The Surge of Nigeria’s Banking Index Despite Capital Concerns

The banking index of the Nigeria Exchange Limited witnessed a substantial surge of 6.08 per cent in the preceding week, surpassing other indexes on the local bourse. This growth resulted in an increase of investors’ wealth by N66bn, indicating a positive turn for the industry.

However, despite the overall rise, concerns regarding the capital adequacy ratios of Nigerian banks with international operations led to sell-offs, resulting in a decrease in stock prices. The Central Bank of Nigeria’s second economic quarter report highlighted that some banks with international operations have a capital adequacy ratio below the regulatory threshold. This decline was attributed to the decrease in total qualifying capital relative to the increase in risk-weighted assets due to the depreciation of the naira exchange rate.

The stock exchange witnessed the All-Share Index rising by 0.17 per cent to close at 71,541.74, and the market capitalisation closing at N39.148tn. This growth was driven by investor activity in the banking and consumer goods sectors, setting the stage for the anticipated Santa Claus rally with a year-to-date return for the index reaching 39.59 per cent.

While several indices finished higher, others such as NGX Main Board, NGX Insurance, NGX ASeM, NGX Oil & Gas, NGX Lotus II, and NGX Industrial Goods experienced depreciation, leading to sell-offs across various stocks.

On the contrary, the Banking and Consumer Goods indexes recorded gains of 6.08 per cent and 0.21 per cent, respectively. Notable price increases in certain companies propelled this upward trajectory.

A total turnover of 2.423 billion shares worth N45.07bn in 34,704 deals were traded on the Exchange, with the Financial Services Industry leading the activity chart, followed by the Conglomerates Industry and the Consumer Goods industry.

The top gainers for the week included Multiverse Mining and Exploration Plc, Thomas Wyatt, Infinity Trust Mortgage Bank Plc, ETI, Secure Electronic Technology Plc, and Daar Communications Plc. Conversely, Consolidated Hallmark Holdings, Oando, Abbey Mortgage Bank Plc, MRS Oil, Unity Bank, and BUA Cement faced declines in their share prices.

As the market anticipates the reporting and dividend earnings season, analysts are expecting further profit-taking activities and potential market corrections following the recent surge. Investors are likely to continue rebalancing their portfolios, and caution may prevail in the market as stakeholders await the planned stress test of the capital adequacy ratio of Nigerian banks with international operations. This cautious sentiment is underscored by prevailing global risks, including high inflation and forex volatility, prompting investors to tread cautiously as they await the anticipated Santa Claus rally.