The Nigerian banking industry is still grappling with macroeconomic challenges like a weak business environment, limited opportunities for growth, high inflation, and regulatory policies.
Nevertheless, banks managed to record stable financial performances as seen by the strong results so far reported by some of them for FY 2022.
Current index performance: According to data from the Nigerian Exchange Limited tracked by Nairametrics, the NGX banking index which measures the performance of the banking firms quoted on the NGX has already grown by 7.54% or 31.48 basis points this year to close at 448.98 index point as against the opening index of 417.50 index points at the beginning of the year 2023 trading on January 3, 2023.
According to some market analysts, despite the unstable policies, the current growth of the index showed that the sector points to sustaining its growth trajectory at the end of the year following positive sentiment by investors.
They added that the banking industry will continue to thrive amid interest rate hikes, naira redesigned, and CBN’s move to achieve a cashless environment.
Interest rate hikes: The Managing Director of Crane Securities Limited, Mr. Mike Eze, told Nairametrics that the banking sector’s profitability increases with interest rate hikes adding that institutions in the banking sector, such as retail banks, commercial banks, investment banks, and brokerages have massive cash holdings due to customer balances and business activities.
According to him increases in the interest rate directly increase the yield on this cash, and the proceeds go directly to earnings.
Eze said that interest rates and bank profitability are connected, with banks benefiting from higher interest rates.
- “When interest rates are higher, banks make more money, by taking advantage of the difference between the interest banks pay to customers and the interest the bank can earn by investing,” he said.
Naira redesign and the cashless policy: Eze stated that with the Naira redesign and the cashless policy, banks are going to make a lot of money adding that the cashless policy will be very lucrative for retail banking.
He however explained that the stock market sometimes depends on sentiment and because of hiccups and inconveniences associated with the introduction of a cashless system in the country, shareholders could shy away from banking stocks this first quarter. However, their enthusiasm for the stocks will be activated from the next quarter because of their first quarter results which will be in the green territory.
- “We are still in the first quarter and the economic system is still evolving, for the astute investors, it is the right time to take a position on the banking stocks. The CBN’s recent policies on interest rate hikes and cashless regime tend to favour the banking industry,” he said.
Economic reforms: The Chief Executive Office of Wyoming Capital and Partners, Mr. Tajudeen Olayinka, also told Nairametrics that most of the economic reforms that will take place in 2023 will revolve around the capacity of the banking sector to act as a catalyst.
He added that it is expected that banking stocks will become the toast of the market, going forward.
- “This is also with the hope that one of the three leading presidential candidates, Atiku Abubakar, Asiwaju Bola Tinubu, and Peter Obi becomes the President on May 29, 2023, for one simple reason, the three leading presidential candidates are pro-market,” he said.
He noted that except there is violence, the outlook for the market is positive.
Demonetization policy: The Managing Director of Arthur Steven Asset Management Limited, Mr. Olatunde Amolegbe said he expects 2023 to be a much better year as the banks will see the benefits of the demonetization policy of the CBN.
- “All in all we expect the banks such as AccessBank that are entering a new growth phase to do very well while others such as GTBANK and Zenithbank maintain their growth rate.
The industry will also need to brace itself from intense competition from other Digitals technology players,” he said.
Loan obligation: The Managing Director of Cowry Asset Management Limited, Mr. Johnson Chukwu, noted that the outlook of the banking sector in terms of profitability is positive owing to the high-interest rate environment.
- “The banks are now enjoying an increase in net interest margin due to higher interest rates. They are now enjoying the windfall but the concern is that many business operators may not be able to meet loan obligations under the present rate hike,” he said.
Executive Vice Chairman of Hicap Securities Limited, Mr. David Adonri, said that banking stocks will still be stable with stronger earnings expectations during the year.
He noted that the CBN has done enough through the cashless policy to safeguard and strengthen its income base.
- “They will still be an attractive sector to invest in 2023. Bank stocks are still undervalued and still a good area to invest in 2023 and reap capital appreciation,” he said
Banks are making more money because they are cleverly cheating their customers. How many banks are paying interest to their customers on Savings Accounts. You have forgotten that with Cashless policy, customers are transacting a one off transaction four times,let me give you an example, a withdrawal of #80,000 will be done through ATM four times, and second withdrawal of another #80,000 will also take four times, making two transactions in sixteen places. Go and check the Bankers Tarrif, for any customer to earn interest on his/ her account,the withdrawal in a month should not exceed four times.
No matter the Credit balances in your account, you won’t earn any interest for that month. The Bankers Committee should remove the ceiling. Bankers are using customers funds free and at the same time, hike interest on Loans. Don’t forget that surplus balances on customers savings accounts are being used for these loans. Why then should the owners of the funds loss out, while the banks are smiling and declaring huge profits. There should be a balance, Pareto Optimality theory should not come into this at all.
This is my view. Thank you.