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What to expect from Nigeria’s bank earnings
As investors await earnings season, what can they expect from Nigeria's banking sector? Ejikeme Okoli, Research and Market Intelligence Officer at Diamond Bank join CNBC Africa to discuss expectations for the banking sector earnings.
Thu, 22 Feb 2018 08:20:10 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- The primary driver of 2017 earnings in Nigeria's banking sector was interest income, influenced by fixed income assets.
- 2018 is expected to see a shift towards real sector lending as banks aim to capitalize on Nigeria's economic recovery.
- Banks are likely to focus on restructuring older loans, pursuing recoveries, and reducing exposure to the fixed income market in the upcoming year.
As investors eagerly await the earnings season for Nigeria's banking sector, the focus is on what transpired in 2017 and what lies ahead in 2018. Ejikeme Okoli, Research and Market Intelligence Officer at Diamond Bank, shared valuable insights on the upcoming expectations for the sector. Looking back at the full year 2017 earnings, Okoli mentioned that the trends observed in the first nine months are likely to continue into the annual results. The primary driver of earnings remains interest income, which has been largely influenced by interest earnings from fixed income assets. The overall economic environment in Nigeria, characterized by a slowdown and recession in 2016, has had a significant impact on the banking sector's performance. However, the positive news of the economy exiting recession by Q4 of 2017 has brought some optimism. In terms of 2017 earnings, Okoli anticipates a year-on-year growth in both interest income and top-line revenues. While fee income might exhibit flat growth or single-digit increases due to regulatory factors, the bottom-line earnings are expected to be more in balance across banks. The profitability of the industry is likely to be predominantly guided by fixed income investments and interest earnings on such assets.
Looking ahead to 2018, Okoli predicts a shift in focus within the banking industry. While retail banking has been a significant area of concentration for many banks, the reliance on fixed income securities for interest income might take precedence. The growth in loan books has not been aggressive in recent years, leading banks to explore other avenues for revenue generation. However, Okoli envisions a change in this trend for 2018, considering Nigeria's gradual economic recovery. The decline in credit to the private sector in 2017 is expected to reverse, with banks showing more willingness to lend to the real sector as the economy improves. The reduced effective yield on fixed income assets is pushing banks to consider consumer lending and real sector financing as key drivers of earnings for the year.
With Nigeria's recovery leaning on sectors like oil and gas, as well as non-oil segments such as agriculture and education, banks are presented with new opportunities for loan recoveries and growth. The upcoming year is likely to see banks restructuring older loans and actively pursuing the recovery of previously written-off debts. In summary, 2018 is poised to witness a shift towards real sector lending and a reduction in asset exposure to the fixed income market, reflecting the changing landscape of Nigeria's banking industry.
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