The Nigerian equities market suffered its worst week since April, as the impact of the Central Bank of Nigeria’s (CBN) punitive measures on 12 banks for failing to meet the new loan-to-deposit ratio floor (LDR) (previously 60.0 per cent, recently revised to 65.0 per cent), weighed down on banking stocks.
Consequently, the All-Share Index declined by 2.5 per cent to 26,987.45 points, and settled the YTD return at -14.1 per cent while market capitalisation closed at N13.137 trillion at the end of the trading week.
The market opened for four trading days this week as the Federal Government declared Tuesday October 1, 2019 a public holiday to mark the nations 59th Independence anniversary.
Meanwhile, a total turnover of 660.654 million shares worth N9.189 billion in 12,032 deals were traded this week by investors on the floor of the Exchange in contrast to a total of 1.097 billion shares valued at N16.693 billion that exchanged hands in the previous week in 14,717 deals.
Analysing by sectors, banking (-3.9 per cent) index recorded its largest decline since the week ended August 9, 2019 , with the Consumer Goods (-4.9 per cent), and Oil & Gas (-2.3 per cent) indices following suit. Conversely, the Insurance (+5.7 per cent) and Industrial Goods (+0.1 per cent) were the only indices to post positive performances.
The Financial Services industry (measured by volume) led the activity chart with 458.190 million shares valued at N5.905 billion traded in 6,720 deals; thus contributing 69.35 per cent and 64.27 per cent to the total equity turnover volume and value respectively.
The Conglomerates industry followed with 55.804 million shares worth N124.513 million in 545 deals while the Construction/Real Estate Industry posted a turnover of 54.330 million shares worth N62.585 million in 135 deals.
Trading in the top three equities namely, Guaranty Trust Bank Plc, Access Bank Plc and FBN Holdings Plc. (measured by volume) accounted for 280.714 million shares worth N4.909 billion in 2,985 deals, contributing 42.49 and 53.43 per cent to the total equity turnover volume and value respectively.
Fifteen equities appreciated in price during the week, lower than 22 equities in the previous week. Thirty-nine equities depreciated in price, lower than 42 equities in the previous week, while 112 equities remained unchanged, higher than one 102 equities recorded in the preceding week.
Analysts say investors reacted badly to the news that Nigeria’s apex bank sanctioned some financial institutions by taking profit.
This, however, caused the decline in market indices.
The CBN as reported in some quarters deducted a total of N499.17 billion from the accounts of 12 banks under its supervision, over their failure to meet the September 30, 2019 deadline it had stipulated for them to maintain LDR ratio.
The banks include Citibank, First Bank of Nigeria, FBNQuest Merchant, First City Monument Bank, Guaranty Trust Bank, Jaiz Bank, Keystone Bank and Rand Merchant Bank. Others are Standard Chartered Bank, Suntrust, United Bank for Africa and Zenith Bank.
Reacting to the development, President, Chartered Institute of Bankers of Nigeria (CIBN), Uche Olowu, said that the amount represents 13.5 per cent minimum interest on the deposits, which is the CBN Monetary Policy Rate (MPR) while adding that the regulator has also shown the banks that it can bite.
“The sanction is an indication that when the CBN tells banks to do something, it must be taken seriously. I still believe that the CBN may release the funds to the banks when they meet the new 65 per cent LDR target. The good thing is that the funds still counts for the banks’ liquidity ratio,” Olowu said.
Former Executive Director, Keystone Bank, Richard Obire, said that getting the banks to lend more requires certain policy decisions on the part of the CBN, including crashing the Treasury Bills (T-Bills) rates.
According to him, “if the banks do not find the T-Bills attractive investment plan, they will be forced to lend to the real sector.”
Meanwhile Analysts at Cordros Capital in their assessment of the performance of the market, noted that the bearish trend is likely to persist while adding that it expects investors to reap gains over the final months of the year.
“In our view, the trend witnessed through the year is likely to persist through the final quarter of the year, although we expect pockets of gains over the final months of the year as fund and portfolio managers realign portfolios prior to the start of 2020.
“Nonetheless, we note that valuations remain attractive driven by price deterioration throughout the year. Hence, we advise that long-term investors consider appropriately timed investments,” they said.