NPF Microfinance Bank & Other Random Musings

By Jude Fejokwu

As it relates to NPF Microfinance Bank, I want to give some attention to the retail investor. A stock with a market cap of $15 million will most likely not interest fund managers on this list with palpable reasons.

The average bond yield across varied tenors in Nigeria is currently hovering around 14% per twelve-month period. I know retail investors are still smarting from the losses incurred seven years ago in the local stock market and uncollected dividends in two of the banks that were to put it succinctly, nationalised: Bank PHB and Afribank. While looking in the rear-view mirror, do not miss what is right in front of you. You lost hard money seven years ago. Why not make easy money seven years later?

As at May 8th, 2015, retail investors can make 11.5% in 10 weeks purely through dividend yield. Why put all your funds to generate 14% over a holding period five times longer instead of 11.5% in a fifth of the holding period. Besides, inflation is your worst enemy with these bonds and the longer your money is invested, the more risk you assume especially in the fixed income space. Invest in NPF Microfinance Bank and receive 11.5% (before 10% withholding tax) in two months (last week of July). If you spread out the run rate, this is equivalent to 69% over twelve months. Making more money from existing money is risky but not always hard. The few times it is not, please do not miss out.

As Nigerian banks rush cap in hand to existing shareholders to raise equity to meet Basel II requirements, shareholders should take a minute to think. Do not get lost in the fund raising hyperbole from the C-level executives at these banks.

Pick the bank you are a shareholder in and find out the last time they raised funds via equity. Determine how much dividend you have received since the last time they raised funds till when the bank came again for fresh funds. Any bank whose dividend per share summation since last time they took money from you cannot equate to at least 80% of the price per share being offered to you to buy more shares today (three years or less), and in excess of 100% beyond three years should be ignored. Let the shareholders with a major stake pick up the slack with their big pockets and leave you out of it. My quick mental review tells me that probably only three banks will pass this test. The banks that rarely raise equity through rights issues or public offerings.

I have never experienced in the Nigerian market where a listed entity will provide a fairly detailed explanatory note on their fiscal year performance. Continental Reinsurance has done this and I welcome the development. The process of positive change in a frontier market may be slow and arduous but will happen; with the continuous dissemination of articles and reports from people like me, companies and their regulators will and must sit up. This welcome development may never have happened if a scathing report was not prepared on Continental Reinsurance a little over four years ago exposing plenty of wrongdoing at the time.

In my earlier article on Deloitte & Touche, I forgot to mention that this is the third time that D & T is being accused of professional misconduct in auditing the books of companies in Kenya.

The top three listed banks in Nigeria whose performance as at Q1 2015 is way better than what the banks achieved in relation to FY 2014 are: 1. Sterling, 2. ETI and 3. UBA

In other words, the three banks are on course to do much better in FY 2015 than their performance in FY 2014 despite the uncertain times in the local market. Interestingly enough, ETI and UBA have a very wide reach in Africa. The benefits of diversification by reach are coming to the fore.

Do not get too comfortable with today; you do not know what tomorrow will bring forth. The financial system in frontier markets will get better and people will still make money. I will keep at it even if, under the guise of self preservation others (individuals and corporates) chicken out and lose sight of the bigger picture. I will continue to use my intellect for the greater good. Stay tuned for the better times ahead. The journey continues.

•Fejokwu is  an economic analyst