By Goddy Egene
Apparently aware of the positive impact the new foreign exchange (forex) policy of the Central Bank of Nigeria (CBN) will have on the performance of banks, some investors have increased demand for banking stocks. This development led to a gain of 8.75 per cent in the Nigerian Stock Exchange (NSE) Banking Index last week.
The banking index outperformed the NSE All-Share Index last week and year-to-date as at last Friday. While the NSE has booked a YTD growth of 2.1 per cent, the Banking Index has recorded a growth of 11.9 per cent.
Five banking stocks rose significantly recording gains between 15.8 per cent and 11 per cent. FBN Holdings Plc led with 15.8 per cent, trailed by Guaranty Trust Bank Plc with 14.4 per cent. Diamond Bank Plc went up by 12.7 per cent, while United Bank for Africa Plc and Zenith Bank Plc added 11.8 per cent and 11 per cent to their respective value. Investors traded about N1.9 billion shares worth N12 billion shares.
Market analysts said the earnings of some of the banks would improve following the introduction of the flexible foreign exchange policy since they are the ones to play in the forex market.
Analysts at Nairametrics have selected banking stocks as those that would benefit from the policy.
“Banking stocks are expected to benefit immensely from this new forex regime considering the roles they will play in a new forex market. Their fee income will rise from the level of transactions they will now be able to process. Even though there is still a risk that the value of the foreign currency loans could get impaired, we believe that most of them are already hedged. Banks play important role in bringing an economy in recession back into growth so we believe this will benefit their bottom lines and of course their valuations,” they said. The analysts picked Zenith Bank, GTBank, Access Bank Plc and UBA as favourites.
The Governor of the CBN, Godwin Emefiele said to implement the new forex policy, primary and secondary dealers would be appointed. According to him, their dealership level would be categorised based on the volume of transaction that they could handle.
He explained that based on the assessment of the CBN, the number of primary dealers would be between eight and 10 financial institutions with a minimum transaction volume of $10 million.
“We have decided that the CBN will deal primarily with what we call the foreign exchange primary dealers. We will have non-primary dealers and primary dealers. The guidelines for qualification for being a foreign exchange primary dealer will be on our website. There are a number of qualifications, either the size of the bank, or the size of forex transactions it had done before, the level of liquidity, the extent to which those banks have complied with the CBN guidelines and regulations in the past, and their level of preparedness in terms of being able to provide all the soft and hardware that is needed to operate in a very transparent manner,” the CBN governor said.