Investors await H1’earnings of tier 1 banks

Investors in the Nigerian banking sector are eagerly anticipating the release of the half-year earnings of Zenith Bank, United Bank for Africa, and Stanbic IBTC. As more filings face delays, the market is buzzing with excitement. Olumide Sole, a Research Analyst at Vetiva Capital, recently joined CNBC Africa to shed light on the impact of these delays on banking stocks and the prospects for the remainder of the year. Sole mentioned that the banks are poised to report impressive earnings, thanks to policy reforms, specifically foreign exchange revaluation gains driven by the unification of exchange rates earlier this year. This move is expected to lead to a revaluation of both assets and liabilities, resulting in record earnings for banks with a net asset position in foreign currency. This development is likely to boost stock prices, pleasing investors who have been observing the sector closely. Furthermore, the dividend yield of these banks is expected to increase as a result of the anticipated gains. While dividends are projected to rise, stock prices are also likely to experience an upturn. The banking index has already seen a substantial 56 percent increase this year, indicating positive growth in the sector. Despite this, Nigerian banks are still considered to be undervalued compared to their African counterparts, presenting potential investment opportunities. When discussing individual banks, Sole highlighted the performance of Tier 2 bank, Fidelity Bank. Fidelity Bank is expected to benefit from the valuation gains as it recently recorded triple-digit growth in its bottom line. Increased transaction volume further positions Fidelity for success in the wake of policy reforms. The Q2 profits of banks like First Bank of Nigeria Holdings, which saw a staggering 460 percent year-on-year increase, have raised questions about potential shifts in the market. Investors and portfolio managers are reevaluating their strategies in light of the economic landscape. With the new economic team yet to fully implement their policies, the stellar performance of banks adds a layer of complexity to the decision-making process. Sole also touched on the impact of economic pressures on banking earnings, foreseeing an increase in non-performing loans and provisions. As the economic environment becomes more challenging, banks may face higher non-performing loans, necessitating additional provisions. However, the earnings generated from policy reforms are expected to counterbalance these challenges. Regarding loan books, Nigerian banks are expected to witness significant growth, with an estimated 30 percent increase this year, driven by the policy reforms. A substantial portion of the banks' loan books is in foreign currency, leading to significant growth when revalued at the current exchange rates. Overall, the outlook for Nigerian banks appears promising, with the potential for impressive earnings and growth in the face of evolving economic conditions. Investors are closely monitoring the sector for opportunities and risks as they navigate the dynamic financial landscape.