The Banks

[chrischigoz]

Thank you KOD for this carefully analysis of some banking stock with good fundamentals, infact i respect your financial wisdom to put this piece of article here, you are very generous. But iam very confused about the true nature of financial standing of some of the nigerians banks, as i learnt some of them as distressed. some even declear false profit and went ahead and borrow to pay dividend to create impression that all is well. I have read many articles about it and the one of Jimoh Ibrahim still lay credence to the allegation, the interview he had with Nigeria Compass. You can copy and paste to have a glance of it here:
Nigerian Compass - All the news, all the time - Politics, Editorial, World News, Economy, Business, Education

Iam confused and even discouraged from putting my hard-earned money in banking, i think breweries is better now in the view of uncertainty that surrounds this year 2009. Please , i dont know what you think about this, just my own humble suggestion

chrischigoz

[knightofdelta]

Originally Posted by wanaj0

Kudos for the work done.

Not sure of the accuracy of the EPS/PE. That of FCMB stands out! There must be some error somewhere. FCMB EPS should be >1 and the PE should definitely be less than 7.00.

Also in recommending stocks for income would have thought dividend yield will be a better yardstick rather than absolute dividend figure.

All in all, good analysis. Afribank and FCMB are realling looking attractive BUT one need to look at the FACTS behind the FIGURES. Like you said, figures don't always tell the whole story.

Thanks for your observation. I knew that the figures could not be 100% accurate because of the difficulty of getting accurate data with the multiple splits that some banks did, which for one reason or the other, NSE never updates.

I agree that dividend yield should have been a better tool for stock recommendation for income but you need to have it at the back of your mind that income generation and capital preservation go hand in hand in portfolio management. It is against one of the basic principles to use low capitalized stocks for income generation as their performance is not guaranteed. If you take a close look at the banks that have the highest yields three of them are in the middle-tier category and do not fit the bill. All the banks that paid high absolute dividends are the ones with the largest capitalizations and have also consistently paid the highest dividends in the industry, therefore the risk associated with them is lower.

[knightofdelta]

Originally Posted by eniyanman

I totally agree. Yield is more important than absolute values. In fact, the coefficient of variation computed using absolute values is erroneous.

Overall, it's a good report. Kudos! You might want to revisit some errors like UBA dividend (~91.6k) and P/E values (seems too low). Also as wanaj0 has explained, what's important is sustained future earnings, with many banks presumed to be in difficulties (at least to varying degrees), there is no assurance that the future will be like the past. Personally, I won't be buying banks anytime soon.

Happy new year!!!

I would like you to shed more light. One the reasons I posted it is for constructive criticism so I can be better.

The reason I used coefficient of variation is that the five banks are going to be in a portfolio and large variability (positive and negative) can distort mean returns because the dividends are going to be part of the expected returns from the portfolio.

[mosbe]

Originally Posted by Catweasel

Does anyone have an inkling of when these market-makers are likely to start having an impact on the market?

This is a Question that has been bothering me too. Does anyone has an answer?

[slydomber]

Thank you, Knightofdelta....enjoyable and informative read. Now, if only you can use some of that wisdom and power on your delta boys there...

I was wondering if anyone knows where someone could deposit money and get good returns...in terms of interest. Zenith is offering 12% for 60 days (fixed-deposit)...is this the best? I hear FutureView could give up to 13% (depending on amount)...anyone giving better interest? In addition to stocks, i think it wise to also look at such avenues of wealth creation...

[eniyanman]

Originally Posted by knightofdelta

I would like you to shed more light. One the reasons I posted it is for constructive criticism so I can be better.

The reason I used coefficient of variation is that the five banks are going to be in a portfolio and large variability (positive and negative) can distort mean returns because the dividends are going to be part of the expected returns from the portfolio.

I like the concept of coefficient of variation which you used. That was very novel. However, it's use with absolute values is what I query. I have no problems with the dividend yield illustration.

Let's take, for example, Skye Bank. Let's assume that there is a 1:2 reconstruction before ex-div date (but total dividend pay-out remains the same, in which case each reconstructed share gets N1.20 dividend). This will automatically put Skye in the top 5 in terms of absolute DPS and coefficient of variation of the top 5 banks will reduce. As we know, from a quantitative view-point, a reconstruction in itself should not change a stock's relative value, however, it does as explained above. If on the other hand the dividend yield was used, then the CoV would remain unchanged irrespective of the reconstruction.

[Monwowo]

Originally Posted by slydomber

Thank you, Knightofdelta....enjoyable and informative read. Now, if only you can use some of that wisdom and power on your delta boys there...

I was wondering if anyone knows where someone could deposit money and get good returns...in terms of interest. Zenith is offering 12% for 60 days (fixed-deposit)...is this the best? I hear FutureView could give up to 13% (depending on amount)...anyone giving better interest? In addition to stocks, i think it wise to also look at such avenues of wealth creation...

I am not very vast in the fixed deposit options available in Nija, but I know that Kakawa discount house guarannteed income fund is giving MPR + 4% (currently 9.5 + 4 = 13.5%). Check out their website here

KAKAWA::Guaranteed Income Fund | 2007

[hispy99]

The Punch: Challenges ahead of banking sector in 2009

[Ahaah]

Originally Posted by hispy99

Challenges ahead of banking sector in 2009
By Ayo Olesin and Yemi Kolapo
Published: Monday, 5 Jan 2009


While it may be true that capital adequacy ratio in the nation’s banking sector stands at about 22 per cent compared with eight per cent in Western banks, the recent exposure of banks to the a near stock market crash – an estimated N400bn in margin loans that had to be rescheduled – and more recent exposure to forex market losses where a single bank was said to have lost N6bn last month alone to prompt a 50 per cent reduction in shareholder exposure to the forex market may be worrisome.

Which bank de dis one oh?

[knightofdelta]

Originally Posted by eniyanman

I like the concept of coefficient of variation which you used. That was very novel. However, it's use with absolute values is what I query. I have no problems with the dividend yield illustration.

Let's take, for example, Skye Bank. Let's assume that there is a 1:2 reconstruction before ex-div date (but total dividend pay-out remains the same, in which case each reconstructed share gets N1.20 dividend). This will automatically put Skye in the top 5 in terms of absolute DPS and coefficient of variation of the top 5 banks will reduce. As we know, from a quantitative view-point, a reconstruction in itself should not change a stock's relative value, however, it does as explained above. If on the other hand the dividend yield was used, then the CoV would remain unchanged irrespective of the reconstruction.

That was very useful. Thank you very much. I will definitely fine tune the way I use it to take such lapses into consideration.

[knightofdelta]

Now, I am beginning to get worried about these banks. When these people start telling us that all is well and yet there lots of questions unanswered. I will like to know why NIBOR is climbing everyday... I will also like to know the average percentage of unsecured credit lines to total capital of these banks; that will give us the true picture of the capital adequacy ratio.

[knightofdelta]

Originally Posted by slydomber

Thank you, Knightofdelta....enjoyable and informative read. Now, if only you can use some of that wisdom and power on your delta boys there...

I was wondering if anyone knows where someone could deposit money and get good returns...in terms of interest. Zenith is offering 12% for 60 days (fixed-deposit)...is this the best? I hear FutureView could give up to 13% (depending on amount)...anyone giving better interest? In addition to stocks, i think it wise to also look at such avenues of wealth creation...

Ol' boy, I'd rather use my wisdom and power over our oppressors in Abuja than for my people that are fighting to be heard...

[azob2002]

Originally Posted by slydomber

Thank you, Knightofdelta....enjoyable and informative read. Now, if only you can use some of that wisdom and power on your delta boys there...

I was wondering if anyone knows where someone could deposit money and get good returns...in terms of interest. Zenith is offering 12% for 60 days (fixed-deposit)...is this the best? I hear FutureView could give up to 13% (depending on amount)...anyone giving better interest? In addition to stocks, i think it wise to also look at such avenues of wealth creation...

Its quite funny that we r talking about getting returns of 13.5%p.a, while my own brother got 13% from a bank on just N1M for 90days... the fact is that these banks are really desperate for funds at the moment so if u can bargain well, I can assure you that you can get as much as 15% on your deposit; afterall the interbank rate is close to 13%.

If u feel u need my imput just PM me and i would give you the bank name and the exact account officer who manages the account for us.

[olusolakemmy]

Originally Posted by azob2002

Its quite funny that we r talking about getting returns of 13.5%p.a, while my own brother got 13% from a bank on just N1M for 90days... the fact is that these banks are really desperate for funds at the moment so if u can bargain well, I can assure you that you can get as much as 15% on your deposit; afterall the interbank rate is close to 13%.

If u feel u need my imput just PM me and i would give you the bank name and the exact account officer who manages the account for us.

please dont get it wrong. the 13% on fixed deposit is annualised but the 13.5% ppl are praying for is not.
what i mean is this, if you have 13% on your fixed deposit on N1m for 30days, you get 130000/12=10833, the bank deduct commission and what get to you will be about N8500 and for 90days it translate to about N25500, so that was what your brother will have after 90days.
but the ROI of 13.5% p.a on N1m is expected to be N130000.
Even if you leave your fixed deposit of N1m for 12month, it will come to about N105000.

[olusolakemmy]

Originally Posted by olusolakemmy

please dont get it wrong. the 13% on fixed deposit is annualised but the 13.5% ppl are praying for is not.
what i mean is this, if you have 13% on your fixed deposit on N1m for 30days, you get 130000/12=10833, the bank deduct commission and what get to you will be about N8500 and for 90days it translate to about N25500, so that was what your brother will have after 90days.
but the ROI of 13.5% p.a on N1m is expected to be N130000.
Even if you leave your fixed deposit of N1m for 12month, it will come to about N105000.

just to add that, the fixed deposit is with no risk and the return on investment is known from day one but for ROI on other investment such as stocks cant be determined, they have elements of risk but have the potential of better return.

In this time of bad ROI on stocks, well one can take cover with fixed deposit

[hispy99]

Originally Posted by olusolakemmy

just to add that, the fixed deposit is with no risk and the return on investment is known from day one but for ROI on other investment such as stocks cant be determined, they have elements of risk but have the potential of better return.

In this time of bad ROI on stocks, well one can take cover with fixed deposit

Fixed deposit is not entirely risk free. The bank can go kaput, in which case you'll only get back what is insured by the NDIC.

[olusolakemmy]

Originally Posted by hispy99

Fixed deposit is not entirely risk free. The bank can go kaput, in which case you'll only get back what is insured by the NDIC.

so what percentage is insured by NDIC or how do we know what is and not insured?
please shed more light oga mi

[Ahaah]

Originally Posted by hispy99

Fixed deposit is not entirely risk free. The bank can go kaput, in which case you'll only get back what is insured by the NDIC.

ermmmmmm....to my friends running after high interest rates on deposits.......the higher the return (higher interest rate on the fixed deposit) the higher the risk (the possibility that the bank can kaput). Be wary when giving your money to desperate people or banks for keep. Be wary of very attractive (high) interest rate offered by banks (possibly distressed) for your deposit unless you want them to Bernard Made-off with your money

[hispy99]

Originally Posted by olusolakemmy

so what percentage is insured by NDIC or how do we know what is and not insured?
please shed more light oga mi

Only N50,000.00 is insured by NDIC (except they have raised the limit) . So if you put N100M in a bank and the bank goes kaput, you are only guaranteed N50k. Of course if the bank is liquidated, proceeds from the sale of assets will be distributed to depositors, but knowing Nigeria, this process might not be completed till you turn 200 years old .

[mosbe]

Originally Posted by hispy99

Only N50,000.00 is insured by NDIC (except they have raised the limit) . So if you put N100M in a bank and the bank goes kaput, you are only guaranteed N50k. Of course if the bank is liquidated, proceeds from the sale of assets will be distributed to depositors, but knowing Nigeria, this process might not be completed till you turn 200 years old .

I thought at one time it was raised to N100,000k. Pls confirm