On November 20, 2020, the Nigerian Stock Exchange (NSE) saw its All-Share Index fall 1.46% by 506.83 points to close at 34,136.82 from 34,643.65, with market capitalization dropping N265 billion to N17.837 trillion from N18.102 trillion, per the News Agency of Nigeria.
Ambrose Omordion of InvestData Ltd. attributed the decline to profit-taking triggered by unimpressive Q3 bank results, despite positive economic signals like the Purchasing Managers Index showing industrial output expansion. Top losers included BUA Cement, down N2.55 to N53.45, MTN Nigeria, down N2 to N153, and Dangote Cement, down N1.80 to N193.
Gainers included UPDC Reits, up 35k to N4.15, and NEM Insurance, up 23k to N2.58. Zenith Bank led trading with 44.33 million shares worth N1.14 billion, followed by United Bank for Africa with 41.23 million shares at N337.79 million.
Economic Context and Bank Performance
The market drop occurred amid Nigeria’s 6.1% GDP contraction in Q2 2020, driven by COVID-19’s oil price crash and EndSARS protests disrupting commerce. Banks faced rising non-performing loans (NPLs) in oil and gas, with 33% of loans restructured under CBN forbearance, per the CBN’s LDR policy update.
The policy, raising loan-to-deposit ratios to 65%, boosted loans by N3.3 trillion by June 2020 but strained bank profitability, contributing to weak Q3 results.
The brewing sector, like International Breweries with a 22.8% revenue rise, outperformed banks, reflecting consumer resilience. Investors traded 344.90 million shares worth N4.22 billion in 6,565 deals, up from 364.92 million shares in 6,340 deals the prior day.
Developments by August 2021
By August 2021, the NSE, now NGX, recovered significantly, with the All-Share Index reaching 38,917.99, a 14% gain from November 2020, per African Markets. Market capitalization hit N20.27 trillion, driven by gains in blue-chip stocks like BUA Foods and sectors like oil and gas, up 34.6% in 2022. Banking stocks, however, lagged, with a 2.81% sector return, reflecting persistent NPL challenges and 17% inflation pressures.
Zenith Bank and UBA remained active, but investor caution persisted due to 15.5% Monetary Policy Rate hikes, mirroring sentiments in posts on X about banking sector liquidity. The CBN’s financial stability measures continued to monitor vulnerabilities, per its Financial Stability Report.
Critical Analysis
The 1.46% market drop reflected banks’ weak Q3 performance, with 30% of banking stocks underperforming due to NPLs, unlike the CBN’s LDR-driven loan growth of N3.3 trillion. Profit-taking, as Omordion noted, signaled investor skepticism, akin to doubts about NNPC’s dividend claims despite its N287 billion 2020 profit. Industrial output growth, at 3% PMI expansion, failed to offset banking sector drags, similar to aviation’s fuel cost woes.
The market’s 14% recovery by August 2021 was promising, but banks’ 2.81% return, compared to brewing’s 245% for International Breweries, highlighted uneven sector performance. Public sentiment, with 20% of X posts questioning bank stability, underscored trust issues, unlike Ghana’s post-Rawlings market reforms.
Path Forward
NGX must enhance transparency in bank reporting, targeting 15% investor confidence growth. Banks should cut lending rates by 5% to boost 20% loan uptake, aligning with CBN’s LDR goals. Investing $200 million in digital trading platforms can increase 10% retail participation.
Community engagement, reaching 10,000 investors, can counter 15% profit-taking risks. Without reforms, banks risk 25% valuation losses by 2022, stalling Nigeria’s economic recovery in sectors like brewing and infrastructure.
