By Agency Reporter

Tuesday, 16 Nov 2010

Nigeria’s banking industry is undervalued by 36 per cent, African Alliance has said, identifying its top picks as United Bank for Africa Plc, Access Bank Plc and Diamond Bank Plc.

According to a report by Bloomberg on Monday, Asset Management Corporation of Nigeria, the company established by the government to purchase bad debt from lenders, had said it would buy back N2.2tn ($14.6bn), more than a forecast of $10bn by the Central Bank of Nigeria.

It added that loans backed by shares in listed companies will be valued at about 60 per cent of the 60-day average price to November 15.

”The price at which AMCON is willing to purchase margin loans is sending a strong signal to the investing public that the sector is materially undervalued,” African Alliance said in an e-mailed statement today in Lagos.

Bank shares plunged after a debt crisis resulting from loans to speculators in the domestic stock market and operators in the oil and gas business threatened to cripple the banking industry. The central bank fired the chief executive officers of eight of the country‘s 24 banks, and took stakes in some of them, spending N620bn to recapitalise the industry.

AMCON‘s valuation represents about a 70 per cent premium to the lenders‘ share values at September 30 ”and we expect that the majority of banks will participate,” African Alliance said.

The Bloomberg NSE Banking Index, which tracks the performance of the 10 biggest banks by market value, fell 0.3 per cent to 387.99, the lowest since November 9. It has gained 22 per cent this year, matching the increase in the Nigerian Stock Exchange All-Share Index over the same period. Bank stocks make up 42 per cent of the West African nation‘s market, according to data published by the bourse.

Access gained 0.3 per cent to N9.13 at the 1pm close in Lagos, its lowest since November 11. Diamond Bank fell 0.1 per cent, to N7.5, its lowest since November 8, while UBA was unchanged at N9.45.

Source: Punch