TUE, 20 SEPT, 2022-theGBJournal| Overall, the results across the banks were decent, with all except one (Guaranty Trust HoldCo) recording growth in Net profits. However, the earnings growth was not enough to realize the market’s positive expectations, with most of the reported earnings, when annualized, missing analyst’s consensus estimates by some margin.
As a result, the rout in bank stocks which began at the start of May continued into Q3. Since end-July, when results began to trickle out, share prices of our covered banks have all tanked (save for Stanbic IBTC Holdings, which reported better-than-expected.
Most of our covered banks doubled-down on their core function, with Net interest income (NII) growing by an average of 24.8% y/y and accounting for an average of 55.7% of the net revenues.
With asset yields still low and limited room for Net Interest Margin (NIM) expansion, the major income growth driver for our coverage banks was increased risk-asset creation as they grew their loan books by an average of 8.5% y-t-d during H1 22.
Elsewhere, the Central Bank of Nigeria’s (CBN) discretionary CRR debits squeezed system liquidity, and led to many banks tilting their funding mixes towards expensive term deposits. As a result, Cost of Funds (+20bps y/y on average) came under pressure.
The growth in non-interest revenues (NIR) also complemented the solid NII performance across our covered banks with many recording substantial rises in Trading revenues and Fees and Commission income. However, significant inflation and regulatory fee-induced cost growth weighed on Net revenues and led to a deterioration in operating efficiency. Specifically, the average Cost-to-Income ratio across our coverage rose by 160bps y/y in H1 22 (excluding Stanbic IBTC Holdings).
Due to the monetary authorities continued tightening stance, it appears it would be a ‘tale of two halves’ for the banks this year.
The monetary policy rate (MPR) is up 250bps y-t-d, while the CBN has raised the floor for the savings deposit rates to 30.0% of the MPR (from 10.0%) and increased the interest rate on intervention facilities to 9.0%.
Although banks will face CoF pressure, they have already begun to reprice loans upwards. This, in addition to rising market yields, are likely to positively impact NII and NIM in Q3 and Q4.- with Coronation Research
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