Banks Regain NGX30 Dominance With 41% of Profits

The ten big banks on the benchmark posted a combined profit after tax (PAT) of N408.25 billion as at the first quarter of 2023, which is 41.15 percent of the entire profit of NGX30 firms, according to data gathered by MoneyCentral.

As the NGX 30 (the list of the most liquid and capitalized companies) once again tests its record high, the top ten publicly-traded banks now make up 19.97 percent of the benchmark’s capitalisation.

It is worth noting that lenders are the biggest beneficiaries of a transformation policy that is expected to magnify the country’s foreign direct investment (FDI).

The NGX ASI has returned 28.1 percent year-to-date (YTD), with 81 percent of the return delivered between 29 May and 11 July 2023. This pushed the 52-week return of the market to 27.4 percent. Similarly, the NGX 30 Index has returned 30.1 percent and 27.6 percent YTD and over a 52-week period respectively.

Analysts at Chapel Denham Limited in a note to clients believe that the banking sector still has headroom for appreciation, considering the expected positive impact of Naira devaluation on nearly all the banks under their coverage.

Whenever a currency weakens, there are usually increases in the dollar denominated assets of financial institutions, and they enjoy foreign exchange gains which jerks up the bottom line (profit).

GTCO, Zenith, Access, FBN Holdings (FBNH), UBA, ETI and Fidelity are currently trading at discounts to their YTD and 52-week high levels, presenting a somewhat decent entry point, according to data from Chapel Hill Denham Limited.

“While we note that banks such as FCMB and Stanbic are trading at their highest prices YTD and over the past 52 weeks, we recognise that  they could witness a broad re-rating on the back of strong expectations on their results,” said the analysts.

Access (+112%), Stanbic (+103%), FBNH (+97%), Fidelity (+94%), and UBA (+88%), significantly outperforming the NGXASI index’s 28.13 percent.

Hitherto, foreign investors had been dumping bank stocks, a capital flight brought by lack of transformation agenda on the part of former president Muhammadu Buhari who cling onto capital controls and outdated statist ideology that stifled economic growth.

But with the unification of the foreign exchange rate and removal of subsidies on Premium Motor Spirit (PMS)  and the rekindling of foreign investors’ appetite for financial assets, the equity market rally might be sustained to year end.

A recent stress test by the Central Bank of Nigeria (CBN) showed that the industry’s solvency and liquidity positions could withstand mild to moderate shocks in the short to medium term.

That means they have been able to build a buffer and a good asset quality reduces the risk of a crisis.

The Non-Performing Loans (NPLs) ratio of lenders declined to 4.4 per cent in April 2023 from 4.5 per cent in March 2022, which is further below the regulatory benchmark of 5 per cent, according to the CBN’s Financial System Stability.

The report also stated that banks’ total assets from April 2022 to April 2023 rose by N16.65 trillion representing a 25.88 percent rise, adding that Industry credit also increased by N4.54 trillion during the period under review.

“The continuous decline in NPL was attributable to write-offs, restructuring of facilities, Global Standing Instruction (GSI) and sound credit risk management. Consequently, total gross credit increased by N4.54 trillion, representing an increase of 19.71 per cent between the end of April 2022 and the end of April 2023, from N26.10 trillion to N30.64 trillion, due to the increase in the industry funding base, the CBN’s directive on Loan-to-Deposit Ratio (LDR), and business strategy and competition,” said Kingsley Obiora, Deputy Governor, Economic Policy Directorate at the CBN.

“The credit growth was largely recorded in key sectors of the economy, including oil and gas, manufacturing, general commerce, and government,” Obiora summed.