The banking index closed the week on a positive note to emerge as the best-performing sectorial index with a gain of 9.82%.
On a general note, the NGX All-Share Index and Market Capitalization appreciated by 3.40% to close the week at 63,040.41 and N34.326 trillion respectively.
Similarly, all other indices finished higher except NGX Consumer Goods Index which depreciated by 0.22% while the NGX ASeM and NGX Sovereign Bond Indices closed flat.
In terms of market value, the market recorded a gain of N556 billion in market capitalization during the year, as investors increased their buying pressure, especially on blue-chip stocks.
The banking index performance
According to data from the Nigerian Exchange Limited, the banking index grew by 9.825% or 63.35 basis points to close at 708.77 index points, as against the opening index of 645.42 index points at the beginning of the week.
The banking sector recorded a positive year-to-date performance of 69.77% according to data obtained from the NGX.
The NGX Banking Index had increased from 417.50 index points to 645.42 index points as of June 30th, 2023 (The half year of 2023), as against what it closed on Dec 30, 2022, which was 417.5 index points.
The MPC on its 291st meeting increased the Monetary Policy Rate (MPR) by 50 basis points, from 18% to 18.50%.
More insights
This hawkish trend has positively affected Deposit Money Banks (DMBs) as they get to reprice their risk assets following the new MPR, in turn, this increased their net interest income as seen in the Q1 results of most of the banks.
H2’2023 sector outlook: The Managing Director, of Cowry Asset Management Limited, Mr. Johnson Chukwu speaking on the outlook of the sector for the second half of the year said that rising interest rates on loans can enhance banks’ profitability through higher net interest income and attract more deposits from savers looking for better returns.
Chukwu noted that improved financial performance and profitability can also facilitate the growth and expansion of banks.
According to him, banks holding significant foreign currency assets are likely to revalue their assets to align with the current exchange rate.
- “As a result, we anticipate an upturn in profitability as a direct outcome of this foreign exchange revaluation gain,” he said. Chukwu explained that the shakeup in Central Bank management has instilled confidence in investors, leading to expectations of improved performance in the sector.
- “During Emefiele’s tenure, the sector faced challenges due to restrictive policies that impacted the earnings of industry participants.”
An outcome of subsidy removal is increased FAAC allocation. This increased liquidity would allow banks to provide more loans, at a lesser cost of funds, thereby increasing their net interest income and profitability.
- “Overall, the removal of fuel subsidy would foster a stable economic environment, benefiting the growth and expansion of banks,” he said.
