The Nigerian Exchange Limited began the new trading week on a bearish note as the market capitalisation declined by N121bn, driven largely by sell-offs in banking stocks following a directive from the Central Bank of Nigeria.

The directive, which suspended dividend payments, bonuses, and new foreign investments by banks operating under regulatory forbearance, triggered panic selling among investors, leading to a sharp downturn in key market indicators.

At the close of trading on Monday, the All-Share Index depreciated by 170.77 points, representing a 0.15 per cent decline, to close at 115,258.77 points. This was down from 115,429.54 points recorded at the end of trading last Friday. Consequently, the overall market capitalisation dropped from N72.82tn to N72.70tn, marking a day-on-day loss of N121bn.

The CBN’s recent circular outlined measures to strengthen the banking sector’s capital base amid ongoing regulatory reviews. It directed banks currently benefiting from forbearance, especially on credit exposures and Single Obligor Limits, to suspend dividend payments to shareholders, defer bonuses to directors and senior management staff, and halt investments in foreign subsidiaries or new offshore ventures.

The suspension will remain in effect until these banks exit the regulatory forbearance regime fully and their capital adequacy and provisioning levels are independently verified to be compliant with prevailing regulatory standards.

Market participants reacted swiftly and negatively to the circular, resulting in a widespread sell-off, particularly in the banking sector, which weighs heavily on the NGX indices. Of the 125 equities traded, only 21 recorded gains, while 43 closed in the red. Despite this negative short-term performance, the market has demonstrated resilience over a longer timeframe, with a one-week gain of 2.2 per cent, a four-week increase of 5.68 per cent, and a year-to-date appreciation of 11.98 per cent.

The volume of shares traded on Monday amounted to 721.75 million across 22,100 deals, with a turnover value of N22.01bn. This reflected a 23 per cent decline in trading volume from the previous session but showed a 23 per cent improvement in turnover and an eight per cent increase in the number of deals.

Leading the gainers on Monday was Guinea Insurance, which rose by ten per cent to close at N0.77 per share. Other significant gainers included Ellah Lakes, which appreciated by 9.93 per cent to N4.76; Legend Internet, up 9.87 per cent to N7.79; Royal Exchange, gaining 9.68 per cent to N1.02; Fidson Healthcare, increasing by 9.64 per cent to N42.10; and the NGX Group, which added 9.09 per cent to close at N42.00 per share.

On the losing side, Northern Nigeria Flour Mills was the biggest decliner, with its share price dropping by ten per cent to N101.30. C&I Leasing followed, losing 9.68 per cent to close at N4.20. Other major losers included University Press, down 9.27 per cent to N4.99; Deap Capital Management and Trust, which declined by 8.99 per cent to N0.81; Learn Africa, down 8.43 per cent to N3.80; and Access Holdings, which shed 8.28 per cent to close at N20.50 per share.

In terms of trading volumes, Access Holdings led with 92.7 million shares exchanged, followed by United Bank for Africa with 91.4 million, Zenith Bank with 76.8 million, and Fidelity Bank with 50 million shares traded.

Sector-wise, the Consumer Goods Index recorded the highest gain, rising by 1.98 per cent and contributing to a four-week gain of 4.19 per cent and a remarkable 45.32 per cent year-to-date increase. In contrast, the Oil & Gas Index declined by 0.9 per cent, extending its year-to-date loss to 13.21 per cent. The Insurance Index also dropped by 0.49 per cent, though it recorded a marginal weekly gain of 0.71 per cent, but remains down 2.01 per cent for the year. The Top 30 Index, which tracks the most capitalised stocks, lost 0.14 per cent on Monday but has gained 2.5 per cent over the last week and 11.66 per cent year-to-date.

Market analysts have attributed the sharp decline primarily to investor anxiety and panic selling triggered by the CBN circular.

In its daily report, Cowry Assets Management Limited identified the directive suspending dividend payouts, director bonuses, and new foreign investments as key drivers of the market downturn.

Similarly, Cardinalstone Capital Markets noted that the losses were “driven primarily by weakness in banking names, following the market reaction to the recent CBN circular.”

Reacting to the market sentiment in a phone interview with The PUNCH, Managing Director and CEO of Arthur Stevens Asset Management Limited, Olatunde Amolegbe, described the sell-off as a knee-jerk reaction to the CBN directive.

He said, “We are now seeing some panic selling of banking stocks in the market this morning due to the recent CBN circular regarding dividend payments. This, for me, is a knee-jerk reaction.”

Amolegbe, however, offered a more optimistic perspective for investors, stating, “It, however, provides an entry opportunity at low prices for discerning investors.” He stressed that these views represented his personal opinion.

Further clarifying the CBN’s position, Amolegbe explained that the directive should not be seen as a blanket ban on dividend payments. “The truth is that announcing that dividend cannot be paid as a result of certain conditions has always been the standard. That is why before they declare their earnings or pay dividends, banks seek CBN approval,” he said.

He elaborated that the recent circular signalled a gradual withdrawal of regulatory forbearance previously granted to banks, especially regarding the Single Obligor Limit.

“The Single Obligor Limit was suspended before because of the volatility of the foreign exchange rate. The CBN gave that leeway to banks to adjust their loan books,” Amolegbe explained.

“What the CBN is saying now is that the forbearance they gave them is enough so they can adjust to the Single Obligor Limit. The banks will have to find a way to ensure compliance,” he added.

Expressing confidence in the capacity of the larger banks, Amolegbe said, “I think if the big banks work hard, they can still put themselves in a way that the CBN can give them approval.”

He emphasised that investors should consider the directive not as an outright ban but as a conditional measure, urging a long-term outlook. “I will say it’s not a blanket ban on dividend payment. What the CBN is saying is that if they can meet the criteria, they can still pay dividends,” Amolegbe clarified.

He concluded with advice for investors, saying, “Investors should look at the possibilities of the leading banks being able to comply with these circumstances. The important thing is for investors to keep their eyes on the long term.”

Also commenting on the market’s reaction, the Chief Executive Officer of Highcap Securities, David Adonri, noted that the initial panic was driven by a lack of clarity around the CBN directive.

He said, “Later in the day, some clarifications started coming in, and the public began to understand that the CBN’s intention was to curb instability in the banking sector.”

He explained that the regulatory forbearance granted to banks was meant to shield them from penalties during periods of financial strain.

“Some banks had met the requirements of the forbearance and were not penalised. Between 2020 and 2025, the CBN believes these banks should have recovered, which is why it is continuing the forbearance regime,” Adonri said.

He added that banks such as Zenith Bank and GTCO have undertaken notable repositioning in recent years. Another factor behind the CBN’s caution, he noted, is the banks’ exposure to foreign loans. “The move is to ensure they have adequate capacity to withstand external financial shocks,” he explained.

However, he pointed out that the market reacted sharply to the directive because many retail and institutional investors rely on bank dividends as a major source of income. “Without the assurance of dividends, especially interim ones, some investors may reduce their participation in the equities market,” Adonri warned.

He concluded by saying, “We will have to see how the situation unfolds in the coming days. The market’s direction will largely depend on how investors digest these new realities and the banks’ response to meeting the CBN’s conditions.”

Looking ahead, Afrinvest Securities projected a continuation of the bearish trend in the coming trading sessions. “We expect the market to extend its bearish trend tomorrow, as investors shift focus to the CBN T-bills auction, where expectations of stable yields may dampen appetite for equities,” the firm stated.

Last week, The PUNCH reported that the Nigerian stock market closed on a positive note on Friday, despite the shortened trading week occasioned by the public holidays declared for the Eid-el-Kabir and Democracy Day celebrations.