Wednesday, July 24, 2013 / @Webtvng.com
Five (5) years after the post-banking crisis in Nigeria that witnessed low confidence in the financial market, the story of how it has recovered from the hurt shows a positive sign that there is prospect for a sustainable growth.
This was the outcome of the 2013 Afrinvest Nigerian Banking report 2013, held at the Oriental Hotel, Lagos. Attended by asset managers, financial analysts, research groups, top bankers, economists and financial correspondents, it created a platform and avenue for an engaging debate and discussion on banking sector and the nation's economic outlook.
The 2013 Nigerian Banking Sector Report summarizes in a rather unique way, a rating of the reform process for the first time, without losing sight of the most important objective of the reform programme – to cleansed and de-lever the country’s banks. Yet, the banking reforms did more than this – it gave us a central bank, more sensitive to Naira values and inflation targeting.
The Nigerian banking sector (which constitutes about 31% of the stock index), has since 2008, seen more than doubling in foreign participation. With a price-to-book ratio of 0.93x; average dividend yield of over 5.8%; and a PE ratio of only 5.92 the sector remains supremely attractive in a world of global quantitative easing with no end in sight.
As Damina Advisors pointed out in their December 2012 periscope – “The bullish economic and capital market sentiments emanating from Nigeria are in sharp contrast to the growing investor unease over the seemingly radical adoption of the faddish new theory of ‘nominal GDP targeting’ promoted by a new quasi-orthodox school of economists, dubbed the ‘market monetarists.’ This group essentially argues that instead of central banks pursing standard orthodox policies focused primarily on checking inflation and maintaining the purchasing power of national currencies, countries potentially caught in a deflationary spiral should stop targeting forward looking inflation indicators, and target backward looking nominal GDP and figures such as unemployment”.
Like all initiatives out of Africa, our financial sector reform, nay macro-economic stable growth in GDP and steadiness of exchange and inflation rates within a band was expected to fizzle out. It has not, indeed analysts like Sebastian Spio-Garbrah, Managing Director & Chief Analyst, African Frontier Markets concludes thus:
“In contrast, Nigeria, after a hiatus of almost four years, 2013 will likely see a strong influx of new international fixed income equity investors into its capital markets in search of high stable yields and returns in an appreciating currency environment. Nigeria’s stock market sentiment, which is heavily influenced by banking stocks, may in 2013 see its strongest run in years, as foreigners and Diaspora Nigerians seek to re-invest in the country’s cleansed and de-levered banks. Over $35 billion worth of bad loans have been siphoned from the sector over the past three years by the government “bad bank,” Asset Management Corporation of Nigeria, leaving Nigerian bank balance sheets, governance structures and quality of assets as among the best in world (OECD inclusive). Unlike in most other emerging and frontier markets, in Nigeria, all pre-2008 bank CEOs have been replaced across the entire sector; and an open forensic audit has been done on all the country’s banks - a regulatory feat not even equaled in the UK, Spain, Russia, China, Brazil or the US.”
It is against this background that local and international interest in the Afrinvest Special Report on Nigerian Banks is seen as understandable - if not for the insight and teachable lessons it should provide about the reform undertaken; it must therefore be because of the prominence of Nigeria as a leading economy in Africa and the butterfly effect its banking sector wields. Needless to add, a clean bill of health for Nigerian banks (as envisaged by Proshare Analysts) should easily translate into a revalidation of the reforms programme embarked upon and a strong pillar of force to support economic growth and confidence in the banks - as they go through a new competitive landscape; and as they transit into the ‘era of real banking’.
Supporting this in his opening remarks, Apostle Hayford Alile, Chairman of Afrinvest, described the firm as a leading Investment banking, securities, asset management and investment research firm built on the block of research framework and high-level innovation. Delving into a critical but holistic report and analysis of the Nigerian banking sector, Apostle Alile surmised that the report was an attestation to its reputation for writing incisive reports and research that are credible and valuable for rating the overall performance of the Central Bank of Nigeria.
Also speaking at the event, the First Vice-President of the Nigerian Stock Exchange and outgoing GMD of Access Bank plc Mr. Aigboje Aig Imoukhuede described Afrinvest as a group that has pioneered incisive reporting on the banking sector in sub-saharan Africa. Mr. Imoukhuede who has been instrumental to the growth of the banking industry, stated that market data was critical to the economic sustainability of nations and acknowledged the work being done by firms at the fore front of pushing this genre of information dissemination.
In what would be described as as an indepth, incisive and enlightening overview of Nigeria's macro-economic outlook, Mr. Bismark Rewane, CEO of Financial Derivatives, Nigeria's leading economic firm affirmed that despite various levels of global instability, Nigeria - Africa's fastest growing economy was experiencing a stable growth. For the H1’13 analysis, the economy experienced a slow growth of 6.56 percent from 6.58 percent in Q4 2012, as a result of the slight decline in the telecommunications, wholesale and retail and the oil sectors contribution to GDP. He however raised the notion that the oscillating mode of oil prices between January to June at the level of 117 USD, 106 USD and 110 USD affected the external reserves and eventual outcome.
The erudite analyst also posited that the recent MPC will increase government spending, leave inflation at a benign level, lead to a 5% dip in the hitherto resurgent stock market, increase inter-bank rate between the range of 6-7 percent, constrict loan market activities and reduce OMO auctions – as a consequence of the reaction to the MPC policy.
Mr. Ike Chioke, CEO of Afrinvest in his presentation of the Banking report for 2013 - captioned 'Standing on the 4th Pillar'; provided credence to the remarkable role the Central Bank of Nigeria has played in the areas of enhancing quality of banks, enhancing financial stability, enhancing financial sector evolution and ensuring the financial sector contributes to the real economy.
Mr. Chioke lauded the Sanusi-led CBN for initiating various intervention funds that have transformed the real economy citing the N300billion Petroleum and Aviation Intervention fund, N200billion for commercial agriculture loan and the increase by 45 million susbcribers to online banking as a catalyst for financial inclusion.
The issue of CBN ensuring the financial sector contributes to the growth of the economy, according to the Afrinvest boss was the critical fourth pillar for the economy for which more work remains to be done by this and successive CBN regimes.