The Market Today - 05 September 2018

NAICOM brings forward recapitalization deadline                                                          

The National Insurance Commission (NAICOM) has moved the deadline for the recapitalization of insurance firms from the 1st of January 2019 to the 1st of October 2018, giving insurance firms barely a month to comply with the new rules. The regulator recently introduced a three-tier based minimum solvency capital requirement within the industry. The last recapitalization drive took place in February 2007, and since then, a global recession, changes to international capital standards for many financial institutions, and multiple shocks to the Nigerian economy have made it necessary to reassess the capital structure and adequacy of the insurance sector. Given the experience of the banking sector in the mid-2000s, this recapitalization drive may instigate more mergers and acquisitions in the industry as firms pursue inorganic growth.                                                            

Market rebounds after Banking sector boost                                                     

After a 141bps rise in the Banking Index, the Nigerian equity market closed 28bps higher, swinging wtd and mtd returns into the green. With market breadth turning positive and the Banking sector seeing buy-side activity, we anticipate another positive session today.                                

Stock Watch: NB fell below ₦100.00 after losing 211bps in the last session (the first time since January 2016). The stock has declined 31% since the start of the year. The stock currently trades at ₦93.00, 43% below its year-high of ₦52.68.                                                               

OMO auction fails to dampen T-bills market                                                     

The CBN conducted an OMO auction yesterday, offering ₦600 billion but selling ₦171 billion on the 72DTM and 198DTM bills at stop rates of 11.05% and 12.15% (effective yields 11.36% and 11.03%) respectively. In spite of the mop up, Interbank Call rate eased by 134bps to 3.08%, supported by c.₦745 billion system liquidity. Also spurred by healthy system liquidity, trading remained bullish in the T-bills market, with yields declining 5bps on average. Notably, yields on the 30DTM and 93DTM bills declined 93bps and 85bps respectively to settle at 10.83% and 11.55%. On the other hand, selloffs were more prevalent in the bond market, with yields advancing 6bps on average across benchmark bonds. Short-dated tenors were the worst hit, with yield notably advancing 68bps on the 14.50% FGN JUL 2021 to settle at 14.95%.