By Stanley Opara

Wednesday, 26 Jan 2011

Renaissance Capital has said it expects the Nigerian financial market to be a strong performer in 2011.

It said the Nigerian market, which lagged behind other emerging markets between 2009 and 2010 still had a strong catch-up potential.

A statement from the company on Tuesday, said the banking sector’s problems could be solved once the Asset Management Corporation of Nigeria “completes its purchase of non-performing loans of the Deposit Money Banks.”

“We believe that political risk has fallen after the completion of the Peoples Democratic Party primaries on January 13. The presidential election on April 9 could usher in a period of reforms with the potential to attract a wave of foreign direct investment,” the firm said.

Nigeria, it added, was on the path to recovery and, “Equities remain an attractive asset class to be in during an economic recovery,and Nigeria’s growth trajectory places it in the recovery state of the business cycle.”

According to the statement, the structural shortcomings, which have been a feature of the market in recent years – including a weakened financial system, banking asset quality concerns and political uncertainty – are becoming less noticeable.

Barring any negative surprises to the financial sector’s recovery, it said equities might be worth early consideration, and asset quality concerns in the banking space were expected to come to an end by March 2011.

The group, however, said the full resolution of issues related to troubled banks was expected by June 2011.

The statement noted, “Private credit growth, which was abysmally low in the early part of 2010, closed higher at 5.8 per cent year-on-year in November and Nigerian banks’ analysts expect an uptick in lending activity to impact positively on banks’ income in 2011.

“Attractive yields on treasury bills and inter-bank placements also have the potential to lower banks’ cost-to-income ratios. This view is supported by companies having a leaner structure during the economic recovery phase. Political concerns have driven investor sentiment.”

The firm, however, said the country should see increased market participation this year following the issuance of a new set of regulations guiding investment of pension fund assets.

“In December, the National Pension Commission issued a new set of regulations guiding investment of pension fund assets. The guidelines provide more latitude in the selection criteria for allowable instruments in pension funds’ assets under management, while trading hours on the Nigerian Stock Exchange have been extended. These have the potential to broaden market participation,” it maintained.

Source: Punch