While banking
sector share prices plunged last year after the Central Bank of Nigeria
sacked the top managers of some banks over allegations of financial
misappropriation, the share prices of nine banks affected by the CBN
reform have bounced back considerably in recent weeks.

Analysts say that
this isn’t necessarily because the banks’ businesses have changed, but
that they’re being buoyed by overall market strength and a returning
confidence in the beleaguered financial-services sector.

Esili Eigbe, an
equity research analyst at Renaissance Group, said that the share
prices of such ‘troubled’ banks are appreciating in value following the
ongoing cleansing of the banking sector, while warning that shares of
the “identified bad banks” are stocks short term investors need to
avoid.

These banks should
be viewed as longer-term investments, he said: “Equities in the banking
sector, excluding the bad banks, are good for investors who have early
exit plan from the market.” The banks – Oceanic, Union,
Intercontinental,

Afribank, Finbank, PHB, Spring, Wema, and Unity – have also started to witness a rebound between 16 per cent and 43 per cent.

Analysis shows
that the worst-hit bank, Spring Bank, Intercontinental Bank, BankPHB,
and Oceanic Bank’s equities, which dipped by 86, 76, 73, and 65 per
cent respectively last year, have now appreciated by 43, 22, 33, and 19
per cent respectively since trading started this year.

Also, daily traded
volumes on those stocks have improved this year by at least 100 per
cent, compared to the decline recorded last year.

This indicates a widening interest in the market.

Meanwhile, study
reveals that few weeks before the bank crisis began, the prices of
these equities had only been affected by the global economy downturn in
the range of 8 to 20 per cent. But after the Central Bank declared them
“stressed,” their share prices and volume dropped drastically,
deferring all measures to stop them from sinking, including suspensions
by the Nigerian Stock Exchange (NSE).

Contributing factors

Virginus Agada, a
portfolio manager at Eurocomm Securities Limited, a stock broking firm,
attributed the rebound of those banks’ stocks to several reasons.

Mr. Agada said,
“What you’re seeing happening to those stocks is a function of many
factors. It is first to tell us that the banks were not as bad as they
were painted. Also, people who have money are looking around to see
where they can invest, and because the prices of those banks are so
cheap, some are taking the risk by investing in them. Investment is all
about risk. Those investors took the risk and it works for them. They
bought so low few months ago and they can move out now with the
comfortable margin.” He added that the banks’ stocks are recording
growth in prices and volume because “confidence is coming back to the
market.” “The market itself is not as bad as it was painted. It is just
a matter of managing the available information. If we had managed it
well, the situation in which we find ourselves wouldn’t have been bad
as it was made to be.

But the important thing now is that investors’ confidence is improving in spite of the crisis,” Mr. Agada said.

Still, some
pitfalls exist that could undo the recent gains in the banking sector.
For example, some analysts feel shares would fall if the CBN fails to
follow through with the establishment of a so-called “bad bank” that
will help banks unload non-functioning loans from their books. And
banks are still hesitating to make loans, stymieing local business,
which could in turn hurt economic growth.

Market outlook

In a review of
market outlook for the year, Ndi Okereke-Onyiuke, the director general
and chief executive officer of the Nigerian Stock Exchange, last week,
said there are recent developments at the Exchange which indicates that
performance “has not always been a tale of woes.” “Current upward
movement in equity prices in our market suggests strongly that we have
seen the bottom of the decline of the last several months. The total
market capitalisation, which opened the year at N7.03 trillion, stood
at N7.72 trillion by March 10, 2010, indicating a growth by 9.8 per
cent. Significantly, the equity market capitalisation, which stood at
N5 trillion in December 2009, now stands at N5.64 trillion, indicating
a growth by 12.8 per cent,” she said.

Mrs.
Okereke-Onyiuke explained that the year-to-date appreciation in the All
Share Index (as at March 10, 2010) was 11.9 per cent while the NSE 30
Index recorded 13.2 per cent.

An analysis of the
sectoral indices further showed that the NSE Food/Beverage Index was
the best performing sector with 22.24 per cent appreciation, followed
by the Banking Index with 14.3 per cent appreciation, while the Oil and
Gas Index recorded 5.56 per cent appreciation year-to- date.

However, the Insurance Index fell by 25.9 per cent.

The Exchange’s boss said, “Our market possesses enormous potential.
The future looks good and promising. The NSE has since recognised its
place in the development of Nigeria’s financial markets and the
economy, and will continuously work to provide the enabling environment
for the functioning of the market through partnerships like one with
Thomson Reuters.”