Are investors still bullish on banks?

Nigerian Banking stocks on the NGX have been through a rollercoaster ride recently, with a 14 per cent decline last week followed by a significant 70 per cent year-to-date increase. Despite the recent market volatility, the sector has sustained momentum with a 10 per cent gain in the first quarter. Joshua Odebisi, a Senior Research Analyst at RMB Nigeria, shed light on the key stories shaping the banking landscape, including the latest proposed acquisition drive by Access Corp. Reflecting on the performance of the banking index in the first half of the year, Odebisi emphasized the transition from pre-election challenges to post-election optimism. The cash shortage pre-election burdened the banks' systems, reflecting negatively in their Q1 financials. However, the momentum post-election propelled by local investors buoyed market sentiment, particularly on the belief in a positive outlook for the banking sector under the new government. The current market dynamics are not necessarily a shift in sentiment but rather a profit-taking behavior among investors after a significant rally. Despite the recent dip in the market, financial services remain at the forefront, with FBNH and UBA dominating the top stocks by volume, driven by specific movements and positive investor sentiment in the sector. Access Corp.'s aggressive acquisition strategy in the market, particularly the proposed acquisition of standard chartered banking businesses in five different markets, showcases their bullish approach. Odebisi highlighted the company's track record in acquisitions, noting that once Access announces its intentions, it typically follows through with the acquisition. The pending acquisition signals a strategic move by Access to expand its market presence and influence. The recent reforms in the FX space, including the decision to allow Nigerians to receive diaspora remittances in Naira, have positive implications for the market. The move is expected to streamline the remittance process and ensure fair value for recipients, reducing the need for parallel transactions and black-market operations. Looking ahead, Odebisi expressed a positive outlook for the banking sector, foreseeing market-driven fluctuations but overall growth fueled by factors such as higher exchange rates, liquidity, and monetary policy reforms. The resilience of the Nigerian banking sector amidst market uncertainties reflects a promising trajectory for the industry.