Analysts doubt meaningful growth for banks in H2

Banks in Nigeria are not expected to post any meaningful positive surprises by end of the second half of this year, particularly as far as risk asset growth is concerned, New Telegraph has learnt. The analysts at FBN Capital in their Q2 2015 results preview for lenders obtained by our correspondent, said that in contrast, they think there was a growing risk that asset quality issues would become more meaningful as the country moves into second half of the year (H2) – “a scenario we do not believe that banks have captured adequately in their guidance.” Consequently, the experts said: “In the very near term, we continue to recommend that investors hold the quality Tier I banks whose 2015 earnings guidance we find more realistic. In the medium term, we think that banks traversing the Tier I vs II divide are most attractive, namely Access and UBA.

We would use any near term disappointments or market overreaction to build up positions in these.” They explained that after what they would describe as a best-foot-forward quarter for a number of Nigerian banks in Q1 2015, they expect some degree of normalisation in the Q2 2015 results. Said the experts: “Q1 2015 PBT growth for our universe averaged 13.9 per cent y/y, slightly below the 16.0 per cent y/y for full year 2014. One reason for the slightly lower growth in Q1 was that the positive impact of non-interest income (FX trading income to be precise) was less than we saw in Q4. “We expect Q2 2015 PBT growth to be visibly slower – at 3.6 per cent y/y, well below what we saw in Q1 2015. Sequentially, our PBT estimates imply an average q/q decline of -1.4 per cent q/q. If we exclude Stanbic IBTC, which we expect to show a rebound in profits from a depressed Q1, the q/q decline comes in at -12.1 per cent.” They noted that although some of the larger banks showed healthy loan growth in Q1, others were constrained by regulatory capital concerns.

Besides, they noted: “While margins, on average, have held up relatively well in a challenging operating environment, we expect a combination of weak underlying macroeconomic environment and a marked reduction in FX-related income due to decisions by the central bank to weigh on Q2 earnings. “The banks will be relieved that the pace of newly introduced rules and regulations has slowed significantly since the end of 2014: although the harmonisation of public and private sector cash reserve ratios (CRR) to 31 per cent at the last MPC meeting was a net tightening step, the CBN’s N140 billion outflow from the banking system is likely to have a modest negative impact on earnings,” they said.