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Breakfast Report - 16 December, 2019

Last week Wednesday, the CBN Director of Banking Supervision, Hassan Bello, hinted that the Central Bank of Nigeria intends to further increase the Loan to Deposit Ratio (LDR) of banks from 65% to 70% by 2020. According to CBN data, the recent LDR measure has boosted credit to the economy by ₦1.1 trillion as of Q3’19. However, the pass through to the real economy has not yet been fully realized. That said, GDP growth improved to 2.28% in Q3’19, up from 2.1% in Q2’19 and 1.9% in Q1’19. Nigeria’s growth has lagged expectations due to global as well as domestic headwinds, with the lack of adequate lending to the real sector posing a stumbling block for economic development. While the directive by the CBN will go some ways to improving this, the operating environment will also require reform in order to fully unlock the country’s output potential. Meanwhile, we believe the CBN’s efforts to boost economic growth and grow credit is a positive for real sector lending, it could precipitate weakened asset quality across the banking industry.

Equity: We expect a mixed trading session to start off the week, with continued sell-offs on some counters that gained during the week and bargain hunting on others.

 Stock Watch: AGLEVENT closed on Friday as the best performing stock, gaining 833bps to settle at ₦0.39. The counter is currently trading at a year-high and has gained 44.44% YTD.

 Fixed Income: Given the current level of system liquidity, we expect the secondary market to trade in a bearish manner at the start of the week. In the bond space, we expect investors to continue to patronize FGN bonds, as yields in the space remains more attractive to investors.