The development of any country largely depends on the economic growth it achieves over a period of time. To attain economic development, a country needs more investment and production and this can happen only when there are opportunities for savings which can be channelled into productive assets in the form of investment.
Despite the nation’s tough operating conditions, financial stocks, excluding the insurance stocks, have over the years dominated activities in the Nigerian capital market.
Investigations by Daily Sun revealed that although the industrial goods sector excelled, the financial services industry dominated in volume terms at the end of last month’s transactions on the equities segment of the Nigerian Stock Exchange (NSE). The sector led the activity chart with 4.005 billion shares valued at N50.264 billion traded in 29,981 deals, thus accounting for 68.44 per cent and 75.30 per cent of the total equity turnover volume and value respectively.
As at March 29, top trading equities namely – Zenith International Bank Plc, Champion Breweries Plc and Skye Bank Plc (measured by volume), accounted for 485.832 million shares worth N5.851 billion in 2,221 deals, contributing 31.53 per cent and 35.15 per cent to the total equity turnover volume and value respectively.
Recently, shareholders of Access Bank, GTBank, First City Monument Bank (FCMB), United Bank for Africa (UBA) and Zenith Bank, all had cause to smile following impressive results and dividends that were recommended by directors.
For instance, Access Bank recorded a 20 per cent growth in gross earnings as the gross revenue moved from N381.32 billion in 2016 to N459.076 billion in 2017. Also, the bank proposed a final dividend of 40 kobo per share to its shareholders, in addition to 25 kobo interim dividend paid during the period, making a total of 65 kobo. GTBank, on the other hand, recorded Profit Before Tax (PBT) amounting to N200.24 billion in 2017, representing a growth of 21.3 per cent over N165.1 billion recorded in the corresponding year ended December 2016 while Profit After Tax (PAT) for the period under review stood at N170.5 billion from N132.3 billion in 2016. The bank then proposed a final dividend of N2.40 per unit of ordinary share held by shareholders in addition to interim dividend of 30 kobo per unit of ordinary share bringing total dividend for 2017 financial year to N2.70 per unit of ordinary share.
This is impressive as GTBank pays dividend to its shareholders twice every year. Despite the economic headwinds in 2016, the bank maintained its robust dividend payment with a total dividend of 200 kobo per share or N58.862 billion. While an interim dividend of 25 kobo or N7.357 billion had already been paid as interim dividend, a final dividend of 175 kobo or N51.504 billion was recommended.
UBA’s gross earnings grew substantially to N462 billion, up by 20 per cent from N314 billion recorded in the corresponding period of 2017.
The group delivered a strong 16 per cent year-on-year growth in PBT of N105 billion, compared to N90.6 billion in the 2016 financial year while its PAT also leaped to N78.6 billion, an 8.8 per cent year-on-year growth compared to N72.3 billion in 2016.
Subject to the approvals of the shareholders, the board of UBA Plc proposed a final dividend of 65 kobo per every share of 50 kobo each. This final dividend proposal is in addition to the 20 kobo per share.
Interim dividend paid after the audit of the 2017 half year financial statements, thus putting the total dividend for 2017 financial year at 85 kobo per share.
Commenting on the performance of the financial sector, capital market operators said the high demand of shares, dividend, liquidity and gradual recovery of the economy has played a part in attracting investors to the financial sector, adding that the financial sector remains the engine of the economy.
Speaking to Daily Sun through a telephone chat, Managing Director, Front Vine Capital and Securities Limited, Chief Eugene Ezenwa, said bank stocks have continually outperformed other stocks because of the nature of dividend, liquidity and level of profit made by banks.
“Given that, people, PFAs would want to earn dividend. Some asset or portfolio managers most often do not depend on dividend but rather they depend on capital appreciation. Even on capital appreciation, bank stocks’ index have outperformed other indexes of other sectors because of high demand of their shares. That is why capital appreciation on those financial stocks are always higher than other stocks.
“If you look at the whole sectors, in terms of liquidity, the financial sector is more liquid than other sectors. Liquidity means the ability to buy or sell stock at any point in time. When a stock is liquid, it is the ability to buy and sell at will unlike the insurance stocks. So bank stocks are liquid, give good dividend and their capital appreciation is ok and you can easily buy and sell banking stocks and the demand for them is always high,” he explained.
Corroborating, Chief Executive Officer, Crane Securities, Mike Eze, said the full year results posted by banks had a bandwagon effect on the activities of the banking stocks, adding that the effect is likely to be sustained till the next quarter. He said, “a lot of banks posted good results and you know what happens in this bank, happens in another one. So invariably, it had a bandwagon effect on banking stocks and that is why they did very well and investors are happy to invest in them.
“The stocks are likely to be sustained because if they have done well, they can continue to sustain that performance till the next quarter.”
Former President, Chartered Institute of Stockbrokers, Ariyo Olushekun, attributed the run to the gradual recovery of the economy.
He said, “The stocks are doing well because the banking services and products are always in demand whether the economy is doing well or not, therefore they continue to make income. So I think the economy is recovering bits by bits, so that is another factor that is helping them and leads to increased business for them. As the economy is recovering gradually, the other sectors may not pick up as fast as they are supposed to pick up, but with time they will do well.”