Three weeks after the Central Bank of Nigeria (CBN) announced the introduction of a new dividend policy, investors are offloading stakes in fear of a free fall in share prices.
The new rule forbids banks with below the minimum capital requirement from paying dividends to shareholders, a development that sparked off panic sell since only about four banks meet the requirement.
In the last three weeks since the CBN muted the new rule, investors offloaded 3.586 billion shares of banks in 33,456 deals valued at N38.8 billion. Last Friday witnessed unprecedented dumping of banks’ shares with Sterling, GT, Access, Zenith and Diamond Banks recording highest trades.
Out of a turnover of 2.097 billion shares worth N20.231 billion traded in 21,802 deals last week, banks accounted for 1.590 billion shares valued at N11.360 billion traded in 12,321 deals.
This represented 75.84 per cent and 56.15 per cent of the total equity turnover volume and value respectively.
Against this backdrop, the NSE All Share Index which measures performance of shares recorded a 3.93 per cent decline week-on-week (WoW) as market capitalization pegged at N12.437trillion having lost N469 billion for the week.
Year-to-date (YtD) market return slipped further in the negative region to close at -9.14 per cent, while volume and value traded (WoW) surged by 48.41 per cent and 18.74 per cent respectively.
FBN, Zenith, GTB
Shares sell-off in FBN Holdings, GT Bank, and Zenith Bank accounted for N367.5 billion trades so far this year, and with the new dividend policy more investors are offloading their holdings across the sector.
Share price of GT Bank has declined to N25 from N31.80 per share, that of UBA dropped to N4.25 per share from N9.58. Investors in FBN Holdings have taken off N179.15 billion from its market capitalisation. The figure in Zenith Bank stood at N188.4 billion previous week.
Share price of FBN Holding closed last week at N11.58 per share, down from a high of N17.29 this year. That of Zenith Bank closed at N21.20 per share, down from a high of N27.40.
Market capitalisation of GT Bank, the highest in the banking sector, dropped from N935.9 billion to about N781 billion at the close of transactions last week while UBA’s capitalisation depreciated to about N140 billion. from N174.47 billion.
Analysts knock stricter regulation
Analysts blamed the sell-off in the banking sector on stricter regulatory headwinds from CBN and domestic investors’ sentiments afraid of losing money in the market after the 2008 market crash experience.
To shore up the banking system, the CBN said in a circular dated October 8 sent to lenders and discount houses that the amount banks can pay in dividends depends on capital levels, statutory reserve requirements, and the proportion of non-performing loans.
The circular said “there shall be no regulatory restriction on dividend payout for banks that meet the minimum capital adequacy ratio, have a cash reserve requirement of ‘low’ or ‘moderate’ and a non-performing loan ratio of not more than 5 per cent.”
Banks in less favourable capital position, like FBN, United Bank for Africa (UBA), FCMB, and others with capital adequacy ratios close to the minimum requirement – and therefore likely to have dividend cuts for the year – are recording high volume of trades that indicate massive sell off.
Against the backdrop of sustained fall in share prices, 23 per cent or 45 listed companies now trade at 50 kobo par value, leaving 65 per cent trading above nominal value.
NSE market structure
If the Nigerian Stock Exchange (NSE) gets through with planned market structure review, the rule that bars shares of quoted companies from falling below 50 kobo par value will be suspended.
Securities that do not have the fundamentals to remain at par value could be priced lower and will be further eroded below 50 kobo.
The equities market has 198 listed companies in both the mainboard and Alternative Securities Market (ASEM), and the NSE rule bars prices from falling below their par value. Brokers have sought removal of price ceiling.
To encourage investment in shares and possibly revive the market, the Securities and Exchange Commission (SEC) granted market transaction fees a five-year exemption from value added tax (VAT) on October 21.
The exemption from the 5 per cent VAT rate covers commissions on bond as well as equity trades.
“The elimination of VAT on stock market transaction fees will ultimately reduce the cost of transactions for investors, and will encourage investments in the Nigerian capital market,” NSE Chief Executive, Oscar Onyema, said in a statement.
The SEC announced a waiver on 0.075 per cent stamp duty for all capital market transactions in 2012, but it was not implemented, raising doubts the new waiver would be implemented at all.
The NSE has declined around 7.5 per cent year-to-date as offshore investors cut back on their holdings on currency concerns and falling global oil prices.
Analysts like Compass Investments and Securities General Manager, Sam Ndata, urged investors to utilise the opportunity in the reduction in bank share prices.
Banking index, which opened this year at 447.84 basis points, has shed 63.53 basis points or 14.2 per cent to 384.31 basis points year-to-date.