WorldStage– The sell-offs in banking and cement stocks on the Nigeria’s stock market on Thursday has been linked to reactions to new regulatory guidelines by the Central Bank of Nigeria (CBN) on foreign subsidiaries of banks.
The stock market on Thursday closed on a negative note as investors lost N1.92 trillion.
An investment banker and stockbroker, Mr Tajudeen Olayinka was quoted by the News Agency of Nigeria (NAN) as saying that the decline to investors’ reaction to the new CBN directive on foreign subsidiaries of banks.
According to him, the guideline compelled banks operating in foreign countries to limit investments in foreign subsidiaries to 10 per cent of their equity capital or shareholders’ funds.
Olayinka said that the apex bank also directed banks currently above the threshold to begin divestment from such subsidiaries.
“The drop in the ASI and market capitalisation came from market reactions to the new CBN guideline that compels banks operating in foreign countries to limit their investment in foreign subsidiaries to 10 per cent of their equity capital or shareholders’ funds.
“The market’s immediate interpretation is that the CBN is effectively integrating revenues and other reserves of banks operating in foreign countries into their existing regulatory capitals.
“This will limit their corporate payout capabilities or make future payouts dependent on growth trajectories,” he said.
Olayinka explained that the development triggered heavy repricing of international banking stocks, which subsequently affected other highly capitalised equities, particularly cement companies.
“So, prices of many of the international banks came down heavily by way of repricing.
“This was followed by declines in prices of highly capitalised listed companies like cement,” he said.
He, however, described the development as temporary as he explained that the affected banks remained fundamentally strong and undervalued.
“I think the development is temporary, as the affected banks are already well capitalised and largely undervalued.
“Therefore, the upside potentials for the banks are very high, suggesting that anyone selling off banking stocks at this time might actually be throwing away good money.
“This is because the industry is now very strong and highly regulated. The liquidity hasn’t gone away,” Olayinka said.
