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The Market Today - 02 November 2018

CBN reports mild improvement in Banking sector in H1’18 CBN reports mild improvement in Banking sector in H1’18 In its draft H1’18 economic report, the Central Bank of Nigeria (CBN) revealed that although the banking industry improved in the first six months of 2018, three banks failed to meet the 30% minimum liquidity ratio requirement. The report noted that, at the half-way mark of 2018, the industry average capital adequacy ratio (CAR) stood at 12.08%, up from 10.23% at the end of 2017. An improvement in asset quality, measured by the non-performing loans to total loans ratio (NPL ratio) stood at 12.45%, compared 14.80% at year end. The overall improvement in the banking sector reflects the effect of higher oil prices, slightly improved macroeconomic conditions and strong oversight by the apex bank. Nevertheless, Nigeria’s banking sector is not out of the woods yet as a number of key players still suffer from asset quality and capital adequacy deficiencies.  Driven by sell-offs, November begins where October left off The Nigerian equity market shed 142bps at the start of the new month, driven by sell-offs in large-cap Industrial and Consumer Goods stocks. The market remained bearish throughout the session, with investors further drawing down on beaten-down stocks. Market breadth remained negative with 15 advances and 25 declines. Amidst still weak investor sentiment, we expect another negative close to today’s trading. Stock Watch: CADBURY shed 10% in yesterday’s session to reach a year-low of ₦9.00. The company recently released its 9M’18 earnings, reporting a positive bottom line, up from a loss position in the previous year. However, after rising 526bps on the day of the earnings release, the stock promptly resumed its downtrend. The stock has lost 43% ytd and is significantly below its year high of ₦18.50.
Yields advance amid tightened liquidity At yesterday’s OMO, the CBN sold ₦518 billion (₦1 trillion offered) across the 91DTM, 182DTM, 364DTM bills at stop rates of 11.50%, 13.00% and 14.50% respectively (effective yields: 11.84%, 13.90% and 16.95%) in line with previous OMO rates. Following the mop up, the Interbank Call rate advanced 17bps to settle at 4.50%. With investor sentiment still weak and amidst tightened liquidity, we expect sell bias in the fixed income market today, with particular pressure at the long end of the bills space, as yields in the secondary market adjust towards the higher OMO auction level.