despite a strong combined profit in excess of N260 billion by 11 banks listed on the Nigerian Stock Exchange .
The banking sector of the NSE, which was rated second best bourse in Africa and 11th best in the world in 2017, gave equity investors a 73.3 per cent return on investment in one year. A look at the sector showed that over 65 per cent of the listed banking stocks are undervalued as most of the shares currently trade at a discount to their book value, meaning their price to book value is below one.
According to them, given that the nation’s market has been driven and dominated by foreign investors and in recent times there is no significant interest from these set of participants, the demand for most banking stocks have reduced, and this has left the stocks trading at discounts to their intrinsic value.
A breakdown of the performance of some of the banking stocks showed that Zenith Bank, which is currently trading at N16.15 kobo as at yesterday, June 22, 2020, took the first position with N50.5 billion Q1 profit while GTB took the second place with N50.1 billion trading at N22.75 kobo. Access Bank ranked third with a profit and stock price of N40.9 billion and N6.75 kobo per share.
He pointed out that the high Cash Reserve Ratio , which is a constraint on banks’ liquidity, in addition to the CBN sanctions on defaulting banks in recent times could possibly have been erroneously interpreted by some investors as a sign that all is not well with the banking sector. “Over the years the Nigerian equities market has not recorded the expected rise in public interest with regards to investing and trading inequities.
He insisted that domestic participation is vital to the growth of the market. According to him, government at all levels; in collaboration with the market, operators must find ways to increase domestic participation and reduce over-dependence on foreign investments to drive the nation’s equities market.
“That is why you see that equity market is strongly correlated positively with global oil price. The experience in equity market is still fresh in our memory over the global supply glut in the month of March and April 2020.’’
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