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Nigerian banks Q1 earnings: What to expect
As more first-quarter earnings trickle in, Rand Merchant Bank say they expect higher domestic interest rates to support the core income of Nigerian Tier 1 lender UBA. Team Lead for Research at RMB, Usoro Essien joins CNBC Africa to discuss their expectations for Nigerian lenders first-quarter numbers.
Thu, 22 Apr 2021 14:54:34 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
- Diversified earnings from African operations have supported profits despite lower net interest margins in Nigeria.
- The recovery of loans and Pan-African expansion have contributed to reducing impairment charges and boosting non-interest income activities.
- The strategy of expanding operations across Africa is expected to drive strong financial performance for Nigerian banks in the future.
Nigerian banks have showcased remarkable resilience in their first-quarter earnings, defying a challenging economic environment to deliver strong financial performance. As more first-quarter earnings trickle in, Rand Merchant Bank has expressed optimism for the core income of Nigerian Tier 1 lender UBA. Team Lead for Research at RMB, Usoro Essien, joined CNBC Africa to discuss their expectations for Nigerian lenders' first-quarter numbers. Essien highlighted that in 2020, diversified earnings from operations outside Nigeria played a significant role in bolstering profits, with African operations contributing slightly over 50% to the bottom line. Despite lower net interest margins in the Nigerian market, the banks have been able to rely on earnings from other African countries to cushion the impact and maintain impressive net interest income growth. Additionally, the recovery of around a billion in loans has helped reduce impairment charges, showcasing the banks' ability to navigate the heightened risk environment effectively. The Pan-African expansion has also proven beneficial for non-interest income activities. Rand Merchant Bank has forecasted a 10% EPS growth for UBA in the current year, with Q1 results already showing a 25% increase, hinting at strong single to possible double-digit growth for the counter in the future. Moving forward, the strategy of expanding operations across the continent is expected to continue supporting Nigerian banks' performance. Despite a mixed outlook for other banks, the adoption of a similar strategy by tier 1 players is likely to drive earnings amid the current dynamics in the domestic market. The recent shift in the domestic interest rate environment, coupled with inflation trends, is anticipated to be supportive of earnings, with net interest income growth likely to benefit from lower cost deposits and potential increment in investment securities. While operating in a more expensive environment, banks are urged to optimize their operational efficiency and cost management to sustain financial performance. Notably, UBA's improvement in cost to income by about 2% is commendable amidst the challenging landscape. Investors and industry analysts are eagerly waiting to see how the first quarter numbers will unfold and how Nigerian banks will navigate the evolving economic landscape.
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