Rising Banking Index Amid Concerns Over Capital Requirements – A Market Update

Last week, the Nigeria Exchange Limited (NGX) witnessed a significant increase in the banking index, rising by 6.08 per cent week-on-week, resulting in a N66bn increase in investors’ wealth. Despite initial concerns about the capital adequacy ratios of some Nigerian banks with international operations, the banking industry saw a gain of 5.01 per cent on Wednesday. This surge in banking stocks has set the stage for the anticipated Santa Claus rally.

The Central Bank of Nigeria’s second economic quarter report on financial soundness indicators revealed that some banks with international operations have capital adequacy ratios below the regulatory threshold. The decrease in total qualifying capital in relation to the increase in risk-weighted assets was attributed to the depreciation of the naira exchange rate, stemming from the Bank’s adoption of a market-determined exchange rate policy.

The overall stock exchange experienced positive movements, with the All-Share Index rising by 0.17 per cent to close at 71,541.74 and the market capitalisation closing at N39.148tn. The year-to-date return for the index reached 39.59 per cent, with the Banking and Consumer Goods indexes recording gains of 6.08 per cent and 0.21 per cent, respectively.

Despite this positive trajectory, certain indices such as NGX Main Board, NGX Insurance, NGX ASeM, NGX Oil & Gas, NGX Lotus II, and NGX Industrial Goods depreciated, while the NGX Sovereign Bond index closed flat. Stocks like Oando, MRS Oil, Juli Plc, BUA Cement, Axa Mansard, and Mutual Benefit experienced declines due to sell-offs.

The past week saw a total turnover of 2.423 billion shares worth N45.07bn in 34,704 deals traded on the floor of the Exchange, with the Financial Services Industry leading the activity chart. The top three equities traded were Universal Insurance Plc, United Bank for Africa Plc, and Guaranty Trust Holdings Company Plc.

Multiverse Mining and Exploration Plc emerged as one of the top gainers for the week, closing at N9.39 per unit, while stocks such as Consolidated Hallmark Holdings, Oando, and Abbey Mortgage Bank Plc experienced declines in their share prices on a week-on-week basis.

Looking ahead, analysts anticipate further profit-taking activities and potential market corrections following the recent surge. Caution may prevail in the market as stakeholders await the planned stress test of the capital adequacy ratio of Nigerian banks with international operations due to prevailing global risks, including high inflation and forex volatility. Investors are also looking forward to the reporting and dividend earnings season, as they tread cautiously while awaiting the anticipated Santa Claus rally.