MON DEC 30 2024-theGBJournal|For 2025FY, bank’s gross earnings is expected to remain resilient, primarily fueled by growth in funded income, underpinned by our expectations of elevated interest rates in the interim and growth in banks earning assets, Cordros Research analysts projects.
However, non-core income will likely face pressure due to the CBN’s Net Open Position restrictions, eradicating FX revaluation gains.
On risky asset creation, we expect banks to maintain a cautious lending approach despite the penalties associated with LDR-induced CRR debits, given the challenging economic environment.
Elsewhere, we anticipate that higher interest rates will lead to increased funding costs for banks while rising operating expenses pressure profitability.
Across Cordros’ coverage banks, their models point to a 9.5% y/y average growth in gross earnings (2024E: +76.5% y/y).
Cordros Research top picks for 2025E are GTCO (BUY; TP: NGN64.98/s) and UBA (BUY; TP: NGN46.97/s). Our outlook on GTCO (potential upside: +22.6%) is driven by the group’s sustained cost management and (2) the HoldCo’s retail diversification strategy to attract low-cost deposits.
We also like ACCESSCORP (potential upside: +60.2%), as we believe the bank will maintain a growth trajectory supported by the high-interest rate environment and robust balance sheet and strategic expansion into international regions to bolster operational efficiency.
On core income growth, we expect still elevated yields to support the banks’ core
income in 2025E. Our forecast is based on our expectations that the CBN will keep rates elevated to tether the anticipated inflationary pressures and reduce the negative real rate of return.
We also note that despite the penalties involved in the newly introduced LDR-induced CRR debits, banks will maintain a cautious lending strategy due to the economic climate. Precisely for Tier-1 banks, we expect LDR to average 38.5% in 2025E (2024E: 38.0%).
Elsewhere, while we see an increase in fees and commission income driven by credit charges and the consistent growth in e-banking income, we expect the non-core income line to come under pressure in 2025E.
This follows the CBN’s directive to banks to reduce their Net Open Position to 0% long or 20% short of unimpaired shareholder funds, effectively limiting growth in FX revaluation gains.
For context, we expect the non-core income of coverage banks to grow at an average of 8.5% in 2025FY (2024E: 29.1%).
On the cost side, we envisage that the high interest rates will also translate into higher funding costs for the banks, while the anticipated higher OPEX pressures profitability.
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