Banking stocks lift NGX index, as investors gain N34bn

Gains recorded in some banking stocks last week lifted the Nigerian Exchange (NGX) from the negative region even as investors gained N34 billion at the end of the week.

The positive sentiments, therefore, ended the five straight weeks of losing streak as investors continued to focus on fundamentally sound stocks, impressive first quarter (Q1) 2023 results and dividend payment.

Specifically, rally on the shares of Access Bank Plc (10.8%), Guaranty Trust Bank (GTCO) Plc (9.1%) and Zenith Bank Plc (5.5%) supported the market, resulting in 0.12 percent increase in the benchmark All Share Index (ASI) to 52,465.31 points from 52,403.51points at the beginning of the week.

Also, the market capitalisation maintained an uptrend during the week to close at N28.568 trillion from N28.534 trillion, representing a 0.12 per cent increase and N34 billion gains to investors.

Analysis of the activity level showed that the total traded volume plunged by 78.81 percent to 2.97 billion units, while value traded declined by 61.3 percent to N22.83 billion.

Performance across the sectors was bullish with the banking sector appreciating by 5.2 percent, while the oil and gas and the insurance sectors advanced by 5.1 percent and 3.1 percent respectively.

The industrial goods rose marginally by 0.1 percent while the consumer goods sector closed flat.

Analysts are of the opinion that market performance would remain mixed this week.

According to analysts at Cordros Capital, investors are expected to rebalance their portfolios based on an assessment of corporate earnings released for Q1’23. 

Nevertheless, they said that increased fixed income yields may continue to constrain buying activities. 

“Thus, we expect market performance to remain mixed in the week ahead as investors rotate their portfolios towards stocks with attractive dividend yields amid intermittent profit-taking activities,” they said. 

Also, analysts at Cowry Asset Management said: “We expect to see mixed sentiment on profit taking and reaction to dividend earning season, as more Q1 earnings hit the market while investors target sound defensive stocks to protect their portfolios post-markdown dates.””In recent years, the CBN has stepped up its intervention in the sector with cumulative disbursements of around N1.8trn through the auspices of its anchor borrowers programme and commercial credit agriculture scheme. 

“Although the CBN’s N1.8trn disbursements to the sector mirror the DMB’s credit allocation to the sector, we must bear in mind that a substantial proportion of the CBN’s credit to the sector was done within a very short time. For instance, a cumulative credit disbursement under the anchor borrowers’ programme which was established in 2015 is now almost NGN1.1trn.”

“A key factor is the increasing formalisation of the sector. We now have a lot of investors funding commercial agriculture projects across the country. Although I do not have details, I am aware that the AFEX commodities exchange is doing a lot of work through its AFEX food security fund in this area by encouraging entrepreneurs in the sector.

“A secondary but related factor is that over the last few a number of big corporate players such as Dangote Group, Flour Mills, BUA etc have been involved in large-scale plantation projects in sugar, rice and others across the country.”  

Also speaking, Unity Bank Plc, Head of Agric,  Patricia Ahunanya, explained the necessity of the CBN interventions to drive lending to farmers.

He said: “First, let me clarify that as an institution, our involvement in the Agric sector started long before the federal government rolled out its intervention programmes in the sector, and this was because Agric was one of our strategic focus areas, in addition to retail and SME. 

“Nevertheless, it is also important to understand that a key component of the attraction for lending to the agric sector is the intervention by the Central Bank of Nigeria and other agencies.

“This is because it is near impossible for a bank to give out a loan at a single digit interest rate to the Agric sector. The Agric sector in Nigeria carries a lot of risks, which can only be ameliorated through such interventions. 

 “Fortunately, it is not only the Nigerian government that intervenes in the Agric sector. There have been foreign interventions through multilateral organisations, and I believe that banks would continue to lend to the sector if the interventions are sustained.”

Speaking on why the increased lending to farmers has not translated to higher GDP growth in the sector, Tunde Abidoye, said: “There is a misalignment between investments in the sector and agric sector GDP growth which is still in the low-single digits. The sector’s low productivity is largely attributable to issues such as insecurity in the food-growing regions of the country, flooding and other extreme weather events, inadequate infrastructure, and post-harvest losses due to inadequate storage facilities, etc.”

On his part Kunle Adebiyi said another factor is that loans given in the name of the agric sector are being diverted to other ventures, adding that for example, funds are being disbursed to processing of agric products, which is more lucrative but not the real agricultural production.”