As the United States elected its new President last week, global markets reacted pretty well or not as bad as were feared. What about African markets? During his campaign, Trump has been highly vocal about his willingness to file trade cases against China. Should this materialise, further contraction of the Chinese economy would be negative for African economies that are dependent on export to China. However, given the size of the US debt that China holds (~$1.3T), and potential retaliation, it seems difficult to enforce and not necessarily a sensible step to take.

The strongest performance came from the Egyptian index. EGX30 gained 21.31%. The strong performance was driven by different elements. First, in order to boost foreign reserves and support a dollar shortage weighing on the economy, the central bank of Egypt secured additional financing with international banks. The repurchase transaction has a maturity of one year. The Finance Ministry issued $4bn in bonds on the Irish Stock Exchange to serve as collateral for the repurchase agreement. This means $2bn of additional funding will fly to the reserves. According to the ministry, the government issued a $1.36bn bond with a December 2017 maturity at 4.62%, a $1.32 bn note with a 2024 maturity at 6.75% and a $1.3bn bond with a 2028 maturity at 7%. Moreover, the index benefitted from positive sentiment following the Egyptian pound floatation and the approval of the $12 billion loan fund facility over three years by the IMF. The move was welcomed by the market as it is hoped it will help Egypt restore the economy to before Arab Spring levels..

The result showed that loan loss provisions by the bank in the third quarter led to losses in the accounting period. In Nigeria, Diamond Bank’s Q3 2016 Profit before Tax (PBT) closed Q3 at –N6.6 billion, against a profit of N4.4billion in the corresponding period of 2015.

However, the bank recorded N2.4billion in other comprehensive income engineered by foreign exchange (fx) translation gains, this could not hedge the losing trend as leading to a loss after tax of –N3.2billion.

Asset quality deterioration was the main driver behind the weak results: loan loss provisions grew 230 per cent y/y and by over 100 per cent q/q to N21bn. The result became more challenged hence the value of collateral backing specifically oil and gas loans had become insufficient, leading to a need to book additional provisions.

Meanwhile, of the two revenue lines, non-interest income grew much faster, by 51 percent y/y to N11bn, while net interest income grew 7 per cent to N28billion.

FBNQuest research noted though none interest income grew faster in Q3, it was slower compared with the bank’s Q2 result “We should add that the non-interest income result was weaker than we were expecting, despite the strong growth delivered, Q2 had come in strong”

It noted that the bank’s q/q change in Q3 was a -10 percent decline. In contrast, net interest income was slightly 3 percent better than expected as it improved 15 per cent q/q.

Although, the bank’s Opex in Q3 grew by 8 per cent y/y, the impact was expressively subdued compared with that of loan loss provisions.

 

Based on the results, going forward, experts expect the market to focus only on the bank’s asset quality metrics going forward, much more than in previous quarters, given the scale of the negative surprise in the bank’s Q3 2016 results.

The bank’s management, meanwhile has updated its asset quality metric guidance for 2016E, increasing both  none- performing loan (NPL) ratio and the cost of risk guidance by 150bps and 100bps respectively to 9 percent and 6 percent respectively.

 

Analysts expressed the view that for Diamond to positively surprise, the most likely trigger would be strengthening of the naira, hence the recent devaluation was the most significant factor impacting loan loss provisions via the bank’s oil and gas loan book.

 

On the back of the Q3 results, some analysts have reduced their 2016-17E earnings forecasts of the bank as well as price target , even as the bank’s equity has shed -52 percent ytd, against NSE’s ASI of  -6 percent.

 

The Johannesburg JSE ASI gained 1.22%. The main index was boosted by a hike in gold miners as investors looked for safety. Gold mining stocks climbed 4.8%. Stocks rallied on higher commodity prices globally. In other news, South Africa’s Eskom CEO resigned after being accused of influence peddling by the Public Protector because of deals between the Company and the Gupta’s, a business family closed to President Zuma.

Standard Chartered Bank was fined 2bn naira by the Central Bank of Nigeria for foreign exchange infraction. It seems like the CBN has bought forex at a rate above the interbank rate. NGSE ASI lost 3%.

During a parliament hearing, new Finance Minister Mutati declared Zambia would cut budget deficit to 7% of GDP in 2017. Domestic borrowing will be capped at 2% GDP in 2017, moreover as a result of lower copper prices, power shortages and inflation, the economy is forecasted to grow 3.4%. The Lusaka Stock Exchange LuSE ASI was flat this week (-0.07%).

 

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