Mark Mobius, chairman of Templeton Emerging Markets Group, is picking Nigerian bank stocks ahead of South African peers as Johannesburg-based lenders battle rising bad-debt charges while trading at higher valuations.
“The banks up north are cheaper,” Mobius said in an interview in Johannesburg yesterday, referring to Lagos-based lenders. “The big challenge with banks” in South Africa was a surge in loans not backed by assets, which caused risks in the industry to increase, he said.
Guaranty Trust Bank Plc, Nigeria’s largest lender by market value, is trading at 8.5 times historical earnings, compared with Johannesburg-based Standard Bank Group Ltd. (SBK), Africa’s biggest, which trades at a price-to-earnings ratio of 11.6, according to data compiled by Bloomberg.
Banks in Nigeria, Africa’s most populous nation, are benefiting from financing oil, gas and power projects in the continent’s second-largest economy, while bad debts fall. South African lenders are struggling with stagnant mortgage growth and rising non-performing loans as the continent’s largest economy buckles under an almost 25 percent unemployment rate and the slowest expansion since the 2009 recession.
The six-member FTSE/JSE Africa Banks Index slumped 11 percent this year, with FirstRand Ltd. (FSR) leading the decline with a 14 percent drop. The Nigerian Stock Exchange Banking 10 Index fell 7.5 percent over the same period.
South African Reserve Bank Governor Gill Marcus yesterday raised the nation’s benchmark repurchase rate by 50 basis points to 5.5 percent, the first tightening since 2008. The rand has lost 7.2 percent this year, making it the worst performer among 16 major currencies tracked by Bloomberg. The naira has weakened 1.6 percent this year through yesterday, with the Central Bank of Nigeria keeping its benchmark rate at a record high of 12 percent.
“For South African banks it’s pretty much a case of wait and see what the impact is going to be of the interest-rate hike,” said Johan Meyer, Templeton’s managing director for South Africa. “The currency issue will always be something we’ll look at.”
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