South African Investor Buys More Zenith, Access Shares

Allan Gray Ltd., the largest manager of non-government investment funds in Africa, has increased its stake in Nigerian Zenith and Access banks.

Allan Gray Chief Investment Officer Andrew Lapping disclosed the investment move in a Feb. 10 interview in Cape Town. He didn’t say how big the holdings are or how many shares his company is buying.

“We see a lot of value in Nigerian banks,” Lapping said.

“Most people think they’re all going to zero because of the bad debts. We think they will survive” because high interest rates make the banks profitable and they have less debt to equity compared with European lenders, he said.

Access Bank Chief Executive Officer Herbert Wigwe said last month that the bank’s non-performing loans are expected to climb to “slightly below” 3 percent of total loans by the end of 2017. That compares with 2.1 percent for the nine months through September.

The banking industry is under stress in Nigeria, where the economy was in a recession during 2016.

Non-performing loans escalated to almost three times the regulatory maximum and foreign investors are calling for authorities to boost flexible trading of the naira before putting more money into the country. An oil price at half its 2014 levels, combined with sabotage and attacks on oil installations that have cut output, has limited dollar supplies in the country, which vies with Angola as Africa’s largest crude-oil producer.

Problem Loans

The bad-debt ratio at Nigerian banks rose to 13.4 percent last year. The naira was devalued in June and traded at 315.50 to the dollar by 6:53 a.m. in Lagos on Wednesday, while the unofficial, black-market rate was N507 to the dollar.

The official exchange rate should fall to 370 by the end of the year, Craig Metherell, an analyst at Avior Capital Markets Ltd. in Cape Town, said in a Feb. 10 note to investors. Investors are frustrated by central-bank policies, he said.

Allan Gray isn’t the only investor that’s interested in local lenders.

Laurie Dippenaar, chairman of Johannesburg-based FirstRand Ltd., Africa’s largest bank by market value, said last month that it’s looking to buy a mid-sized bank.

“Everyone thinks the naira is going to weaken, but I’m not so sure,” Lapping said. “The bad-debt problem can cure itself over time.”

Guaranty Trust Bank Plc, Nigeria’s biggest bank by value, has a market capitalization of N715 billion ($2.3 billion), Access Bank is valued at about 194 billion naira and Zenith at about 475 billion naira.

The Nigerian Stock Exchange Banking 10 Index has climbed 0.7 percent this year as gains by Access Bank, Zenith, United Bank for Africa Plc and Fidelity Bank Plc helped compensate for losses in the other six members of the gauge.     Bloomberg

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