Financial analysts and capital market operators have said that the effects of the Coronavirus pandemic in Nigeria, and the world at large, will hit companies hard in the next financial year.
Managing Director/ Chief Executive, Apex Digital Solution Company, Mr. Adekoya Babalola, said some of the banks would have done better in the current financial year, as it were, but macroeconomic challenges had made them to consistently churn out marginal profits.
He said, “When a company reports marginal increase in profitability, it means that it didn’t do well. What the banks reported in net assets can only be better. Now, with the global covid-19 pandemic, you can see what is going on all over the world. Many nations are shutting down, at least to save lives from the virus. Companies are shutting down too, and it trickles down to the man on the street. So, invariably, it will affect the next financial performance of those companies.”
A stockbroker, Mr. Abraham Okon, said the state of the economy was expected to take its toll on the operations of the companies and that affects the returns on investment posted to the shareholders of the firms.
Okon blamed the trend on the political and economic situations in the country.
“With so much uncertainty and volatility in the stock market, the attractive yields in the money market could severely impact on the value of stocks. If the companies declare losses, they cannot afford to reward investors at the end of their financial year. These economic fundamentals are the reason why the banks cannot record impressive performance in their books. Yes, there was an increase, but I can bet you that they would have done better, if the environment was business friendly with right government policies,” he said.
Head, Research and Strategy, FSDH Merchant Bank Limited, Mr. Ayodele Akinwunmi, said there were pressure points in the economy that the Federal Government must quickly address in order to stimulate broad-based and inclusive growth.
He added that the country had been plagued with serious economic and financial challenges, which had resulted in activities being slowed down, especially in the financial sphere, which included the Nigerian Stock Exchange and quoted companies.
According to the Lagos-based financial institution, the Nigerian economy has not been expanding enough to lift its citizens out of poverty. Owing to this, he stressed, there was the need for the economy to expand faster than it was doing at the moment.
Some of the economic pressure points FSDH’s Akinwumi further listed were weak infrastructure development in the economy that might not support the growth ambition of the Federal Government; economic depression in the real estate sector; fragile foreign exchange market, and weak revenue generation, which has led to large fiscal deficits.
“Overall, despite the headwinds and the fact that 2019 presented a tough operating environment for the industry, we remain optimistic on the fundamentals underpinning our long-term retail-led business strategy,” the financial expert told our correspondent.
Commenting on the issue, an investment analyst Mr. Uchenna Ogbonnaya, explained that banking sector’s net asset base would remain passive for as long as yields on government instruments remained attractive, even in the event of a moderation in yields on fixed income instruments.
He explained, “Worthy of note, however, and given the potential for policy apathy and increased uncertainty in Nigeria’s economic growth, we should remain cautious on the direction of asset quality in 2019.”