Don’t expect so much from bank stocks this year — MD, First Registrar

Olugbemi

There have been high prospect in the Nigerian stock market since the beginning of the year. But Mr. Bayo Olugbemi, Managing Director/Registrar,

First Registrar, a subsidiary of First Bank of Nigeria Plc, says investors should not expect so much capital appreciation and benefit from bank stocks on the Nigerian Stock Exchange (NSE). In this exclusive interview with OBINNA CHIMA, he also speaks on the new CBN policy for Managing Directors and the challenges the delay in passing this year's budget may pose to the growth of the stock market.

How far do you think the current rally in the stock market  can go? 
It is always very difficult to project, looking at the Nigerian market, especially considering the general economic climate. Therefore, one cannot actually predict the movement of the stock market. However, if there is stability in the economy, of course it would snowball into positive impact on the Nigerian Capital market. What we are seeing presently is that a little bit of confidence is coming back to the market and it is very easy to see that with some of these shares that are becoming bullish in the market. But once there is stability in the economy generally, I believe the capital market would react positively to that. And this economic stability we are talking about is largely dependent on a lot of factors, but the most important is political stability. Of course if there is stability in the polity, definitely, government would be focused on stimulating the economy. As at today, the 2010 budget is not out and that would have it own implication on the economy if not addressed timely. Even though we had a supplementary budget towards the end of last year, which is expected to run till the end of March this year, but with the kind of political logjam that we are currently witnessing, we do not know when the 2010 budget would be ready.  And if it is not ready by the end of March, when the supplementary budget would have been exhausted, and if we do not know where we are going, it may result into a little slow-down on the economy and this may also may also affect the stock market.
We observed that most of the rally in the market has been largely influenced by appreciation recorded by stocks in the manufacturing and real sectors of the NSE. What is your take on that?
Of course, we all know what happened to the banks. There had been a lot of write-off and write-down in their books. Definitely, not many bank stocks are expected to perform very well this year. Even last year, especially with the common year-end and the tsunami that happened in the banks towards the end of last year, most of the banks are not expected to post very good result and so we are not expecting so much from them this year. But one thing is key, especially in the food and beverages sector; there is no how people would not buy food items. People would also demand for household products from Companies like Unilever, Nestle, Cadbury and you would discover that a lot of investors are now looking towards those sectors because their products are always in demand. Of course, building and construction projects are still going on, even though there may be some slow down on it. But then, investors believe that no matter what, their stocks won't perform as bad as banks stocks. There is always the expectation that no matter how small, food, beverages and manufacturing stocks would still pay-out dividends. I am not sure that any right thinking investor would be expecting any dividend from the banks, especially from the troubled ones that were recently bailed-out by the Central Bank of Nigeria (CBN). So since there won't be much expectation from the banks, the natural thing is that investors should look out for stocks in the real sectors, especially from the food and beverages sector. 
What challenge do you think the new CBN policy on the tenure for banks Managing Directors would pose to the industry?
I think based on what happened last year, the banks were preparing for it considering their prompt response. In one of the banks, you would find out that there has been a lot of stability over the years. There have even been very few turnover in the board of directors. Some of them have been General Managers for a very long period and most of them have been together in that bank for a very long period and almost the same thing with the other one. I think they saw it coming and they were well prepared for it. So what happened to others didn't actually happen to them. One of the outgoing Managing Directors has put in about 20 years. So having put in about 20 years as the Managing Director of a bank, it should be clear to one that he has to leave. But if you look at the policy from an entrepreneurship point of view, it may not be very easy for a new organisations. This is because for most new organisation, the first ten years would be used to stabilise the organisation.
How far has First Registrar gone with the implementation of e-transactions in the market?
We now have a lot of e-products; we have gone far beyond the issue of e-dividend, we now have what we call the online assess, e-lodgement, e-verification, e-registeration, among others. But the most important thing is that the shareholders must key into it to make these things work. But going by the new CBN policy that you cannot pay N10 million and above through cheque, automatically investors who are expecting dividend of N10 million and above, would now be forced to apply for e-dividend. If you look at First Bank's annual report for last year, all the forms for e-dividend, e-allotment and others were there. We embarked on massive campaign on these products last year and we intend to do more this year. We paid a lot of dividend and bonus electronically last year. It is not only First Registrar that is involved, but all Registrars. We are imbibing the e-revolution. But some of these products actually have to be a product of acceptability. They must be accepted by shareholders. For example, someone cannot subscribe to e-dividend without disclosing his bank details, so also for e-bonus, you must register with the Central Securities Clearing System (CSCS) before you can subscribe to that. And if you look at some papers last year, there were some adverts that were placed by the Institute of Capital Market Registrars (ICMR), all these were geared towards sensitising the public.
Finally, how did the low level of activities in the market last year affect your operation at First Registrar last year?
One thing is that in the area of primary market, of course we have not done much like we used to do before. But even at that, we participated in the few primary market offers that came out last. We also participated in some of the bonds that came out last year; the Guaranty Trust Bank Bond, Kwara State bond and the Lagos state bond.
Though there has been a lot slow down in activities in the primary market, I think we still managed to look ahead and we believe this year would be better than last year.