Second-Tier Nigerian Banks to Gain on Amcon Plan, Renaissance Capital Says

Shares in Nigerian banks such as Skye Bank Plc, Access Bank Plc, Diamond Bank Plc and First City Monument Trust Bank Plc are poised to gain after the state-owned company that will buy bad debts from lenders provided more detail on how it will operate, Renaissance Capital said.

Asset Management Corp. of Nigeria, known as Amcon, will buy back 2.2 trillion naira ($14.6 billion) of bad debts from lenders, more than a previous forecast of $10 billion by Central Bank of Nigeria Governor Lamido Sanusi. Amcon will value loans backed by shares in listed companies at about 60 percent of the 60-day average price to Nov. 15, the Abuja-based regulator said in an e-mailed statement yesterday.

The central bank took stakes in some of the nation’s lenders that failed an audit, spending 620 billion naira to recapitalize the industry following a debt crisis last year caused by loans to stock speculators that weren’t repaid. It also fired the chief executive officers of eight of the country’s 24 lenders.

“We would look at the second-tier banks who passed the audit, but screen for still-high non-performing loans coupled with low valuations -- on that front Skye, Access, Diamond and FCMB come through,” David Nangle, head of equity research at Moscow-based Renaissance, wrote in an e-mailed note to clients dated today.

Picks

Lenders that failed the central bank’s audit are Afribank Nigeria Plc, Finbank Plc, Union Bank of Nigeria Plc, Bank PHB Plc, Oceanic Bank International Plc, whose shares have surged 84 percent this year, Unity Bank Plc, Spring Bank Plc, Intercontinental Bank Plc, which is up 67 percent in 2010, Equitorial Trust Bank Plc, and Wema Bank Plc.

“The most obvious benefactors from the Amcon announcement are the failed banks as their problems will finally be underwritten and they are cleans by for mergers and acquisitions,” Nangle wrote. “However, the trade here is always going to be speculative.”

While Zenith Bank Plc, First Bank of Nigeria Plc, Guaranty Trust Bank Plc and United Bank for Africa Plc, the country’s four biggest lenders, have been best positioned through the crisis with the fewest non-performing loans and strong balance sheets, “the are not the primary benefactors of this,” Nangle said.

Nigerian lenders trade at “deep discount” to emerging- market and African peers, Nangle said. Skye shares trade at book value, while Access, Diamond and FCMB are all below this, according to data compiled by Renaissance. This compares with an average price of 2.2 times book value for global emerging-market lenders, according to Nangle.

To contact the reporter on this story: Vincent Nwanma in Lagos at vnwanma@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net.

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