Nigerian bank stocks, trading at a discount to emerging-market lenders, will probably extend gains to 42 per cent this year as they boost capital and finance oil and power projects, Vetiva Capital Management Ltd. said.
The Bloomberg NSE Banking Index, which tracks Nigeria's 10 biggest banks by market value, is trading at a price-to-book ratio of 0.8 times, less than the 1.4 times book value of assets for lenders in the MSCI Emerging Market Banks Index.
The gauge for Nigerian banks has gained 34 per cent this year compared with a 0.5 per cent drop in MSCI EM Banks Index. Nigeria's all-share index has rallied 37 per cent this year, Africa's best performer after Ghana's benchmark equities measure.
"What matters to us is the valuation of the banks, their move to create risk assets and how well they manage those risk assets," Pabina Yinkere, an equity analyst at Lagos-based Vetiva said in a May 31 interview from the commercial capital.
"We've seen emerging market banks with similar risk profile with Nigerian banks, yet trading at higher multiples", he said
Nigerian lenders are seeking to raise dollars by selling international bonds to finance oil, power and other infrastructure projects in Africa's top oil producer after returning to profit from near-collapse in 2008 and 2009.
Africa's second-largest economy may expand 7.2 per cent this year compared with sub-Saharan Africa's 5.6 per cent average, according to the International Monetary Fund.
Diamond Bank Plc said May 30 it may issue $550m of Eurobonds this year to boost its operations, after the Lagos-based lender raised its annual loangrowth target to 40 percent from 20 percent.
Fidelity Bank Plc sold $300m of five-year bonds on May 2 while FBN Holdings Plc , owner of First Bank Nigeria, plans to raise the equivalent of $500m in Eurobonds this year.
"The fundraising is welcome, especially for the mid-tier banks that are somehow under-capitalized relative to their growth aspirations," Yinkere said.
Vetiva ranked seventh for equities traded by value in the week ending May 10 in Lagos, according to the Nigerian Stock Exchange.
The West African nation is selling majority stakes in power plants and letting private investors acquire holdings of as much as 60 per cent in six transmission and 11 power-distribution companies spun out of the former state-owned utility.
Banks have also increased lending to the oil industry as companies including London-based Heritage Oil Plc and Lagosbased Neconde Energy Ltd. bought stakes in fields owned by Royal Dutch Shell Plc,Eni Spa ,and Total SA.
National Mirror