CBN’s FX policy, others Push banking stocks to 71% rally



Monday, December 18,2017

Several Nigerian Deposit Money Banks demonstrated resilience in the last two years amidst macro-economic challenges, which weighed solely on credit expansion, asset quality and capital adequacy, to record largely positive performances for the year.
Following strong earnings’ results, improved micro-economic and gradual stability being recorded in foreign exchange, investors in quoted banks shares on the main board of the Nigerian Stock Exchange (NSE), recorded about N1.03 trillion gain in the first 11 months of 2017.
Data obtained from NSE showed that the stocks recorded gained N1.03 trillion or 71.64 per cent to close at N2.48 trillion in market capitalisation on the last trading day of November 30, 2017 as against opening figure of N1.44 trillion at the beginning of trading on January, 2017.
Further analysis of the data revealed that a total turnover of 3.316 billion shares worth N36.451 billion in 29,771 deals were traded last week by investors on the floor of the Exchange in contrast to a total of 14.257 billion shares valued at N35.056 billion that exchanged hands two weeks ago in 17,379 deals.
The Financial Services Industry (measured by volume) led the activity chart with 2.785 billion shares valued at N26.075 billion traded in 18,293 deals; thus contributing 83.97 per cent and 71.54 per cent to the total equity turnover volume and value respectively.
The Conglomerates Industry followed with 247.639 million shares worth N1.330 billion in 1,333 deals. The third place was occupied by Consumer Goods Industry with a turnover of 185.560 million shares worth N5.976 billion in 6,137 deals.
While trading in the Top Three Equities namely FBN Holdings Plc, Fidelity Bank Plc and Zenith International Bank Plc (measured by volume) accounted for 958.742 million shares worth N11.355 billion in 6,765 deals, contributing 28.91 per cent and 31.15 per cent to the total equity turnover volume and value respectively.

According to analysts at Afrinvest, the financial performance of the sector was principally affected by monetary policy decisions tied to the management of the FX market, which had a ripple effect on earnings across the industry.
“This was positive for banks’ non-interest income, especially Tier-1 lenders with aggregate long Net Open Positions, which recorded massive jumps in FX revaluation gains. Furthermore, in a bid to attract private capital flows and shore-up the naira and external reserves, the CBN drove up policy and market interest rates, resulting in higher fixed income yields, which bolstered interest income for banks,” they said.
In a telephone chat with Daily Sun, Chief Executive Officer (CEO), Cowry Asset Management Limited, Johnson Chukwu, attributed the gain recorded, to the performance of the banks in the third quarter, to change in the FX policy by the Central Bank and a change in pension fund investment guideline.
His words: “The gain recorded is tied to the performance of the banks, the general market performance as the market has just gained more than 45 per cent (Year-to-date) and this is because a couple of factors came into play. The government changed the FX policy, creating a window for investors and exporters (I&E) to bring in foreign currency into the country at market determined rate and that the move encouraged portfolio investors to make a comeback to the market. Secondly, the pension commission came up with a guideline that stimulated a minimum percentage of investment that pension fund administrators must hold in equities and that triggered the rally, leading to an increase in the volume of equities and pension funds in which we are now buying. This bodes well for the financial sector of the economy.”

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