WED MAY 21 2025-theGBJournal| Since the 2005 recapitalisation exercise, banks’ gross income has grown at an estimated CAGR of 22.9%, driven by enhanced risky asset creation capabilities and expansion into international markets, amid one-offs such as FX gains from revaluation and currency swaps.
Cordros Research, leading Nigerian analytical professionals, said they maintain a positive outlook on the sector driven by multiple underlying factors, specifically citing improved macroeconomic conditions which should bolster credit creation enhanced asset quality, and strengthened capital positions supporting value-accretive investments.
”That said, downside risks such as regulatory headwinds and cost pressures remain, which may cause modest earnings growth.”
The industry is expected to maintain a growth trajectory with the recapitalisation exercise presenting as the key catalyst, and Cordros has placed an “OVERWEIGHT” rating on banking names such as– ACCESSCORP (BUY; TP: N35.28/s), FIRSTHOLDCO (BUY; TP: N34.97/s), GTCO (BUY; TP: N87.14/s), UBA (BUY; TP: N58.28/s), and ZENITHBANK (BUY; TP: N75.29/s).
These banks stocks have rallied significantly following strong fundamentals and continuously improving outlook amid still supportive macroeconomic conditions.
As of May 19, 2025, the NGX Banking Index has gained 7.2% year-to-date (YTD), outperforming the broader NGX All-Share Index (ASI), which has returned 6.3% over the same period.
The sector’s performance has been mixed, reflecting a balance between profit-taking activities and renewed investor interest following strong 2024FY earnings results and robust dividend payouts.
Despite the cautious sentiment partially driven by external global factors, the underlying fundamentals of Tier-1 banks remain supportive of a positive medium-term outlook.
Asides the expected increase in loan books, investments in technology and retail expansion, banks intend to utilise a portion of the new capital to fund deepening presence in the Sub-Saharan African market.
Cordros said while they acknowledge that low financial intermediation metrics in SSA, such as loan-to-GDP (34.5%) and deposit-to-GDP (39.1%) ratios, do not on their own confirm a supply-side gap, they believe they present a compelling case for growth.
”Paired with rising financial literacy and digital adoption, these indicators present Nigerian banks an opportunity to expand credit delivery, boost deposit mobilisation, and grow customer bases,” Cordros adds.
Meanwhile, UBA stands out as Cordros top pick, presenting a compelling estimated upside of 68.9%.
”We particularly like the bank’s earnings profile, supported by its diversified operations across markets.”
UBA generates the highest share of international earnings (51.7%) among Tier-1 peers — a key advantage that offers earnings stability and topline support.
Looking ahead, a 5-year CAGR of 15.8% in core income is the forecast, supported by its broad geographic footprint and balance sheet scale.
Furthermore, non-interest income is expected to grow at a 16.7% CAGR, driven by sustained momentum in fee-based income, underpinned by strong digital capabilities and a solid transaction banking franchise.
Cordros forecast a 430bps reduction in the cost-to-income ratio (ex-LLE) to 46.6% in 2025E, supported by improved cost management, which should support the bank’s profitability outlook in 2025E.
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