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Bank shares dip as investors panic

By on January 24, 2014

Bank shares fell on Wednesday as investors reacted negatively to the decision of the Monetary Policy Committee of the Central Bank of Nigeria to increase the Cash Reserve Requirement to 75 per cent.

With the exception of Unity Bank Plc, which closed flat, all the other banks trading on the Nigerian Stock Exchange saw their share prices drop, in what analysts said was a sign that investors were likely to dump bank stocks for fixed income securities.

At the close of trading, Skye Bank Plc recorded the highest price depreciation as it shed 9.09 per cent or 40 kobo to close at N4 per share.

The shares of Union Bank of Nigeria Plc and Diamond Bank Plc were down by 4.95 per cent and 4.88 per cent, respectively; those of Wema Bank Plc and Access Bank Plc also fell by 4.35 per cent and 4.04 per cent in that order.

Zenith Bank Plc, Sterling Bank Plc and Fidelity Bank Plc shed 3.23 per cent, three per cent and 2.71 per cent of their share prices, respectively; with Guaranty Trust Bank Plc recording a 1.91 per cent drop in its share price.

United Bank for Africa Plc also saw its stocks decline in value by 1.89 per cent, just as Ecobank Transnational Incorporated Plc recorded three per cent share price depreciation.

Holding companies, which have banks as one of their subsidiaries, also recorded share price depreciation. For instance, FBN Holdings Plc, which has First Bank of Nigeria Limited under it, fell by 6.21 per cent.

Also, FCMB Group Plc and Stanbic IBTC Holding Company Plc declined by 2.68 per cent and 0.40 per cent, respectively.

The decision by the Central Bank of Nigeria to increase the CRR from 12 per cent to 50 per cent in July 2013 had been met with a similar reaction. The policy went on to hurt bank profits in the third quarter of last year, leading many investors to consider pulling out their investments in the banking sector.

According to analysts, the implication of the latest decision, beyond the knee-jerk reaction by some investors in the short-term and a decline in profit, is that fixed income securities may become more attractive for investors.

The Chief Executive Officer, Lambert Trust and Investments Limited, Mr. David Adonri, said the increase in the CRR was not surprising as developments in the macro economy underscored the need for monetary tightening.

According to him, when money supply is tightened in the economy, the implication is that it is likely to drive up interest rates.

“And if that happens, it means that financial assets will flow from all other sectors into fixed income securities, and, therefore, we expect that as assets flow away from other securities, especially equities, that equities will fall in price,” he said.

Adonri also said the real productive sector would also be impacted negatively by the move.

The President, Independent Shareholders Association of Nigeria, Mr. Sunny Nwosu, said the decline in the value of bank stocks was the result of panic on the part of the shareholders.

He explained that considering the possibility that the increase in the CRR would affect the income of banks, some investors would prefer to sell now and buy later.

“But I think that is the result of panic, anyway. Because as we have been saying in ISAN, when this kind of thing happens, the banks too will have to find a way of making up for the profits they are likely to lose as a result of the increase,” he said.

Nwosu, who said he did not consider the CRR increase to be a serious problem, advised investors to review the situation properly before deciding to sell their shares.

 

 

[Punch]