Al­lan Gray to raise hold­ings of Nige­rian banks

The Star Late Edition - - COMPANIES - Colin McClel­land and Kevin Crow­ley

AL­LAN Gray, the largest man­ager of non-gov­ern­ment in­vest­ment funds in Africa, is bet­ting on Nige­ria’s bank­ing in­dus­try de­spite poor per­for­mances by the oil com­pa­nies it de­pends on and wide­spread calls for the naira to be fur­ther de­val­ued.

The Cape Town-based in­vestor is adding to its stakes in La­gos-based lenders Ac­cess Bank and Zenith Bank, Al­lan Gray chief in­vest­ment of­fi­cer An­drew Lap­ping said in an in­ter­view in Cape Town ear­lier this month. He didn’t say how big the hold­ings are or how many shares his com­pany is buy­ing.

“We see a lot of value in Nige­rian banks,” Lap­ping said. “Most peo­ple think they’re all go­ing to zero be­cause of the bad debts. We think they will survive, be­cause high in­ter­est rates make the banks prof­itable and they have less debt to eq­uity com­pared with Euro­pean lenders,” he said. Un­der pres­sure Ac­cess Bank chief ex­ec­u­tive Her­bert Wigwe said last month that the bank’s non-per­form­ing loans are ex­pected to climb to “slightly be­low” 3 per­cent of to­tal loans by the end of 2017. That com­pares with 2.1 per­cent for the nine months through Septem­ber.

The bank­ing in­dus­try is un­der pres­sure in Nige­ria, where the econ­omy was in a re­ces­sion dur­ing 2016.

Non-per­form­ing loans es­ca­lated to al­most three times the reg­u­la­tory max­i­mum, and for­eign in­vestors are call­ing for au­thor­i­ties to boost flex­i­ble trad­ing of the naira be­fore putting more money into the coun­try.

An oil price at half its 2014 lev­els, com­bined with sab­o­tage and at­tacks on oil in­stal­la­tions that have cut out­put, has lim­ited dol­lar sup­plies in the coun­try, which vies with An­gola as Africa’s largest crude-oil pro­ducer.

The bad-debt ra­tio at Nige­rian banks rose to 13.4 per­cent last year. The naira was de­val­ued in June and traded at 315.50 to the dol­lar by 6.53am in La­gos yes­ter­day, while the un­of­fi­cial, black-mar­ket rate was 507 naira to the dol­lar.

The of­fi­cial ex­change rate should fall to 370 by the end of the year, Craig Metherell, an an­a­lyst at Av­ior Cap­i­tal Mar­kets in Cape Town, said in a Fe­bru­ary 10 note to in­vestors. In­vestors are frus­trated by cen­tral-bank poli­cies, he said.

“Dol­lar illiq­uid­ity and the in­abil­ity to pre­dict the cen­tral bank’s de­ci­sions re­main a con­stant de­ter­rent to dol­lar-based in­vestors,” Metherell said. “While we ar­gue that val­u­a­tions look cheap, we find it dif­fi­cult to jus­tify in­vest­ing new money given the cur­rent sta­tus quo.”

Al­lan Gray isn’t the only in­vestor that is in­ter­ested in lo­cal lenders. Lau­rie Dip­pe­naar, the chair­man of FirstRand, Africa’s largest bank by mar­ket value, said last month it was look­ing to buy a mid-sized bank.

Di­a­mond Bank, Ster­ling Bank and Wema Bank were among mid-sized Nige­rian lenders that plum­meted more than 40 per­cent last year as the do­mes­tic econ­omy per­formed the worst since the 1980s.

“Ev­ery­one thinks the naira is go­ing to weaken, but I’m not so sure,” Lap­ping said. “The bad-debt prob­lem can cure it­self over time.”

Nige­rian banks are also at­trac­tive be­cause their small size adds to their growth po­ten­tial, while lend­ing as a pro­por­tion of eq­uity re­mains low at 3.5 times, Lap­ping said. Still, the in­dus­try’s ex­po­sure to oil re­mains a con­cern, he said.The Nige­rian Stock Ex­change Bank­ing 10 In­dex has climbed 0.7 per­cent this year as gains by Ac­cess Bank, Zenith, United Bank for Africa and Fidelity Bank helped to com­pen­sate for losses in the other six mem­bers of the gauge.

“Maybe we’ve dug our­selves into a hole” by in­vest­ing in Nige­rian banks, Lap­ping said. “Even if it’s 50-50, go­ing bust or go­ing up, the up­side is so much that it’s worth the risk.” – Bloomberg

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