Categories: Business

Rising market yields to spur improvement in H2 Banks’ earnings —Research

THERE are high expectations of improvement in listed banks’ earnings in the second half of 2022, given rising market yields.

In its latest emailed report titled, ‘Nigerian Banks H1 2022 Scorecard,’ Coronation Research noted that the scorecard for the listed banks that have reported their first half 2022 (H1 22) results was decent, thereby raising hopes for H2.

According to the report, ACCESSCORP became the final company among its coverage banks to release their H1 2022 financials, bringing an end to an extended earnings season.

“Overall, the results across the banks were decent, with all except one (Guaranty Trust HoldCo) recording growth in Net profits.

“However, the earnings growth was not enough to realise the market’s positive expectations, with most of the reported earnings, when annualised, missing analyst’s consensus estimates by some margin,” the report read in part.

As a result, the rout in bank stocks, which began at the start of May, continued into Q3. Since end-July, when results began to trickle out, share prices of covered banks have all tanked (save for Stanbic IBTC Holdings, which reported better-than-expected earnings), it stated.

According to the research firm, most covered banks doubled-down on their core function, with Net Interest Income (NII) growing by an average of 24.8 per cent year-on-year (y/y) and accounting for an average of 55.7 per cent of the net revenues. With asset yields still low and limited room for Net Interest Margin (NIM) expansion, the major income growth driver “for our coverage banks was increased risk-asset creation as they grew their loan books by an average of 8.5 per cent year-to-date during H1 22.”

Elsewhere, the CBN’s discretionary Cash Reserve Requirement (CRR) debits squeezed system liquidity, and led to many banks tilting their funding mixes towards expensive term deposits.

As a result, Cost of Funds (+20bps y/y on average) came under pressure.

The report further showed that growth in Non-Interest Revenues (NIR) also complemented the solid NII performance across its covered banks with many recording substantial rises in trading revenues and fees and commission income.

However, significant inflation and regulatory fee-induced cost growth weighed on net revenues and led to deterioration in operating efficiency.

“Specifically, the average Cost-to-Income ratio across our coverage rose by 160bps y/y in H1 22 (excluding Stanbic IBTC Holdings).

“Due to the monetary authorities’ continued tightening stance, it appears it would be a ‘tale of two halves’ for the banks this year. The monetary policy rate (MPR) is up 250bps y-t-d, while the CBN has raised the floor for the savings deposit rates to 30.0 per cent of the MPR (from 10.0 per cent) and increased the interest rate on intervention facilities to 9.0 per cent,” the report further stated.

In its final analysis, Coronation Research noted that although banks would face Cost of Funds (CoF) pressure, they have already begun to reprice loans upwards. This, in addition to rising market yields, is likely to positively impact NII and NIM in Q3 and Q4.

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