CBN foreign subsidiary rule sparks N2 trillion loss on NGX

The stock market closed on Thursday on a negative note, with investors losing N1.92 trillion amid sell-offs in banking and cement stocks.

This comes amid reactions to the Central Bank of Nigeria’s new regulatory guidelines for banks’ foreign subsidiaries.

Market capitalisation dropped from N155.780 trillion to N153.858 trillion, recording a decline of N1.23 per cent or N1.922 trillion.

The All-Share Index also fell by 1.23 per cent, or 2,994.90 points, to close at 239,734.61, from 242,729.51 previously. The year-to-date return moderated to 54.82 per cent.

Speaking on the development, Tajudeen Olayinka, an investment banker and stockbroker, attributed the decline to investors’ reaction to the new CBN directive on foreign subsidiaries of banks.

According to him, the guideline required banks operating abroad to limit investments in foreign subsidiaries to 10 per cent of their equity capital or shareholders’ funds.

Mr Olayinka stated that the apex bank also directed banks that are currently above the threshold to begin divesting 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.

Mr 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, noting 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 potential for banks is very high, suggesting that anyone selling banking stocks at this time might be throwing good money away. This is because the industry is now very strong and highly regulated. The liquidity hasn’t gone away,” Mr Olayinka said.

Meanwhile, the market breadth closed positive, recording 42 gainers against 30 losers. CAP and FTN Cocoa Processors led the gainers’ chart by 9.99 per cent each, closing at N212.50 and N8.04 per share, respectively. Berger Paints, Zichis Agro Allied Industries and Meyer lost by 9.97 per cent each, settling at N98.75, N30.33 and N17.10 per share.

Conversely, University Press led the losers’ chart by 10 per cent, finishing at N4.50, Red Star Express trailed by 9.59 per cent, ending the session at N25.45, while Skyway Aviation Handling Company dipped by 8.63 per cent, closing at N130.75 per share.

Also, Cileasing shed 8.50 per cent, settling at N7, and Consolidated Hallmark lost 7.54 per cent, finishing at N6.01 per share.

Market activity improved for the day, as total traded volume rose by 29.34 per cent to 1.83 billion shares worth N72.17 billion exchanged in 81,131 deals. NEM Insurance recorded the highest traded volume with 360.56 million shares, accounting for 19.70 per cent of the day’s total volume.

Seplat Energy led in value terms with transactions worth N12.98 billion, representing 17.99 per cent of the total value traded.

(NAN)