The Managing Director and Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, has said the projection by Fitch Ratings that the profit of Nigerian banks will decline next year, will have a negative impact on their stocks.

Chukwu said this, while responding to questions on the performance of the equities market this year and the likely impact of some market developments.

The global rating agency had said last month that actions aimed at protecting the economy and the banking system by the Central Bank of Nigeria would make the profits of Deposit Money Banks in the country for next year to drop. It, however, noted that the banks were performing well in the face of the challenges.

Asked about the possible impact, Chukwu said it would most likely lead to further reduction in investors’ appetite for banking stocks.

He added that the news was not altogether surprising.

“It should, however, be noted that most analysts and fund managers had earlier arrived at the same conclusion and may have priced in the risks of profit decline in the equities of banks,” he said.

He explained that the probability of decline in profit was just one of the adverse factors affecting the market price of banking and other stocks.

“More compelling factors such as sell down by foreign portfolio investors, threat of naira devaluation, likelihood of further hike in interest rates and political uncertainly combined have exerted more downward pressure on equity prices than even the risk of decline in profitability,” he said.

Source: Punch