Investors who invested in the banking stocks on Nigerian Exchange Limited (NGX) are reaping bountiful reward on investment, as United Bank for Africa Plc, among others continued to appreciate elevated by Central Bank of Nigeria (CBN) foreign exchange reforms.

Other factors driving banking stocks on the NGX include; impressive corporate earnings and interim dividend pay-out to investors.

At the close of trades last Friday, the Nigerian Exchange Limited (NGX) Banking Index stood at 887.60 basis points, gaining 112.60 per cent or 470.1 basis points Year-till-Date (YtD) from 417.5basis points it opened for trading in 2022.

In the same vein, the stock market’s return stood at 44.43 per cent as of December 22, higher than the country’s inflation rate, which rose to a fresh 18-year high of 28.20 per cent in November.

President Bola Tinubu changes to Nigeria’s foreign exchange operational framework triggered investors taking positions in banking stocks.

The stock market community cheered some of the economic decisions of the Tinubu administration, leading to the Nigerian Exchange Limited All-Share Index (NGX ASI) reaching a new record of 74,000 basis points.

Foreign and local investors rushed to take position in the banking stocks between June and August following the Central Bank of Nigeria (CBN) naira unification policy.

THISDAY analysis of trading activity revealed that United Bank for Africa Plc, and Sterling Financial Holdings Company Plc are the only two banking stocks with over 200 per cent YtD return, while Unity Bank Plc, Fidelity Bank Plc, Access Holdings Plc and FBN Holdings recorded over 100 per cent stock price appreciation as of December 22, 2023.

As Wema Bank Plc, the sole banking stock with 40.77 per cent YtD return as of December 22, the likes of Ecobank Transnational Incorporated (ETI), Zenith Bank Plc, Guaranty Trust Holding Company Plc, Stanbic IBTC Holdings Plc, and Jaiz bank Plc recorded above 50 per cent YtD average return in the period under review.

Specifically, UBA opened trading in 2023 at N7.60 per share, increased significantly by 236.8 per cent YtD to close at N25.60 per share as of December 22, 2023, while Sterling Financial Holdings Company closed at N4.50 per share as of December 22, 2023, after gaining 221.4 per cent YtD from N1.40 per share it opened for trading this year.

UBA in the first half (H1) of 2023 ending June 30, 2023 emerged the most profitable in Nigeria, followed by Zenith Bank and GTCO.

UBA’s profit before tax (PBT) of N404 billion beats Zenith’s N350 billion, GTCO’s N327.4 billion, First Banks’s N206 billion, and Access Bank’s N167billion.

For UBA, this represents a 371 per cent growth in PBT, compared to the N85.75 billion in the corresponding period last year.

There were strong contributions to group profit from its operations in 20 African countries, UBA America, UBA UK, UBA UAE, and UBA France which the bank describes as a demonstration of effectiveness of its global strategy and positioning as the financial intermediary for Africa and the rest of the world – thereby “delivering on the Tony Elumelu strategy”.

The board and management of UBA proposed an interim dividend of N0.50 per share as against N0.20 per share in the corresponding period last year.

The Group Managing Director/ Chief Executive Officer, UBA, Mr. Oliver Alawuba in a statement said, “Our Board has approved an interim dividend of 50k per share, which represents an over 150per cent increase over prior year.

“As we approach the last quarter of the year, the Group remains strategically positioned to sustain the strong performance, consolidating on H1 2023 results, to deliver superior returns to our esteemed shareholders.”

For Sterling Financial Holdings Company, it declared impressive performance in H1 2023 and nine months result and accounts for period ended September 30, 2023 that trigged investors taking position in its stock.

The group declared N11.46billion PBT in H1 2023, representing an increase of 33 per cent from N8.62billion in H1 2022, and in nine months of 2023, it announced N17.8billion PBT, a growth of 24per cent from N14.36billion reported in nine months of 2022.

Reacting to banking sector performance on the exchange, analysts at Coronation Asset Management in a report titled, “Investment Opportunities from FX Liberalisation,” said banking stocks might repeat the 2017 scenario when foreign exchange rates convergence stimulated the performance of banking stocks.

The report said, “Bank stocks performed well in 2017 and we think that they will perform well again in 2023, given that most of the major listed banks hold net long positions in United States dollars and will report translation gains. We also think there is a chance that bank regulations affecting naira liquidity will be eased.”

They noted that there were also many differences with 2017 pointing out that by mid-2017 the economy was emerging from a five-quarter recession and the appreciation in the parallel exchange rate improved business conditions.

They added that foreign investors are still a significant factor in the Nigerian equity market in 2017; much less now, although recent data showed a net inflow of foreign investment into the stock market.

The analysts said the monetary authorities were also able to engineer market interest rates above the rate of inflation, something to which investors usually respond positively “This begs one question about the second half of 2023. Which way are interest rates going to move?

“A liberalised foreign exchange rate points to elevated interest rates in order to make it worthwhile holding money in naira. Fuel subsidy removal, effective May 31, 2023 suggests that cost pressures will push inflation upwards, which also argues for elevated interest rates. Against this, the All Progressives Congress (APC) manifesto proposed low interest rates to encourage economic growth. We do not know, at this stage, how the APC administration and the Central Bank of Nigeria will resolve this critical area of policy.

“On the bright side, the removal of fuel subsidies and the liberalisation of the naira foreign exchange rate are historic events, and will themselves straighten out much of the dysfunctional economic behaviour we have become accustomed to,” Coronation stated.

They added that the reforms embarked upon by the President Bola Tinubu’s administration, “are good for the economy and in the long run are good for markets”.

Drawing up a model equity portfolio, analysts included overweight for banking sector which they believed would benefit from liberalisation of foreign exchange rates, given that most of that large listed banks have net long positions in dollars.

According to analysts, it is also possible that some of the very restrictive banking regulations affecting naira liquidity in banks may be unwound by the new administration, given its pro-growth stance.

They expressed that Nigerian banks routinely record gains/losses depending on their balance sheet exposure to foreign exchange

They added, “Following the recent FX liberalisation which has seen the value of the Naira dropped by circa 40 against the US dollar, we expect banks with net long US dollar balance sheets to book significant FX revaluation gains.” (THISDAY)

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