In the stock market, when one group of companies falls out of favor, another has usually been ready to take its place in what is termed a rotation.
While the Banking sector is the second best performer in the equity market, some of the lenders have not rallied like others, which means there is room for them to outperform going into year-end.
Unity Bank has a year-to-date YTD return of (+176.36%); Access Holding Plc (+92.94 percent); United Bank for Africa, (+84.21 percent); Fidelity Bank, (+69.43 percent), and FBN Holdings Plc, (+59.17 percent), outperforming the NGX Banking index YTD gains of 56.46 percent.
However, the laggards that underperformed the index are: First City Monument Bank, (+55.84 percent); Guaranty Trust Holding Company, (+47.18 percent); Zenith Bank, (+41.46 percent), and Wema, (+14.10 percent).
It is worth noting that investors who have not bought shares yet are advised to buy ones that trades below the benchmark as there are indications that the appointment of a new central bank governor who is market friendly, the lowering of Cash Reserve Ratio (CRR), and the removal of bottlenecks imposed by the former central bank governor Godwin Emefiele, will drive further gains in bank stocks.
At 32.50 percent, the country’s CRR is one of the highest in the world and some analysts have said it is mathematically impossible for lenders to deposit such large amounts with the Apex bank, monies that could have been lent to the real sector of the economy.
It is glaring that lenders are grappling with a harsh regulatory environment and the hike in the minimum loans to deposit ratio is not helping matters at all.
The Bank stocks might overtake the oil and gas index as at the best performer on the NGXASI if oil prices fall and interest rates continue to rise.
Whenever the central bank hikes the interest rate to tame red-hot inflation, there is usually an increase in the net interest income of banks, which is the difference between the amount they charge on loans granted and the expenses incurred on money deposited.