Nigeria Banks Seen by Vetiva Capital as Returning 42% This Year

Nigerian bank stocks, trading at a discount to emerging-market lenders, will probably extend gains to 42 percent this year as they boost capital and finance oil and power projects, Vetiva Capital Management Ltd. said.

The Bloomberg NSE Banking Index, which tracks Nigeria’s 10 biggest banks by market value, is trading at a price-to-book ratio of 0.8 times, less than the 1.4 times book value of assets for lenders in the MSCI Emerging Market Banks Index. The gauge for Nigerian banks has gained 34 percent this year compared with a 0.5 percent drop in MSCI EM Banks Index. Nigeria’s all-share index has rallied 37 percent this year, Africa’s best performer after Ghana’s benchmark equities measure.

“What matters to us is the valuation of the banks, their move to create risk assets and how well they manage those risk assets,” Pabina Yinkere, an equity analyst at Lagos-based Vetiva said in a May 31 interview from the commercial capital. “We’ve seen emerging market banks with similar risk profile with Nigerian banks, yet trading at higher multiples.”

Nigerian lenders are seeking to raise dollars by selling international bonds to finance oil, power and other infrastructure projects in Africa’s top oil producer after returning to profit from near-collapse in 2008 and 2009. Africa’s second-largest economy may expand 7.2 percent this year compared with sub-Saharan Africa’s 5.6 percent average, according to the International Monetary Fund.

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Diamond Bank Plc (DIAMONDB) said May 30 it may issue $550 million of Eurobonds this year to boost its operations, after the Lagos-based lender raised its annual loan-growth target to 40 percent from 20 percent. Fidelity Bank Plc (FIDELITY) sold $300 million of five-year bonds on May 2 while FBN Holdings Plc (FBNH), owner of First Bank Nigeria, plans to raise the equivalent of $500 million in Eurobonds this year.

“The fundraising is welcome, especially for the mid-tier banks that are somehow under-capitalized relative to their growth aspirations,” Yinkere said. Vetiva ranked seventh for equities traded by value in the week ending May 10 in Lagos, according to the Nigerian Stock Exchange.

The West African nation is selling majority stakes in power plants and letting private investors acquire holdings of as much as 60 percent in six transmission and 11 power-distribution companies spun out of the former state-owned utility. Banks have also increased lending to the oil industry as companies including London-based Heritage Oil Plc (HOIL) and Lagos-based Neconde Energy Ltd. bought stakes in fields owned by Royal Dutch Shell Plc (RDSA), Eni Spa (ENI) and Total SA. (FP)

“Where there might be concern for the banks is what becomes the quality of risk assets as the loan book grows,” Yinkere said. “In this case we do not see cause to worry as the deals are for viable projects and the companies have strong cash bases.”

To contact the reporter on this story: Emele Onu in Lagos at eonu1@bloomberg.net

To contact the editor responsible for this story: Dulue Mbachu at dmbachu@bloomberg.net

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