Banks Are a Bright Spot Amid First Quarter Earnings Gloom

Banks were the bright spot in the first quarter, with Access Bank, Zenith Bank, United Bank for Africa (UBA), and Guaranty Trust Holding Company all beating earnings expectation.

Of course, booming interest income and trading revenue enabled lenders’ earnings to largely surmount the tough and unpredictable macroeconomic environment.

For instance, the net income or profit after tax (PAT) of the NGX Banks-lists of the most liquid and capitalised firms- increased by 30.65 percent as at the first quarter of 2023, according to data compiled by MoneyCentral.

That compares with a 52.13 percent drop in profit for the NGX Consumer goods companies, while the NGX Industrial firms that comprise of the most dominant cement markers saw combined net income reduce by 3.40 percent.

The Oil and Gas firms net income dipped by 5.26 percent as exceptional losses prevented the downstream players reaping the windfall from higher crude oil price.

MTN Nigeria and Airtel Africa’s saw a single digit growth of 9.91 percent in the period under review.

Banks have always been the best earnings performer on NSE 30 firms in the last seven years, except the last quarter of 2022 when profits were squeezed by impairment on their Ghana operations that is a one-off event that are not expected to recur unless they fail to structure their West Africa 0perations.

Indeed, lenders’ earnings are in a growth spurt as the central bank is expected to continue to hike interest rates to tame stubborn inflation, which means more juicy yields to be enjoyed.

Banks pay shareholders for holding their stocks more as their dividends are attractive. Access Bank has a dividend yield of 14.71 percent; United For Africa, 13.17 percent; Zenith Bank, 12.31 percent, and Guaranty Trust Holdings Company, 11.65 percent

At the end of its last meeting in March, the Monetary Policy Committee (MPC) voted by 10 to 1 to raise the benchmark rate by 50 basis points (bps) to 18.0 per cent – the sixth increase in the last twelve months.

Non-financial firms are reeling from deteriorating margins due to harsh regulatory environment, foreign exchange scarcity, rising inflation, and deteriorating infrastructure.

For instance, the incessant devaluation of the currency by the central bank bloats the dollar denominated debt in the balance sheet of highly geared firms. What’s more, some are struggling to service debt due to an aggressive monetary policy as rising borrowing costs balloons the cost of capital.

Nigeria’s inflation rate rose to 22.04% in March 2023, the highest since 2009, according to a recent Consumer Price Index report released by the National Bureau of Statistics (NBS).

There are concerns that consumer goods firms might embark on downsizing to stay afloat because they are the hardest hit by government policies.

But indexes have outperformed the All Share Index (ASI) even as most stocks are overvalued.

The NGX Banking index, Consumer Goods index, and the Oil and Gas index have gained 15.22 percent, 29.44 percent, 17.35 percent so far this year, outperforming the NGXASI index returns of 2.67 percent as at May 22.

However, the Industrial Goods index is the only laggard as it has lost 1.52 percent so far this year.