access bank seminar session 3b - ebenezer olufowose

The Quest for Excellence

THE NIGERIAN CAPITAL MARKETTHE NIGERIAN CAPITAL MARKET

Ebenezer OlufowoseEbenezer OlufowoseExecutive Director, Access Bank PlcExecutive Director, Access Bank Plc

66thth March, 2008March, 2008

2The Quest for Excellence

Presentation OutlinePresentation Outline

–– Market Performance IndicesMarket Performance Indices

–– Instruments & IssuersInstruments & Issuers

–– Key Issues Key Issues


Market Performance IndicesMarket Performance Indices


Market Growth Market Growth –– Market Cap / Index

MARKET CAPITALISATION/ ALL-SHARE INDEX (2003 TO FEB. 2008)

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

2003 2004 2005 2006 2007 2008

Mar

ket C

ap. (

N'B

illio

n)

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

All-S

hare

Inde

x

Market CAPAll Share Index

• Equities – market cap was up by more than 15 times

in less than 5 years, from below N1 trillion in 2003 to N12.5 trillion by Feb 2008.

– ASI more than tripled from 20,129 points in 2003 to 64,351 points by February 2008.

– Steep growth between 2005 amd 2008 driven largely by banking sector consolidation.

• Bonds– Secondary market trading in Govt

Securities started in Feb 2006.

– The Access Bank Govt Bond Index was introduced in Dec 2006. The Index grew from a base of 1000 points in December 2006 to 1,150 points as at February 2008

– Market cap also rose from N90 billion in Dec 2006 to N658 billion in Feb 2008.

ACCESS BANK NIGERIAN GOVERNMENT BOND INDEX

-

100

200

300

400

500

600

700

Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Feb-08

Mar

ket C

apita

lisat

ion

(N'B

illio

n)

1000

1050

1100

1150

1200

Inde

x MARKETCAPITALISATION INDEX


Market Growth Market Growth –– SecuritiesSecurities Turnover Turnover

Annual Market Turnover on the NSE

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

2003 2004 2005 2006 2007

(N'B

illio

ns)

Source: Nigerian Stock Exchange (NSE)


Market Growth Market Growth –– Trading in Fed Govt Bonds

• The introduction of secondary market trading in government securities in Feb 2006, has led to the development of a yield curve.

SECONDARY MARKET ON FGN BONDS

0

100,000

200,000

300,000

400,000

500,000

600,000

Feb-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Jan-08

(N"B

illio

n)

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

VALUE DEALS


Sovereign Yield CurveSovereign Yield Curve

NIGERIAN GOVERNMENT RISK FREE YIELD CURVE AS AT DECEMBER 2007

5.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

30 DAYS 60 DAYS 90 DAYS 1 YEAR 3 YEARS 5 YEARS 7 YEARS 10 YEARS

TENOR TO MATURITY

YIEL

D (%

)


Market Capitalisation as a Percentage of GDPMarket Capitalisation as a Percentage of GDP

Market Capitalisation as Percentage of GDP

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

2003 2004 2005 2006 2007

Years

Perc

enta

ge o

f GD

P


Key Growth Drivers Key Growth Drivers –– Banking Sector Consolidation

•• Banking sector Banking sector capitalisationcapitalisation as a percentage of total market as a percentage of total market capitalisationcapitalisation increased increased from 36% in 2002 to 60% in 2006 a direct consequence of the consfrom 36% in 2002 to 60% in 2006 a direct consequence of the consolidation in the olidation in the sector.sector.

MARKET CAPITALISATION PER SECTOR (2002)

Other Sectors26% Banking

36%

Breweries22%

Food9%

Petroleum Mkting7%

MARKET CAPITALISATION PER SECTOR (2006)

Banking60%

Other Sectors20%

Petroleum Mkting3%

Food10%

Breweries7%


Key Growth DriversKey Growth Drivers –– Changes in Domestic Debt Profile• In 2001, Government debt was essentially in the form of treasury bills and treasury

bonds.• From 2003, the Government entered the bond market by issuing bonds of 3,5,7 and 10-

year tenors, as part of a planned bond issuance programme.• By 2007, FGN bonds accounted for 49.41% of total Government domestic debt.

DOMESTIC DEBT BY TYPE (2001-2007)

0

500

1,000

1,500

2,000

2,500

2001 2002 2003 2004 2005 2006 2007

VALU

E (N

'Bill

ion)

Development StocksTreasury BondsFGN BondsTreasury Bills


Key Growth DriversKey Growth Drivers –– High Returns

EXCHANGE RATE/ALL-SHARE INDEX

0

10000

20000

30000

40000

50000

60000

70000

Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07

INDE

X

105

110

115

120

125

130

135

140

N/U

S$

RATE

All-Share IndexN/US$ RATE

• The NSE ASI appreciated by 75% between 2006 and Dec 2007, due to increases in new issues as well as a generally bullish market fueled by substantial new injection of local and offshore liquidity.

• The returns were enhanced by the appreciation of the Naira – over 8% in 2007.


Key Growth DriversKey Growth Drivers –– High Returns

Select African Markets (2006)

0

10

20

30

40

50

60

70

80

90

100

Egypt Morocco South Africa Zimbabwe Nigeria

Mar

ket R

etur

, in

%• In 2006, equity returns on the NSE ranked 3rd amongst emerging markets, and

second amongst African markets. • This was driven by strong demand from retail and institutional investors as well as

foreign portfolio investors.


Instruments & IssuersInstruments & Issuers


Equity Vs BondsEquity Vs Bonds

Market Capitalisation (Equities vs. Bonds)

0

2000

4000

6000

8000

10000

12000

14000

2003 2004 2005 2006 2007

Cap

italis

atio

n (N

'Bill

ion)

Bonds Equities

• Market remains dominated by equities which accounted for 85% of total market

capitalisation in 2005 and 77% in 2007.


New Equity Issues By SectorsNew Equity Issues By Sectors (2007)(2007)

Source: Securities and Exchange Commission

NEW EQUITY ISSUES BY SECTORS IN 2007

Banks96%

Food1%

Others2%Insurance/Financi

al Services1%


Domestic BondsDomestic Bonds

• Outstanding bonds are dominated by FGN issues. This accounted for 95% of total outstanding bonds in 2007.

• Corporate bonds are largely non-existent.

OUTSTANDING BONDS AS AT DECEMBER 2007

.FEDERAL GOVTBONDS

96%

STATE BONDS1%

CORPORATE BONDS3%


Key IssuesKey Issues

• The bond market is dominated by FGN bonds. The corporate bond

market which collapsed in the early 1990s is yet to revive.

• Equities remain the dominant instrument for raising long term capital

with banks accounting for 60% of market capitalisation.

• Corporations have continued to rely on the bank market to meet their

short and medium term needs.

• Market is ready for introduction of innovative structured investment

products eg Asset-backed securities, Mortgage-backed securities,

Exchange Traded Funds, etc


Key IssuesKey Issues

• The collapse of the corporate bond market has led to over-dependence on bank

markets with negative consequences:

– Inability to raise financings for a wide range of infrastructure projects that

directly contribute to economic development.

– Exposure of borrowers to short term market volatilities.

– Funding mismatch arising from the funding of long term capital projects with

short-term borrowings.

– Potential for over-valued equity markets as there are limited alternatives

• Key to further development of the market is the diversifying of the issuer

base to cover new instruments and credit risk of different economic

sectors.


Thank YouThank You

access bank seminar session 3b - ebenezer olufowose

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