Investors pick Nigerian banks

Investors are showing immense interest in Nigerian banking stocks as they position themselves for what is expected to be a lucrative year ahead. Joshua Odebisi, Senior Research Analyst at RMB Nigeria, sheds light on the banking sector's performance and outlook for the year during an interview with CNBC Africa. The banking sector witnessed a remarkable run in the previous year, driven by various factors such as FX revaluation gains and strong dividend payouts. However, Odebisi warns investors that the exceptional performance of last year may not necessarily repeat itself in the current year. While the first quarter of the year is anticipated to remain robust, a potential moderation in profitability could be on the horizon from the second quarter onwards. The sector's impressive performance was largely fueled by one-off gains, such as FX revaluation, which may not be sustainable in the long term. Odebisi emphasizes the importance of understanding the unique circumstances of the previous year and managing expectations accordingly. Looking ahead, the policy environment, particularly monetary policy, will play a critical role in shaping the banking sector's trajectory. Odebisi expresses hope for a return to orthodox monetary policy to tackle issues like high inflation and liquidity management. Uncertainty surrounding policy direction poses a significant risk to the sector, highlighting the need for clear and consistent communication from monetary authorities. One major concern for Odebisi is the potential impact of high inflation on the overall economy, which could trickle down to affect the banking sector. The performance of banks, particularly in terms of asset quality, will be closely monitored throughout the year. While major banks have managed to keep their non-performing loans (NPLs) at manageable levels, sustained economic challenges could pose a threat to asset quality. Odebisi stresses the importance of proactively managing inflation and economic growth to safeguard the stability of the banking sector. As investors navigate the dynamic landscape of Nigerian banks, anticipation mounts for potential regulatory changes, such as recapitalization initiatives. The central bank's communications on these matters will be closely watched to gauge the sector's future direction and resilience in the face of evolving market conditions.