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NSE Appreciates Slightly by 0.04% Last Week

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Nigerian stock market - Investors King
  • NSE Appreciates Slightly by 0.04% Last Week

The Nigerian Stock Exchange (NSE) closed in the green last week following the central bank directive.

The NSE-All Share index appreciated by 0.04 percent to close the week at 27,002.15, up from 26,991.42 recorded in the previous week.

The market capitalisation of listed equities also appreciated to N13.033 trillion to take the year-to-date loss to 14.09 percent.

On a monthly basis, the exchange gained 2.45 percent, on the few profitable months in the year.

In October, the Central Bank of Nigeria had restricted local investors –individuals and corporate organisations– from investing in Open Market Operation (OMO). The directive bolstered stock market attractiveness and boosted profit to 2.45 percent in the month despite losing 2.27 percent quarter-to-date.

The activity level was low as investors exchanged 1.161 billion shares valued at N13.174 billion in 18,142 transactions last week against 1.416 billion shares worth N17.249 billion that were traded in 20,303 deals last week.

In terms of volume traded, the financial services industry led with 809.229 million shares valued at N6.219 billion exchanged in 10,415 deals.

Followed by the Conglomerate industry with 139.940 million shares valued at N585.927 million in 943 deals while the consumer goods industry with a turnover of 84.546 million shares worth N3.445 billion in 2,674 deals came third.

Top traded equities in terms of volume were Law Union & Rock Insurance Plc, Zenith Bank Plc and United Bank for Africa Plc.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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UK Financial Reporting Council Sanctions KPMG On Quality Of Banking Audits

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KPMG

The United Kingdom Financial Reporting Council (FRC) has sanctioned one of the biggest audit firms, KPMG LLP over the quality of its banking audits which U.K.’s industry regulator said it was “unacceptable” that for the third year running the accounting firm’s work wasn’t up to scratch.

The FRC in its annual report released on Friday examined the U.K.’s seven biggest auditing firms, which include Ernst & Young and Deloitte, said almost 30 percent of all bookkeeping was below par in the year to the end of March.

“Overall Inspection results at KPMG did not improve and it is unacceptable that, for the third year running, the FRC found improvements were required to KPMG’s audits of banks and similar entities.

“Given the systemic importance of banks to the UK economy, the FRC will be closely monitoring KPMG’s actions to ensure findings are addressed in a timely manner.

“KPMG has agreed on additional improvement activities to be delivered this year over and above its existing audit quality improvement plan,

“In response to our findings this year, the firm’s senior leadership has committed to making further changes necessary to improve audit quality in time for 2021 year-end audits.

“We will monitor these closely to assess on a timely basis the extent to which they address our findings,” the report released on Friday stated.

The FRC said that “We will also continue to focus our inspections on KPMG banking audits.”

The regulator said central to achieving consistent audit quality is a healthy culture within the audit practice that encourages challenge and professional skepticism, as it set out in its letter to Heads of Audit
in December 2020.

“We have a major project underway to examine audit culture, including an international conference held in June this year on the subject.

“Operational separation of audit practices from the rest of the firm should help the largest firms to focus on developing an appropriate audit culture,” the FRC stated.

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Banking Sector

GCR Affirms Coronation Merchant Bank Limited’s National Scale Long and Short-term Issuer Ratings of A-(NG)/A2(NG); Outlook Stable

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GCR Ratings (“GCR”) has affirmed Coronation Merchant Bank Limited’s national scale long-term and short-term ratings of A-(NG) and A2(NG) respectively, with a Stable Outlook.

Rated Entity Rating class Rating scale Rating Outlook
Coronation Merchant Bank Limited Long Term issuer National A-(NG) Stable
Short Term issuer National A2(NG)

Rating rationale

The ratings of Coronation Merchant Bank Limited (“Coronation MB” or “the bank”) reflect its adequate funding and liquidity position, and sound asset quality metrics, as evidenced by the nil non-performing loans (“NPL”) since inception to date. However, these strengths are partly offset by the bank’s modest competitive position, significant loan book concentration and heavy reliance on wholesale funding from financial institutions.

Coronation MB is a strong player within the Nigerian merchant banking subsector based on its product/service delivery, loan portfolio and deposit mobilisation capacity relative to peers. Leveraging its long track record (having previously operated as a discount house for over two decades) and partnerships, the bank ensures consistent enhancement of its operational scale, particularly within the trade finance space. Reflective of its relatively small customer base and the trends across the merchant banking subsector, elevated concentration risk is perceived, with the twenty largest obligors and depositors constituting 85.0% and 75.4% of gross loans and customer deposits respectively at FY20. Also, the bank evidenced moderate market share within the Nigerian banking industry in terms of total assets, customer deposits, and loan portfolio, which are estimated at 0.8%, 0.7% and 0.7% respectively at FY20. Management & Governance is a neutral ratings factor.

Capitalisation is assessed at an intermediate level. The GCR computed capital ratio registered at 17.6% at FY20 (FY19: 19.8%) and expected to moderate to 16%-17% range over the next 12-18 month in view of the outpacing growth in risk weighted assets vis-à-vis internal capital generation. Earnings quality is considered ratings negative, reflected by revenue stability risk characterised by high source concentration and a material exposure to market sensitive income, which constituted a sizeable 42.5% of total operating revenue in FY20 (FY19: 41.3%).

Risk position is sound and a key ratings strength, underpinned by the bank’s nil NPL since inception to date and moderate credit losses of 0.2% at FY20, which broadly compared favourably with the industry average of about 3%. Initial assessments of the potential impact of the COVID-19 pandemic indicated that the bank will not be immune to the sector-wide challenges, which include asset quality concerns and slower loan repayments. However, this impact has thus far remained minimal, with the bank making no recourse to regulatory forbearance during the period. That said, we expect NPL and credit losses to remain at similar strong range over the rating horizon on the back of sustenance of stringent underwriting criteria and the macroeconomic environment recoveries. Conversely, the loan book is considered highly concentrated, with the top twenty obligors accounting for 85% of the loan book at FY20. While this is a rating constraining factor and typical of merchant banks in Nigeria, management expects this concentration to moderate somewhat over the short to medium term on account of the recent sectoral coverage expansion. GCR is also cognisant of the bank’s significant exposures to market risk considering the substantial market sensitive income realised in FY20.

Coronation MB’s funding base is considered adequate, predominantly bolstered by the debut N25bn subordinated unsecured bonds issued during 2020, as well as its improved deposit mobilisation capacity. As a result, the GCR long term funding ratio and stable funding ratio was robust at 80.8% and 73.1% respectively at FY20. While cognisance is taken of the sizeable (41.3%) growth in customer deposits in FY20, concentration risk is evident, with the top twenty depositors accounting for 75.4% of the deposit book, the bulk of which were from financial institutions. Positively, liquidity position is solid, with the GCR liquid asset covering wholesale funding and customer deposits by 3.9x and 53.1% respectively at FY20.

Outlook statement

The stable outlook reflects GCR’s expectation that Coronation MB’s asset quality metrics would remain sound despite the strains in the operating environment, albeit with the loan portfolio concentration by obligor remaining high. GCR calculated capital ratio is anticipated to moderate to 16-17% range over the next 12-18 month given our expectation that the outpacing growth in risk weighted assets vis-à-vis internal capital generation will continue to weigh down capitalisation metrics. However, GCR will positively consider a material improvement in core earnings over the rating horizon. While we anticipate liquidity to remain sound, diversification of the deposit book with a better mix of non-financial institution clients would be positively considered.

Rating triggers

The ratings could be upgraded if Coronation MB materially improves its core earnings and achieves a core capital ratio above 20% on a sustainable basis, while also maintaining sound asset quality metrics. In addition, GCR would positively consider a well-diversified loan portfolio and funding base. Conversely, a downward rating movement could be triggered by a material deterioration in GCR computed capital ratio to below 15% range, asset quality pressures and increase reliance on wholesale funding from financial institutions.

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Banking Sector

Fitch Affirms Triple A-rating of the African Development Bank, Outlook Stable

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Global credit rating agency Fitch Ratings has affirmed the African Development Bank’s credit rating at ‘AAA’, with a stable outlook.

Fitch said the triple-A rating was driven by the ‘extraordinary support’ of the Bank’s shareholders.

Fitch views the Bank’s risk-management policies as ‘conservative’ and assesses them as ‘excellent’, in line with AAA-rated peers. “Concentration risk is ‘low’, with the bank’s five largest exposures accounting for 32% of total banking portfolio at end-2020.”

Bajabulile “Swazi” Tshabalala, Vice President for Finance and Chief Finance Officer of the African Development Bank, said: “The affirmation of the Bank’s triple-A ratings by Fitch, recognizes the very strong shareholder support our institution benefits from, as well as its strong capitalization and risk management capabilities. The affirmation also speaks to the importance of the Bank’s public policy mandate, particularly during these very challenging times.”

The global ratings agency assesses the Bank’s overall exposure to risks as “’Low’, balancing ‘Moderate’ credit risk with ‘Excellent’ risk management policies, ‘Low’ concentration, and ‘Very Low’ equity and market risks.”

Responding to the Fitch ratings report, African Development Bank Group President Dr. Akinwumi A. Adesina said: “The African Development Bank welcomes the affirmation of the Bank’s ‘AAA’ rating, with a stable outlook, despite enormous challenges posed by Covid-19. The Bank will continue to enhance its policy and fiscal relevance in support of regional member countries, as they contend with the global and regional repercussions of the pandemic. While helping African economies reposition their economies in a Covid-19 environment, we will also maintain our prudential ratios and adequate buffers.”

The African Development Bank was recognized by Global Capital in 2020, for its highly successful $3 billion Fight Covid-19 social bond, one of the Bank’s many initiatives to alleviate the impact of the pandemic on African lives and economies.

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