Will profit-taking in Nigerian banks persist?

As first-quarter results from listed banks in Nigeria continue to be released, analysts at Cordros Securities are predicting that profit-taking in bank stocks may persist as investors adjust their expectations. Opeoluwa Oluwa, a Research Analyst at Cordros Securities, recently discussed the key takeaways and implications of these results in an interview on CNBC Africa. Oluwa highlighted that while interest income has shown steady growth due to elevated rates, non-interest income has experienced a decline compared to last year. This shift is primarily attributed to the absence of significant FX valuation gains that banks recorded in the previous year. As a result, many banks have seen a decrease in non-interest income, impacting their profitability. Oluwa suggested that banks may need to adjust their strategies for non-interest revenue growth to navigate the current interest rate environment. Moving forward, he anticipates a shift towards trading income and a renewed focus on fees and commission income to drive non-interest revenue for banks. When considering the outlook for Q2, Oluwa expects interest income to remain strong, but the impact of lower FX rates may continue to influence non-interest income. Additionally, he foresees steady loan book growth for banks while emphasizing the importance of maintaining low non-performing assets. Despite the challenges posed by the macroeconomic environment, including inflation and GDP projections, Oluwa believes that banks will operate in a more stable economic climate, enabling them to concentrate on core banking activities. He highlighted opportunities for banks in fixed income rates, fees, commissions, and trading income, which could support their earnings. Regarding digital innovation, Oluwa noted that Nigerian banks are competing with fintech companies by enhancing their digital channels and establishing non-banking verticals. While banks may have certain advantages due to their size and reputation, they face competition from established fintech players in the digital space. In terms of investor perception, Oluwa acknowledged that reactions to the Q1 results varied among banks. While some banks experienced negative investor sentiment, others received positive responses due to meeting or exceeding expectations. Investors are gravitating towards banks that have performed well in their eyes, with stocks like Stanbic, UBA, and Fidelity gaining investor confidence post-results. Overall, the future for Nigerian banks lies in adapting their revenue strategies, focusing on core banking activities, managing loan books effectively, and leveraging digital innovation to remain competitive in the evolving financial landscape.