Markets

East Lags West as Nigeria’s Biggest Bank Outshines Kenyan Peer

Published

7 years ago

March 23, 2017

East Lags West as Nigeria’s Biggest Bank Outshines Kenyan Peer

Pitting Nigeria and Kenya’s biggest banks by market value against each other shows just how much state intervention hurt Nairobi-based Equity Group Holdings Ltd., while Guaranty Trust Bank Plc in Lagos fended off a contracting economy by benefiting from a weaker local currency.

Equity Group reported its first-ever drop in annual profit last week as non-performing loans more than doubled and lending in the final quarter shrank in the wake of interest-rate caps announced in August in East Africa’s biggest economy. By contrast, GTB’s net income climbed 33 percent as earnings from lending increased and the naira’s decline against the dollar boosted non-interest revenue.

“GTB stands out in the Nigerian banking sector based on their ability to optimize their balance sheet and conservatively position themselves against any unforeseen shocks,” said Craig Metherell, an analyst at Avior Capital Markets Ltd. in Cape Town who has a buy recommendation on the stock. He maintained his hold rating on Equity’s shares, saying they are trading close to fair value and that a re-rating may only happen should Kenya relax the rate-cap rules, which is only likely after elections scheduled for August.

Kenyan President Uhuru Kenyatta said last week he’ll rectify the decline in bank lending caused by his decision to limit lending rates, without saying when or what measures will be taken. While investors still remain negative toward Nigeria because of a lack of foreign exchange that is curbing growth in the West African country, lenders are reorganizing bad debts, absorbing currency fluctuations and diversifying away from loans to the oil and gas industry following a more than halving in crude prices since mid-2014.

‘Problems Identified’

“Nigerian banks appear to be navigating current challenges better than anticipated,” said Aleksej Gren, a fixed-income analyst at Exotix Partners LLP in London, who has a buy recommendation on GTB’s bonds due November 2018 as well as 2019 notes issued by Zenith Bank Plc and 2021 debt securities from Access Bank Plc. “Banks are prepared for naira weakness. Further asset quality deterioration is likely, but many of the problems have already been identified.”

Kenya’s 11 publicly traded lenders have declined an average of 12 percent since Aug. 24, when the rate caps were announced, with Equity Group sliding 17 percent. That compares with a 2.5 percent drop over the same period for an index of Nigeria’s 10 largest and most liquid banking stocks, with Guaranty adding 1.5 percent.

While policy issues remain a major hindrance to Nigeria’s economic health, GTB offers a hedge against naira devaluation and profit before tax could rise 53 percent in 2017, said Avior’s Metherell. Pretax profit at Equity Group is expected to increase 3.5 percent this year, held back by the interest-rate caps and risks that the Kenyan shilling may weaken more than 6 percent against the dollar, he said.

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Samed Olukoya

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China

Published

4 days ago

December 7, 2023

Investors King

Oil prices showed signs of recovery on Thursday after a recent slump to a six-month low, with Brent crude oil appreciating by 1% to $75.06 a barrel while the U.S. West Texas Intermediate crude oil also rose by 1% to $70.05 a barrel.

However, investor concerns persist over sluggish demand in both the United States and China.

The market’s unease was triggered by data indicating that U.S. oil output remains close to record highs despite falling inventories.

U.S. gasoline stocks rose unexpectedly by 5.4 million barrels to 223.6 million barrels, adding to the apprehension.

China, the world’s largest oil importer, also contributed to market jitters as crude oil imports in November dropped by 9% from the previous year.

High inventory levels, weak economic indicators, and reduced orders from independent refiners were cited as factors weakening demand.

Moody’s recent warnings on credit downgrades for Hong Kong, Macau, Chinese state-owned firms, and banks further fueled concerns about China’s economic stability.

Oil prices have experienced a 10% decline since OPEC+ announced voluntary output cuts of 2.2 million barrels per day for the first quarter of the next year.

In response to falling prices, OPEC+ member Algeria stated that it would consider extending or deepening oil supply cuts.

Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman met to discuss further oil price cooperation, potentially boosting market confidence in the effectiveness of output cuts.

Russia, part of OPEC+, pledged increased transparency regarding fuel refining and exports, addressing concerns about undisclosed fuel shipments.

Crude Oil

Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts

Published

4 days ago

December 6, 2023

Investors King

Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.

Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.

Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.

Despite this effort to tighten supply, market sentiment remains unresponsive.

“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.

Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.

Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.

Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.

Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.

The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.

Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.

Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.

Crude Oil

U.S. Crude Production Hits Another Record, Posing Challenges for OPEC

Published

5 days ago

December 5, 2023

Investors King

U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.

The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.

The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.

Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.

This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.

While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.

The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.

Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.

Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.

This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.

In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.

However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.

Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.

While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.

The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.