Even in the midst of a spectacular slide in banking stocks, the most liquid and well-capitalized lenders in Africa’s largest economy are effective at producing a profit for shareholders.
According to data compiled by MoneyCentral, these banks’ first-half industry return on average equity was 14 percent, better than the industry average of 12.50 percent for 2021.
In September 2022, their combined net income increased by 17.13 percent to N777.87 billion from N664.05 billion the previous year.
As the central bank adopts an aggressive monetary policy to contain rising inflation, banks are benefiting from higher interest rates that give additional impetus to interest income on loans.
According to analysts, earnings were boosted by gains in foreign exchange revaluation as a result of the currency’s ongoing depreciation.
Banks profit more when interest rates are higher by capitalizing on the discrepancy between the interest they pay to customers and the interest they may gain on investments.
In September 2022, Zenith Bank’s ROAE increased to 18.0 percent from 17.90 percent the year before. As of September 2022, the lender’s net income, or profit after tax (PAT), increased by 8.55 percent to N174.33 billion.
First Bank Holdings Plc’s ROAE increased from 6.60 percent to 13.70 percent throughout the review period. As of September 2022, net income increased by 123.46 percent to N91.28 billion.
In the year under review, United Bank for Africa (UBA) Plc’s ROAE improved to 91.20 percent from 18.20 percent the year before, and its net income increased by 10.94 percent to N116.04 billion from N104.59 billion.
The ROAE of Sterling Bank increased from 9.10 percent to 12.20 percent throughout the review period. As of September 2022, net income increased by 41.54 percent to N13.40 billion.
WEMA Bank’s ROAE increased from 12.90% in September 2021 to 15% in September 2022. From N6.23 billion in September 2021 to N8.17 billion in September 2022, net income increased by 31.19 percent.
ROAE decreased at Access Bank, Guaranty Trust Holding Company (GTCO), and Stanbic IBTC Holdings.
Due to an unfavorable shareholders’ fund that prevents the lender from paying dividends to its owners, Unity Bank’s returns are negative.
The increase in profitability does not match valuations, though, since investors have kept selling off banks stocks because they are still concerned about the macroeconomic outlook.
The NGX Banking index later lost 16.60 between February and October after rising 8.70 percent in February alone.
“Beyond worries about rising interest rates in developed markets, uncertainties around upcoming general elections, expanding local fixed income yield, and concerns around FX stability is the root cause of the underwhelming banking sector index in our view,” said analysts at Chapel Hill Denham.
The root cause of the underwhelming banking sector index, in an opinion, lies beyond concerns about rising interest rates in developed markets, uncertainties surrounding upcoming general elections, expanding local fixed income yield, and worries about FX stability, according to analysts at Chapel Hill Denham
“Higher CRR hurts the banks’ liquidity ratios, compels them to borrow and take extra trading risks to generate supposedly “risk-free” income,” Solanke said by email.
Fitch Rating notes that the CRR policy “dampens banks profitability and is credit-negative for the sector as it restricts lenders’ ability to lend,thereby limiting access to credit for businesses. Fitch Rating has a negative outlook for the Nigerian banking sector in part due to the CRR policy.