Banking Stocks Surge to New Highs on Economic Recovery Hopes

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Goddy Egene

Banking stocks are clearly leading on the Nigerian bourse as indicated by the Nigerian Stock Exchange (NSE) Banking Index, which has appreciated by 39.03 per cent as at Monday, outperforming the NSE benchmark index that has so far gained 21.2 per cent.

Findings by THISDAY showed that banking stocks are becoming investors toast on hopes that the economy is recovering from recession and the development would impact positively on the performance of the banks at the end of the current financial year.

Some market operators said while the economy faced serious headwinds that pushed it into recession in 2016, some banks still posted impressive results and declared significant dividends.

“It is therefore instructive for discerning investor to take position in the banking sector now that there are strong indications that the economy would recover. When this happens, it means better performance for banks and higher returns to shareholders at the end of the year,” a stockbroker said.

Investors’ swoop on banking stocks have bolstered the prices of most of the equities to new highs. For instance, FBN Holdings Plc has surged 111 per cent, while United Bank for Africa Plc has recorded a gain of 86.6 per cent. Stanbic IBTC Holdings Plc has appreciated by 83.3 per cent, just as Access Bank Plc and Fidelity Bank Plc have garnered 60.9 per cent and 54.7 per cent respectively. Zenith Bank Plc has chalked up 36.8 per cent just as Diamond Bank Plc and FCMB Group Plc have appreciated by 37.5 per cent and 23.6 per cent in that order.

Analysts at Meristem Securities Limited, are bullish in their outlook for the banking sector, saying to while the issues which have plagued the sector in recent times are still prevalent to certain extents, the levels of income generation witnessed during the year, even in the face of significant credit loss charges, signal that the sector is driving towards another strong performance in 2017.

They said: “Also, we expect more risk asset creation from the sector in 2017, when compared with the previous year when the growth in the nominal value of assets was due to the depreciation of the currency. While the issues plaguing the banking sector are still prevalent and significant, the resilience of the sector, in general, is not in doubt, in our opinion.

We expect that with a re-surgence in the economy and improvement of macroeconomic fundamentals, non-performing loan issues should dissipate and respite from this perspective should result in measured, appreciable risk asset creation, which should, in turn, drive growth further.”

The analysts added that given the state of the economy, which has seen the Monetary Policy Committee deploy policy tools to support the currency and manage price levels, interest rate environment has supported top and bottom-line growths for the majority of banks with liquidity to deploy.