The Coronation Asset Management stated in a new report titled ‘Nigerian banks: Resilience built in’, that Nigerian banks have shown more resilience that their counterparts in Sub-Saharan Africa.
In the report which was released on Monday, the body said, “In terms of valuations, and despite a significant rally in share prices over the past year, Nigerian bank stocks look remarkably cheap, both in relation to other sub-Saharan African banks and in relation to their own valuation history.
“Five years ago, the median prospective price-to-earnings ratio was around 5.0x. Now it is 2.5x. This downward shift in ratings has exposed meaningful value for today’s investors, in our view.”
The report showed that Nigerian banks’ earnings had been remarkably resilient over the interest rate cycle, their profitability was improving over time and their stock values were remarkably cheap compared to Ghanaian and Kenyan bank stocks. According to the research, the growth of the banking sector looks impressive.
It said, “The total average interest-earning assets of the six banks in our study rose from N6.5tn in 2010 to N26.9tn in 2020, or by 311 per cent.
“The total gross loans of these banks rose from N3.9tn in 2010 to N13.6tn in 2020, or by 248 per cent. The positive outliers for growth are Access Bank (growing quickly even before its 2019 merger with Diamond Bank), UBA and Zenith Bank.’
Compiling the report, a Senior Research Analyst at Coronation Research, Guy Czartoryski, and Ope Ani also of Coronation Research, examined what had happened within the Nigerian banking industry in the last 10 years. It showed 10-year study of the margins and profitability of six listed banks, namely Zenith Bank, Guaranty Trust Bank; Access Bank, FBN Holdings, United Bank for Africa and Stanbic IBTC Holdings.
The report shows that the banks have adapted successfully to many changes in interest rates over the 10 years from 2010 to 2020, which made them well-positioned for the rise in rates in 2021.
Czartoryski said, “While underlying growth in assets has been elusive, especially when data are adjusted for inflation, profitability has generally improved. The return on average equity and return on average assets of the six banks studied have both converged and improved over 10 years.
“This trend appears to be under-appreciated by investors, and the report shows the positive investment potential in the sector.”