Market Intelligence

Tier 2 Banks in spotlight as cheap valuations lure investors


October 10, 2016 | 12:20 am
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Foreign investors are beginning to show interest in Nigerian banks as the combination of rising inflation, dollar scarcity and high exposure to the oil and gas have undercut assets prices.


FirstRand Ltd., Africa’s biggest bank by market value, said it’s considering acquisitions in African countries including Nigeria.


“Asset prices in jurisdictions such as Nigeria have recently become much more realistic,” FirstRand’s Chairman Laurie Dippenaar said in the Johannesburg-based company’s annual report, last Tuesday.
Experts are of the view that of all the banks in the country, Tier 2 lenders are the most likely to be acquired.


FirstRand in 2011 declined buying control of Lagos-based Sterling Bank Plc because the asking price was too high then.


Prices of assets have fallen however as with the naira’s devaluation, soaring bad-debt levels and a slowing economy.


Tier 2 lenders such as Diamond, Fidelity, Sterling and First City Monument Bank (FCMB) currently trade at an average Price to Book (P/B) ratio of 0.18x and Price to Earnings ratio (P/E) ratio of 4.90 xs.

A P/B ratio below 1 means their assets are undervalued and securities are presumed to be selling below the investment’s true intrinsic value.


According to data gathered by BusinessDay Intelligence, Diamond Bank’s impairment loss on credit charges as result of huge write offs was N19 billion, as at H1 2016 .


For Fidelity Bank, its loan loss expense was N4.79 billion while its exposure to the oil and gas sector was (25.8 percent of gross loans) and to the power sector (10.5 percent of gross loans).


Sterling Bank’s impairment of assets stood at N3.60 billion for the period.


The lender’s exposure to the oil and gas was 40 percent of gross loan, while cost to income ratio was 76 percent, a drain on profitability.
FCMB’s impairment loss on financial asset was N13.48 billion. Its exposure to the oil and gas was (22.20 percent of gross loan) while its exposure to construction (40 percent of gross loan); the bank attributed the huge Non Performing Loans (NPL) to delay in payment of government contracts.


Cost to income ratio stood at 52.40 percent, which is fair compared to its peer rivals.

A recent report by the apex bank shows industry bad loans in the system are spiking as NPLs has risen to 11.70 percent as at the end of June as against 5.30 percent the previous year.




October 10, 2016 | 12:20 am
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