Equities in the banking sub-sector of the Nigerian Stock Exchange (NSE) proved to be among the best investment in the market in 2012 as most of them recorded remarkable year-to-date capital appreciation.
The feat recorded by the banking sector was largely attributed to the clean-up in the banking system following the reforms by the Central Bank of Nigeria (CBN) and subsequent purchase of the industry's non performing loans (NPL) by the Asset Management Corporation of Nigeria (AMCON).
THISDAY research showed that while the NSE All-Share Index, which measures the aggregate performance of the equities market advanced by 35.4 per cent or 7,195.44 basis points to 28,087.81 as at closing bell on the last day of 2012, the NSE market capitalisation also climbed by 37 per cent to N8.974 trillion as at December 31, 2012, as against the N6.533 trillion it opened the year. The performance of the major market indicators was largely influenced by the Bloomberg NSE Banking Index which recorded year-to-date growth of 21.19 per cent as at December 28, 2012.
Therefore, banking stocks monitored by THISDAY also delivered positive year-to-date growth.
For instance, while Access Bank Plc's shares jumped by 79.6 per cent to close at N9.05 per share on December 31, 2012, compared to the N5.04 per share it opened the year, Zenith Bank Plc's shares also posted a year-to-date growth of 58.45 per cent, from N12.30 per share as at January 3, 2012, to N19.49 per share on Monday.
In the same vein, just at First Bank of Nigeria Holding's shares climbed by 73.32 per cent in 2012, from N9.07 per share as at January 3, to N15.72 per share as at December 31, GTBank 's shares also advanced by 63 per cent year-to-date, to close at N23 per share on Monday, from N14.12 per share.
Some others that delivered strong capital gains were Diamond Bank (146 per cent) and United Bank for Africa Plc (75 per cent).
Group Managing Director/Chief Executive Officer, First Bank Nigeria, Mr. Bisi Onasanya predicted that banking stocks would continue to drive positive performance of the NSE this year.
He said, "Nigerian banks are undervalued; there is no doubt about that. Nigerian banks are trading between one time and 1.5 times price to book. There is no doubt in my mind that benchmarked against the rest of the world, Nigerian banks are significantly undervalued.
"However, the positive side of it is that the whole world knows that these banks have potentials and that is why you have seen significant inflows coming into the capital market to acquire these stocks at their present value.
"When the results for the year-end begin to come and we begin the see the dividend yields coming close to the yields that you get on government securities and the additional advantage of capital appreciation, the market will then begin to understand that this is the time to go into banking stocks."
According to him, a lot of local investors did not participate in the market in 2012 because of the huge amount they lost during the market crash.
"But I think that going into 2013, people would be much more comfortable than they are today, to invest in the Nigerian capital market," he added.
Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, described 2012 as the beginning of recovery for the market.
He, however, expressed concern over the low participation of local investors in the market.
"Nigerian stocks remain at a discount to frontier market peers. Improving operating environment should filter down to companies' bottom-line. The recovery should lead to a return of Initial Public Offering and Rights Issue in 2013. We forecast that market to reach 38,000 points in the next year," he added
A lot of institutional investors took advantage of the low prices of the banking stocks because the lenders were considered a bargain. According to most analysts, banking equities were undervalued.
Also, some investors who entered into the market in December were anticipating strong performance in banks' first quarter 2013 earnings.