Irony of rating and banks’ fundamentals




It may not be out of place for investors at the Nigerian bourse to say that some acclaimed foreign rating agencies had in recent past misinformed them about the future of some Nigerian banks in view of the ratings assigned to some of the banks then.


The recent takeover of some banks and injection of N620 billion bailout fund by the Central Bank of Nigeria has seemed to have further supported this claim since some of the banks are known to have been rated rather highly by these rating agencies.


The same scenario had also played out outside Nigeria particularly when Fitch gave the Lehman Brothers in the United States A++ rating and barely two weeks after the rating, the bank collapsed. Ironically, keen watchers of the Nigerian stock market are wont to say that recent statement by a foreign rating agency which claimed that the Nigerian banking sector is still highly risky may soon be another determining factor for investing in the sector. Take for instance, no fewer than 12 banks’ share prices dropped on the bourse Tuesday, about five gained marginally, while only two banks share prices remained unchanged.


Ratings agency, the Standard and Poor (S&P), had barely one week ago noted that banks in the country continued to look weak, despite the bailout of some of them by the Central Bank of Nigeria (CBN), a comment which makes investors on the nation’s bourse to be skeptical over the direction of banks’ shares, despite that market analysts foresee continuing volatility in the stock market which had continued since last month.


John Gibling, managing director for financial institutions at S&P, had said: “The Nigerian banking system is very high risk. The ratings we have for the banks are in the single B category; it’s a very-very low level compared to most banks in the world. We continue to see the Nigerian banking system as very high risk. In regulatory reform, there is still a long way to go.”


However, the CBN through its head of corporate affairs, Mohammed Abdullahi, had faulted the report maintaining that it was mischievous and in bad light. “Nigerians should be wary of such ratings by foreign rating agencies, bearing in mind that Fitch gave the Lehman Brothers in the United States (US) A++ rating and two weeks after the rating, the bank collapsed,” Abdullahi advised, adding, “The parameters of the S&P are unknown to us, and alien to Nigerian banking industry. The fact on ground shows otherwise that even the so-called rescued banks have bounced back and started making profit as widely reported. Who rates the rating agencies?”


Some financial analysts believed that S&P Rating was misinforming the general public and that it was also a dubious analysis. “Some of these organisations coming out with mischievous reports are not working on their own but are sponsored by organisations with negative plans for the Nigerian banking industry,” said Biodun Adedipe, managing partner, Adedipe and Associate.As usual, the banking sector had continually led the transaction volume in the bourse an indication that investors remain optimistic over their ability to yield higher returns on investments.


Last week, the banking subsector was the most active during the week (measured by turnover volume), with 651.195 million shares worth N4.983 billion exchanged by investors in 15,641 deals. Volume in the subsector was largely driven by activity in the shares of First Bank of Nigeria, FinBank plc, and Fidelity Bank plc. Trading in the shares of the three banks accounted for 24.14 million shares, representing 21.9 percent of the total volume traded.


At the resumption of trading on Monday, the high volume of activity in the banking sub-sector was largely driven by activities in the shares of Sterling Bank, GTBank, FirstBank and Zenith which in total accounted for about 65.71 percent of the sub-sector’s total turnover.





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