Banking stocks lift NSE All-Share Index

Banking stocks lifted the NSE All-Share Index today, swinging the market into positive territory after three straight sessions of losses. Jolomi O'Don Garo, Head of Research at Cordros Capital, joined CNBC Africa's Wole Famurewa to discuss the day's trade. The recent performance of the market has been mixed, with last week showing positive signs while the start of this week saw profit-taking, particularly in the tier-one banking sector. Despite the rally seen today, O'Don Garo remains cautious about the future outlook, citing ongoing risks and expecting sideways trading for the rest of the year. The banking sector's recent financial results have revealed a mixed picture, with non-interest income providing a much-needed boost to earnings. However, concerns linger about the sustainability of this growth, given the impact of the COVID-19 pandemic on banks' balance sheets. O'Don Garo highlighted that while non-interest income has supported banks in the current year, challenges such as reduced transaction flows and fee income could pose threats to future earnings. Looking ahead, O'Don Garo acknowledged that 2020 may benefit from certain factors like valuation gains and increased transaction flows in the second half of the year. However, he cautioned that the real test for banks could come in 2021, as pandemic-related effects may start to materialize. With the Central Bank of Nigeria offering forbearance on loan restructuring, there are concerns about the quality of bank balance sheets and the potential for hidden issues among reported NPL numbers. Despite the short-term support provided by regulatory measures and income diversification, the long-term outlook for the banking sector remains uncertain. O'Don Garo warned that while the current year may see banks weather the storm, challenges could intensify in 2021 as economic conditions evolve and loan restructuring measures expire. Investors are advised to tread carefully and closely monitor developments in the sector to navigate potential risks and opportunities. The NSE All-Share Index's performance, driven by banking stocks, reflects the market's resilience amid a challenging economic environment. However, the underlying fragilities in the banking sector call for a cautious approach from investors and stakeholders. As the year progresses, the sector's ability to sustain growth and manage risks will be closely scrutinized, with 2021 poised to be a critical period for the industry's recovery and long-term prospects.