Thanks for the comment, keep them coming:
It was believed that the credit crunch could not touch the new engines of growth in the emerging markets including Nigeria. We are no longer sure if this is the case. The contagion is catching.
The recently removed CBN guideline that all banks must operate a December year end has caused inefficiencies in the market. The banks in order to attract funds to shore up their balance sheets had been offering eye popping deposit rates as high as 20%.
Now that the CBN deadline has been moved to 2009, some banks that moved agressively to meet the 2008 deadline are now left with expensive liabilities on their books. How to match these liabilities? Charge high lending rates of course. The cost of money is going up in the market place. It is making it more difficult to source funds for development and entrepreneural growth which is what the country needs to keep things powering along.
We were aware that inflation was creeping up but as far as I understand, this was because of the oil money taps being turned on at the state level. We will now all pay for our greed and consumption mentality.
In a recent meeting, someone mentioned that the NSE index has fallen by 22% since February. In my books, that is a route. A lot of companies are pulling back from their earlier planned stock placements. With the inability to come to the public markets and the difficulty in raising institutional debt funding, a lot of business are going to go through a liquidity crunch. Not good. The general public who have been on a stock market explosion induced binge are going to curb their consumption which will also impact the economy. Not to talk about all the issuing houses and banks left with a nasty stock overhang of stocks that are refusing to be taken up by the market.
Deals are still being done, $180m deal here, $140m deal there. $40m deal in the middle. Mostly real estate. Can such valuations continue to be supported in our currently shaky markets. Can we continue to sell our $1.5m apartments in Ikoyi? Time will tell...
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Interesting take on the market.
Where does that leave the 'army' of diaspora returnees to the investment banking sector? Does that mean that their employers can no longer generate the PP, IPO, trading, etc fees needed to pay their hefty packages?
Is the market predicting a drop in bank profits thanks to squeezed interest margins as a result of the high rates for deposits that are locked in? Forward PE of 10-12 with their current growth rates seems low by any standards.
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