With the second quarter earnings season coming to an end, it is noteworthy that Custom Street’s five largest listed banks’ – Zenith Bank, Access Holdings, FBN Holdings, United Bank for Africa (UBA), and Guaranty Trust Holding Company (GTCO) – combined profit are actually more than half of the entire bottom line of the NGX 30 firms.
Of course, the NGX 30, which includes these lenders, are the largest and the most liquid companies listed on the stock exchange in Nigeria.
Data gathered by MoneyCentral shows the fantastic five, made up of Zenith, Access, GTCO, FBNH, and UBA, generated profit of N1.27 trillion in the first six months of 2023, which is 67.75 percent of the entire NGX 30’s N1.88 trillion net income.
The NGX Banking index has a year to date (YTD) gain of 33.13 percent that outperformed the NGX All-Share-Index of 29.72 percent as of October 10, 2023.
Stripping out the profit of the five biggest lenders, the NGX 30 firms’ profit would have fallen by 36.94 percent, according to MoneyCentral calculations.
Nigerian banks have remained resilient despite macroeconomic headwinds, although their stellar performances have been bolstered by monetary policies as interest income from loans and advances and foreign exchange gains underpinned earnings.
But manufacturers were losers from a currency devaluation as many of them booked huge foreign exchange revaluation losses that tipped some bellwether companies into net losses.
That compounded the woes of a sector that was reeling from weak consumer spending, higher interest rates, spiraling energy costs, and decrepit infrastructure as rising prices of diesel oil which companies use to power their factories and head offices have skyrocketed due to the war between Ukraine and Russia.
It is important to note that the bedlam in East Europe is also responsible for higher raw material costs as the two warring countries (Russia and Ukraine) are the largest producers and exporters of grains such as wheat and corn which Flour millers in emerging and developing markets use in the production cereals and bread.
The Naira has weakened by 40 percent against the dollar since mid-June devaluation when the central bank removed trading restrictions on the official market, which combined with the removal of subsidies on Premium Motor Spirit (PMS) means households and corporates are expected to suffer in the short term.
Nigeria’s annual economic growth rate slowed to 2.3 percent in the first quarter, according to data from the National Bureau of Statistics (NBS).
The country’s annual inflation rate accelerated to an 18-year high of 25.8 percent in August, according to the statistics body. The gross external reserves decreased by 3bps to US$33.24bn as of 28th September 2023.
The World Bank noted that activity in Nigeria’s manufacturing and services sector contracted in August. “Weak business confidence and rising input costs are driving the contraction of activity,” it said. It stresses business confidence appears to have weakened in Nigeria.
“The naira has weakened by nearly 40 per cent against the US dollar since the mid-June devaluation. Although these measures are intended to improve the fiscal and external accounts of the nation, their inflationary effects in the near term can erode the purchasing power of households and weigh on economic activity,” said the Bank.