Nigerian banks faced a challenging April, marked by losses across major banking stocks, coinciding with the first month-to-date decline in the NGX All Share Index this year, shedding 6% in April.
Market Performance:
– **FUGAZ Banks:** First Bank, UBA, GTCO, Access Bank, and Zenith were notably impacted, with Zenith maintaining its position in the SWOOT (Stocks Worth Over One Trillion Naira) index.
– **Market Capitalization:** As of December 2023, Nigeria’s largest banks had a total net asset value of N9.7 trillion, with combined market capitalization at N4.2 trillion, reflecting a price-to-book ratio of 0.43.
**Challenger Banks vs. Traditional Banks:**
– **Valuation:** Challenger banks like Opay and Kuda Bank are valued above $1 billion, despite their smaller operational scales.
Decline in Market Cap:
– **Access Bank:** Market cap fell from N1 trillion in late January to about N598.9 billion by April’s end, despite significant total assets and net assets.
– **UBA:** Experienced a drop from over N1 trillion in January to N817.3 billion by April’s end, despite substantial total and net assets.
– **FBN Holdings:** Saw its market cap peak just above N1 trillion in early April, declining to N857.8 billion by April 30th, 2024.
– **GTCO:** Ended April with a market capitalization of N962.3 billion, down from being valued above N1 trillion in late April.
**Zenith Bank’s Standing:**
– **Zenith Bank:** Remained in the SWOOT, but risks dropping below if sell-offs persist into May 2024, despite robust total and net assets.
Factors Contributing to Undervaluation:
– **Liquidity and Disinterest:** High liquidity of bank stocks and general disinterest in the Nigerian stock market contribute to low valuations relative to net assets.
– **Banking Recapitalization Announcement:** The apex bank’s banking recapitalization announcement, requiring banks to raise over N4 trillion in new capital, likely prompted a sell-off, with lower share prices benefiting bank shareholders through a rights issue.
