Nigerian bank stocks beaten down since the start of the year may get some reprieve in the coming months with the nomination of Zenith Bank CEO Godwin Emefiele to the post of Central Bank of Nigeria (CBN) Governor.
“We have said for some time that the new person could slow (not reverse) the tightening of bank regulation because he/she will have less influence over the industry’s executives,” said FBN Capital analyst Gregory Kronsten in a note released yesterday.
Nigerian President Goodluck Jonathan in an unprecedented move suspended the current CBN Governor Sanusi Lamido Sanusi, and appointed Sarah Alade, senior deputy governor ,as acting governor, until Emefiele resumes in June, 2014 (assuming he is confirmed by the Senate).
Analysts say that tighter bank regulations in the form of higher reserve requirements, tighter monetary policy and regulation aimed at lowering fees and increasing competition will crimp the ability of the industry – with year – end 2012 assets of N21.7 trillion ($136 billion) -,to deliver returns in excess of their cost of equity.
The CBN under Sanusi gained the market’s credibility by keeping interest rates at a record high to fight inflation and recently increased the cash reserve ratio (CRR) on government deposits to 75 percent from 50 percent, a move against excess liquidity in the system that it blames for naira weakness.
Nigerian banks may need to boost capital levels by up to N360 billion this year to meet tougher international rules set by the Basel Committee on Banking Supervision.
The Central Bank of Nigeria (CBN), which is the banking sector regulator, published two new circulars in December 2013, which indicated that the CBN expects banks to begin
governmentadopting elements of Basel II and III relating to market and operational risk.
The CBN has also set the minimum savings deposit rate at 30 percent of the Monetary Policy rate MPR of which enforcement began in the third quarter of 2013.
This means that with MPR currently at 12 percent, banks that hitherto relied on cheap deposit mobilisation for which they often paid less than 2 percent per annum would now have to almost double interest payments for deposits to close to 3.6 percent per annum.
The Asset Management Corp. of Nigeria (AMCON) which is partly funded by the nation’s lenders, also increased the assets banks are required to contribute to set aside for failed loans to 0.5 percent this year from 0.3 percent.
There has also been a reduction in commission on Turnover COT and elimination of ATM fees.
The appointment of Emefiele as governor of the CBN may however blunt some of the impact of the new regulations, helping to boost bank earnings that have slowed since the second quarter of 2013 and stocks that have sold off.
Nigerian stocks have dropped 6.23 percent year to date (Feb. 20), as banks take a beating on concerns over the impact of tighter reserve requirements on profitability.
The Nigerian Banking index has lost 18 percent year to date led by declines in Zenith Bank (-27.04 percent), First Bank (-25.44 percent), Skye (-24.77 percent), UBA (-21 percent), and Fidelity Bank (-18.59 percent).
On the Incoming CBN Governor, market analysts at Meristem Securities said “little can be said of Emefiele as he is one of the few CEOs rarely seen on media.”
These analysts noted that the value added to Zenith Bank since his appointment as the Managing Director tells a story of his goal, orientation and visionary leadership.
Referring to Emefiele interview with EuropeaCEO, where he says “the monetary and fiscal authorities need to take a look at how we ensure we keep inflation low… achieve price stability, what are we doing to ensure that we improve the level of employment in our environment, …once we are able to put some of these policies in place, then you will begin to see even improved growth in Africa than we have seen in the past…” this the analysts said gives a clue into likely focus areas if the Senate confirms Emefiele’s nomination.
Meanwhile Nigerian stocks fell 1.5 percent yesterday, closing at 38,816.19 points after news of Sanusi’s suspension filtered out. The naira traded as low as N169 per dollar on the interbank market before recovering to close at N164.35, according to Bloomberg data. The bond market did not open for trading.