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The Market Today - 31 January 2019

Zenith Bank to increase retail lending amid heightened oil risk

Zenith Bank has announced its intention to increase its focus on consumer lending as lower-for-longer oil prices weigh on the economy, hurting business customers in its largest loan segment. The tier I bank is expecting to expand retail loans as a percentage of total credit to about 4% this year from less than 1% in 2018, according to Chief Executive Officer, Peter Amangbo. Zenith bank intends to achieve this by making a bigger push into personal loans, car financing and mortgages. While the energy sector has historically accounted for the lion share of Gross loans, banks have been significantly more cautious in extending more loans to the industry since the oil price crash of 2014 and although crude prices have been relatively stable in recent times (trading around $60/bbl), they are still far from the 2014-peak. The CEO also stated the bank’s intentions to pay off a $500 million Eurobond maturing in April, with no plans for further foreign currency borrowings due to the limited scope for dollar loans in the current economic climate. We note that this development is in line with recent industry trend, with Access bank, Diamond Bank and FBN also calling outstanding dollar debts early and we see this as indicative of a persistent conservative credit stance. That said, we see increased retail credit as positive as it is expected to stimulate consumer demand in the economy.                                      

Consumer Goods sector drags ASI to 11bps loss                                      

Dragged by a weighty loss in the Consumer Goods sector, the Nigerian equity market moderated 11bps yesterday despite positive closes in three of four key sectors. Investor sentiment appeared upbeat despite the negative close, with more stocks advancing than declining on the day. Market breadth turned positive with 26 advances and 20 declines. Despite the negative close, investor interest in undervalued stocks remains, as evidenced by the positive market breadth. Thus, we foresee another mixed session, albeit with a positive bias.                                       

Stock Watch: GUINNESS released its H1’18/19 results yesterday, reporting a 4% y/y decline in revenue to ₦67.8 billion (H1’17/18: 70.6 billion) and a 21% y/y increase in PAT to ₦2.5 billion (H1’17/18: ₦2.1 billion). The stock currently trades at ₦65.00.                             

Bond Auction stop rates close lower than previous levels                                   

The CBN conducted a PMA yesterday, selling c.₦255 billion (₦195 billion offered) across the 91DTM, 182DTM and 364DTM bills at stop rates of 11.00%, 13.50% and 15.00% respectively – higher than previous levels - (effective yields: 11.31%, 14.47% and 17.64%). The DMO also conducted the January Bond auction yesterday, selling ₦117 billion (₦150 billion) across the 5-year, 7-year and 10-year notes at stop rates of 15.20%, 15.25%, 15.35% - lower than previous auction levels. In spite of the mop-up, the Interbank Call rate declined 634bps to settle at 3.83%. Amidst a ₦191 billion T-bills maturity today, we foresee improved liquidity driving a more active session for the treasury bills market amidst another OMO auction. Meanwhile, we anticipate mild yield advancement in the bonds space as bonds adjust to auction stop rates