Banking sector emerges second-worst performing index on NGX, says report

As the Nigerian Exchange Limited (NGX) All-Share Index appreciated by 24.3 per cent in first quarter (Q1) of 2022, the NGX Banking Index emerged second-worst performing despite positive corporate earnings by listed banks.

Analysts at Coronation Research in its report titled; “Nigerian Banks: Q1 22 earnings review” on Monday noted that 2022 has been a challenging year for Nigerian banks’ stocks.

The report said: “Year-to-date, the sector index has returned a disappointing 7.4per cent and has grossly underperformed the broader equity gauge (NGX-ASI: +24.3per cent).

“Notably, it is the second-worst performing sector index. Stock performance within our coverage universe tells a similar story: FBN Holdings (+4.8per cent) and Access Holdings (+3.8per cent) have recorded small gains, UBA has been flattish, while GT Holdco (-8.1per cent), Stanbic IBTC Holdings (-8.3per cent), Zenith Bank (-2.6per cent) have fallen.”

The report highlighted that Q1 2022 was a decent quarter in terms of earnings for covered banks.

According to the report, four of the five banks which published results reported EPS growth; GTCO surprisingly reported an EPS decline.

The report stated further: “Notably, most of the growth across our coverage was driven by increased funded income, following the expansion in banks’ loan books and some upward repricing of loans. Higher yields in Q1 22 (vs Q1 21) also saw banks earn higher interest on their investment securities portfolios y/y.

“Overall, banks’ Yields on Assets (YoA) were much improved compared with the prior year. Elsewhere, banks’ Cost of Funds faced some upward pressure: however, they were able to keep rises below the rise in yields.  As a result, Net Interest Margins (NIM) were resilient. Non-interest revenues (NIR) also continued on their upward trajectory.

“The narrative that the fundamentals of the banking sector are compelling has persisted, even as investor apathy around bank stocks remains. In our view, although bank margins and profitability have come down slightly in recent years, bank stocks have been oversold.

“In an environment where negative inflation-adjusted yields remain the theme, bank dividends continue to offer more attractive yields than Treasury bills. In addition, with yields on the rise, we think FY 21 may have been the bottom in terms of banks’ profitability. The valuations of our coverage banks remain compelling and hold value for long-term investors, in our view.”