Follow Us on Google Discover
Nigerian banks, unsurprisingly, show solid fundamentals with strong gross earnings, fueled by high net Interest margins on the back of sustained high interest rates amid the recent market correction in the Nigerian equity market
The Nigerian Banking sector had an exceptionally explosive first half.
The NGX Banking Index is up 35% YTD amidst the June bloodbath.
NGX Banking Index is experiencing a classic post-dividend; post-rally mean reversion. Most of the Tier 1 bank tickers are testing the 50- and 100 Day Exp MA.
Also Read
Latest market activity highlighted that sellers have been aggressive during high-volume selling sessions, but heavy institutional “buy the dip” is seen immediately when the core tickers touch structural support.
Nigerian banking stocks’ price action has rotated away from momentum trading into a “buy the dip” structural play. Heavyweight players such as Zenith Bank and Access Holdings are actively probing critical structural support.
FirstHoldco has displayed very good local momentum recently; the market witnessed a 10% surge in one day as aggressive bargain hunters supported the price at key levels during the dip in late June, showing heavy institutional buying at the dip is still at play.
GTCO & Access Corporation remain in the liquidity hotspots and lead the market by daily trading volume and value. Both stocks continue to show tighter wedges above their longer-term uptrends, thus forming the anchor for the index.
The “big six” of Nigerian banks, Access, Zenith, GTBank, UBA, First Bank (FBNH), and FidelityBank , made it over the arduous N500 billion barrier and kept their international banking licenses.
These banks have had to suck up enormous volumes of domestic and offshore equity since the CBN did not allow for the use of retained earnings or debt for this leg of the journey. Now they stand with pristine, strong balance sheets ready to lend more money into the more profitable space of corporate lending and project finance.
What we expect: For the next leg of the journey, we see significant ongoing consolidation. Mid-tier players like FCMB and Wema will focus on building their national presence. Those banks that had a defensive niche position (like Stanbic, Sterling, and some of the corporate-focused Holdcos) have all survived, and the rest of the sector is undergoing severe shakeouts/mergers, as in the Unity/Providus case, thus giving us new and larger Tier 2 players.
The CBN is about to stress test its post-recap banking sector – its mandated post-recapitalization credit portfolio stress test is in progress, and given that interest rates are still at steeply restrictive levels and former regulatory forbearance has been scrapped, S&P Global expects NPL ratios to rise to 6-7%, and credit losses will remain high. Banks with poorer risk management processes would have their earnings decimated by proactive provisioning.
The sector has seen initial high confidence given the NGX broad rally, but the latter half of the year will separate banks that only survived the recapitalization process from those that can now efficiently put the funds to work into high ROE (Return on Equity) drivers; it should only be possible for the most liquid and efficiently run banks with cost-to-income ratios and sound governance.
