Renaissance capital has released its latest report on Nigerian Banks titled “Nigerian Banks: Where is the bottom”. The report takes a look at the banking sector in the first year of Buhari’s administration and basically concludes things are likely going to get worse.
The report cites the new harmonised CRR, likely increase in taxes, weaker oil sector as likely drags to banking sector profits this year.
“With a new government in place, there has been much talk of broad, deep-reaching reforms, though with few specifics at this stage. We think Nigerian banks are unlikely to remain unscathed, as weaker fiscal revenue could put the banks’ tax exemptions on government and corporate securities at risk; oil sector reforms could lead to asset quality surprises,”
They also went on to mention four banks that are likely to withstand the pain better and avoid taking huge impairment that could result in a loss this year.
“We also establish each bank’s breakeven cost of risk and deduce a ‘pain buffer’ that calculates how much room we think the bank has to take on additional impairments before moving into a loss. Based on our 2015 estimates, GTBank, Stanbic, Zenith Bank and UBA have the highest pain buffers in the sector,”
These basically serves as a warning for investors who hold significant holding in commercial banks. It is thus important to continue to monitor results of banking stocks with a close eye on their asset quality, impairment charges and profitability. Investors looking for the full report can download it here (you might have to pay for it)