Dialectic Africa Analyst

Dear Africa Interested Individuals:                                                          Brazil and Nigeria: similar experiences and different macroeconomic approaches                                                           Brazil is the largest economy and oil exporter in South America.  Brazil is also the most populous nation in South America.  Nigeria wears the same three crowns for the continent of Africa.  Both countries held presidential elections five months apart: Brazil in October 2014 and Nigeria in March 2015.  Both countries also had a candidate going for reelection; the Nigerian candidate lost while the Brazilian candidate won with a 3% margin which is one of the tightest elections in Brazil's electoral history.   Brazil's currency (Real) is now at its lowest official level since 2003; Nigeria's currency (Naira) achieved its lowest official level in February 2015.  Inflation in both countries is at the same level: 9.2% in Nigeria and 9.25% i

Dear Africa Interested Individuals:                                                         Let us take a look at how the largest bank (Ecobank) and the oldest bank in Ghana (SCB) are doing as at June 30th, 2015 in a concise fashion.   Ecobank Ghana is going all out to increase its earnings and make a profit.  The bank has pitched its tent with lending given the high lending rate environment in Ghana and reduced its exposure to non-lending business areas.  Interest income weighting relative to gross earnings is at 71% which is interestingly enough, less than that of SCB Ghana at 78%.  SCB increased its exposure to investment securities to offset its high NPL ratio negative impact on the income statement while Ecobank reduced its exposure to investment securities to increase its profit where it believes it has a comparative advantage and good lending opportunities despite the tough business climate in Ghana.   Ecobank Ghana has given out 92% of its deposits as net loans; th

Dear Africa Interested Individuals:                                                         Let us talk about GT Bank's H1 2015 performance concisely.   GT Bank is still committed (by its actions) to relying on lending to drive its earnings unlike its peers.  74% of its gross earnings emanated from interest income and 26% from non-interest income.  Other income is only 49% of net interest income pre-impairment.  Despite the difficult lending environment, the bank is still reliant and succeeding in generating interest income while still being cautious and understanding of the difficult operating environment.   Net loans to customers rose by less than 2% over the first six months of 2015.  Loans to assets have decreased from 54% - 51% during H1 2015 though still ahead of its peers.  The bank has done the best in terms of fresh lending during H1 2015 as 87% of new loans are reflected as performing.  This has helped the bank to achieve loan value-added of + 0.81%  when other

Dear Africa Interested Individuals:                                                         Access Bank Group has just released its half-year 2015 cumulative result.  Find below my major observations and summarized conclusion.   I commend Access Bank for the detail provided in how the bank runs its business.   As I have mentioned in the past banks are free to determine which loans in their portfolio are deemed to have been impaired.  The policy of Access Bank ( in my opinion) makes it harder for loans to be classified as impaired even after the borrower has defaulted on payments.  Non-performing loans ratio came in at 2% and non-performing loans are just 1.1% of total assets.  This is commendable.  My statement is not as a result of the improving asset quality which is also low on an absolute basis.  You will understand better once I am done.   The auditing firm did not provide an "identification assurance' to the financial statement in my opinion.  The opinion

Dear Africa Interested Individuals:                                                          In the current world market of low commodity prices and strong dollar which negatively impacts the natural resource rich continent of Africa, diversification of business interests may just be the best route to survival.  Is it or is it not?   I selected a diversified industrial company in the major economy of Southern, East and West Africa (South Africa, Kenya and Nigeria) and Mauritius for having the best bank performance weighting relative to size of the economy in my recent article.  The companies reviewed are: 1. Gamma Civic for Mauritius 2. Beige Holdings for South Africa 3. Centum Investments for Kenya 4. UAC for Nigeria.   1. Gamma Civic is into building materials, construction, investments, property (residential and resorts,) and lottery gaming.  The company's fiscal year end is December.   The company made an operating loss as at June 2015.  H1 pr

Dear Africa Interested Individuals:                                                         This is a concise look at Nigeria's largest bank by deposits (First Bank) and largest bank by assets (Zenith Bank ) as at June 30th, 2015 .  This article will focus on insightful commentary and not a display of the numbers crunched etc.   Zenith Bank is a more profitable bank than First Bank.  First Bank's twelve-month outlook is brighter than that of Zenith Bank.  This simply means that First Bank has more of an upside than Zenith Bank from where both banks are presently perched from a portfolio investment and net income growth perspective.   Both banks achieved negative loan value-added as at H1 2015.  Zenith had -0.45% and First Bank has -0.55% .  Zenith Bank and First Bank achieved +1.88% & 0.93% loan value-added respectively as at FY 2014.  Zenith bank's loan value-added regressed 233 basis points while First Bank's loan value-added regressed 148 basis points

Dear Africa Interested Individuals:                                                           I just looked at the 2014 GDP of the major economies of Africa (excluding Algeria) and other select economies and the financial performance of the largest banks by assets in these countries for fiscal year 2014.  I selected sixteen (16) African countries and their respective largest banks.  I intend to compare the percentage weighting of each country's GDP against other selected African economies against the percentage weighting of 2014 net income (in dollars) of the largest bank in each country.  Which banks' financial performance percentage weighting among the largest bank in the sixteen countries will exceed that of the GDP in the country it is domiciled in relative to the GDP of other selected African countries for 2014?  Let us get to it.  The countries selected are:                                               GDP % weighting                              Net Income % weight

Dear Africa interested individuals:                                                                  We have heard the rampant advice that African oil exporting countries should devalue their currency whenever oil dips significantly and remains there for a prolonged period of time. Proponents say it generates more income for the countries in question to use internally and reduce the impact of the lower revenue on government spending.  I agree that more revenue will come into the country in local terms (assuming constant demand.)  Continual devaluation of African currencies portends serious danger for African economies. I will highlight just three in this article in a concise form. 1. Devaluation leads to a currency being dumped by even those who do not need dollars. Why?  No one wants to hold a currency that does not hold value.  The devaluation creates an expectation of future near term need to devalue further and this puts sell pressure on the local currency as all sorts of peo

Dear Africa Interested Individuals:                                                         We take a look at the latest earnings from the largest bank in Africa's largest economy.  The same bank where the Central Bank Governor of Nigeria was sourced from and the Governor of Akwa Ibom State was Zenith Bank's former CFO.  Let us get to it, starting with key observations.   Zenith Bank did not experience a lull in activity that characterized some other banks as at H1 2015.  Non-interest income grew by $79.1m relative to net interest income (post-impairment) that grew by $48.9m year-on-year. Non-interest income growth is 62% higher than post-impairment net income growth.  Customers are transacting more with the bank at least in terms of value of transactions despite the tighter business environment.  Gross loans increased by 10.4% which equates to an increase of $914.2m over the first six months of 2015.   Contingent liabilities are 74% of total assets; in simple terms,

Dear Africa Interested Individuals:                                                         About eight years ago, equity public offers was the popular way to raise capital when needed.  Some companies even came to the market twice within a fifteen-month frame.  No company thought of raising debt; stock prices were at all-time highs which made it easier for companies to raise desired sums without piling up on shares outstanding.  Besides, who wants to raise capital that has to be fully repaid with interest and the company has to try to generate income from utilization of debt in excess of interest due plus principal repayment?   When companies raise equity, shareholders recourse is to sell their stake on the exchange for whatever the market says the company is worth and move on.  In other words, the management of  companies do not have to pay back equity shareholders directly.  Once they get the equity, it belongs to the companies to pretty much do as they please.  The equity ca

Dear Africa Interested Individuals:                                                         SAB Miller is the second largest brewer in the world and has major Africa brewing operations in Nigeria, Tanzania, Zambia, Mozambique, Botswana, South Africa and Uganda.  We take a look at the performance of the brewer in three African countries all based in different regions: East, Southern and West Africa.   Tanzania Breweries Limited (TBL) TBL is the best performing of the three SAB Miller breweries selected.  It has the most demand for its products.  The combined relative demand for the other two breweries is still less than that of TBL over a two-year average period.  TBL is also the most profitable by a wide margin.  Its pre-tax income margin is 29.3% while Zambian Breweries is 16.4% and International Breweries is 17.4%.  TBL's 2-year average RoE is more than the combined RoE for theNigeria and Zambia locations.    TBL is also the most liquid of the three and is the lea

Dear Africa Interested Individuals:                                                         The three above mentioned African countries are going through tough economic times though, to varying degrees.  It is at times like this that I get to know resilient banks.  The banks that make hay when the sun shines and dig a nice hole to hibernate during the winter which keeps them warm in a cold environment.  "The strength of a warrior can only be determined during battle."  I selected the largest bank in Malawi, Ghana and Nigeria plus two others.  Let us kick off with Malawi. Malawi   The monetary policy rate (MPR) of Malawi is currently 25% .  Malawi's latest inflation rate is 21.3% .  Expectedly, the bank must lend at a higher rate than it borrows from the Reserve Bank of Malawi.    The base lending rate for the National Bank of Malawi is 32%.  Fixed Deposit rate for 90 days is 10% and for 180 days is 7.5% .  Ordinary savings account is 7% per annum .  The sp