks have been particularly hit by the sell-off with the banking index down 22.66 percent this year to January 15, after losing 23.59 percent last year, data from the NSE shows.

The valuation gap between Nigerian lenders and South African or Kenyan banks has widened as the country’s economic crisis intensifies from a collapse in crude oil prices.

Nigerian top tier lenders are all trading below tangible book value per share.

FBN Holdings now trades at an unbelievably low 0.2xs book value, Access Bank at 0.25xs, UBA at 0.28xs Zenith Bank at 0.52xs and Guaranty Trust Bank 0.98xs, according to Financial Times data.

This compares to a valuation of 2.2xs book value that investors are paying for Kenya’s largest bank, the Equity bank Group, and 2.35xs book value for South Africa’s largest bank, First Rand Group.

Banks are facing a challenging macro situation in Nigeria, with economic growth slowing markedly in 2015 and rising bad loans from energy debts hitting profitability.

FCMB, a mid-tier lender issued a profit warning in a filing to the stock exchange on Monday.

“3Q15 earnings as at September 2015, will be materially below earnings for the same period in 2014, due to two factors: a spike in impairments, particularly in the energy sector and the significant reduction in trade finance-related revenues due to foreign exchange illiquidity,” Peter Obaseki, the Managing Director of FCMB Group Plc said in a statement posted on the NSE website.

Impairment charges for credit losses taken by the five top tier banks, which control about 70 percent of industry loans increased by an average of 142 percent to N81.7 billion in the most recent third quarter, data compiled by BusinessDay show.

The Nigerian economy expanded by just 2.84 percent in Q3 2015, down from an average growth rate of 6 per cent recorded in 2014, according to data from the National Bureau of Statistics (NBS).

Pressures stemming from slowing growth, lower commodity prices and currency depreciation affecting many African economies, combined with structural challenges, such as infrastructure bottlenecks and fiscal imbalances, will continue to threaten Nigerian banks’ asset quality metrics leading to an increase in NPLs in 2016, Moody’s Investors Service said in its outlook for Africa’s banks released recently.

“The most vulnerable banking systems are in oil or commodity exporting Sub-Saharan African countries, including Angola, Nigeria and Ghana,” said Constantinos Kypreos, a Moody’s Vice President – Senior Credit Officer and author of the report.

PATRICK ATUANYA