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Thursday, February 2, 2023

Tier 1 Banks Earnings to Grow in 2023

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Separating the wheat from the chaff, Tier 1 lenders, who are referred to as “the big five banks” have the financial buffers to overcome macroeconomic shocks and their earnings are expected to magnify in 2023.

Interestingly, these lenders have invested a large amount of money in digital channels that underpinned the bottom-line (profit) even amid stiff competition from Fintech and Telcos.

“For the big banks which are the focus of this report, we believe it will be net interest margin (NIM) positive as they have a high proportion of cheap funds, which keeps funding cost minimal,” said analysts at CSL Stockbrokers Limited.

“We believe banks can increase non-interest income from increased treasury and capital market activities. We also believe banks will continue to leverage their competitive advantage in terms of scale and customer history to compete effectively in the fintech space,” said analysts at CSL Stockbrokers.

Zenith Bank, Guaranty Trust Holdings, United Bank for Africa, Access Bank, and FirstBank Holdings, collectively realised N987.10 billion as at September 2021, which represents 20.98 percent higher than 2020’s N815.90 billion.

Of course, the growth in non-interest revenue was bolstered by growing investment by banks in digital technology and the onset of the covid-19 pandemic which forced customers to crave for online transactions.

Access Bank’s digital lending value hit N146 billion in December 2021, which represents 178 percent surge from 2020’s N97 billion. The largest lender by total assets in Africa’s most populous nation saw digital transition volume spike by 50 percent to 3 million in the period under review.

Firstbank Holdings’ electronic revenue stood at N40 billion as at September 2022 from 817 million transactions.

Guaranty Trust Bank Holdings’ mobile and internet banking revenue increased by 33.25 percent to N16.55 trillion in June 2022 from  N12.42 tr trillion the previous year.

Nigerian big banks have been enjoying juicy yields that are adding strength to earnings as bond yields have been rising since the start of last year on the bank of the aggressive monetary policy of the central bank which is steadfast in rein in rising inflation.

And the party will continue this as the central bank is expected to cling on to its aggressive stance since inflation is not showing signs of cooling.

The Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate to 17.5 percent from 16.50 percent.

Analysts at CSL Stockbrokers have maintained a Buy recommendation on Zenith, GTCO, Access, FBN and UBA, citing adequate capital, relatively stable asset quality, stable dividend yield, as the basis or reasons for the ratings.

It is important to note that an attractive valuation is a good entry point for investors who wishes to magnify his earnings.

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