|CBN Governor, Sanusi Lamido Sanusi|
On average, the sector has gained 42.3 per cent YTD compared with the All Share Index’s 32.7 per cent. In 2012 the banking sector appreciated 44 per cent as against the ASI’s 35.5 per cent.
The recovery in the Nigerian banking sector gathered momentum in 2012, resulting in a 1,610-basis-point expansion in ROAE.
However, analysts at FBN Capital Limited have warned that while the sector was now on a more solid footing for the longer term, “We believe the time is right to pause for some breath.”
They noted that the market’s reaction to the fourth quarter of 2012 / first quarter of 2013 earnings season appeared to suggest that better-than-expected results did not lead to a commensurate multiple expansions necessarily because valuations were approaching fair value levels.
FBN Capital added that the market might have begun to anticipate some headwinds that are likely to limit earnings growth in the near term.
The analysts added that beyond the potential impact of falling yields, “We estimate that the increase in the Asset Management Corporation of Nigerian (AMCON) charges will reduce bank earnings on a like-for-like basis by 7 per cent in 2013. Also, new rules from the Central Bank of Nigeria (CBN) are putting additional pressure on revenue lines, particularly non-interest income. As such, we expect that our banks will show a flattish to slightly downward trend in ROAE.”
“Currently, yields on federal government of Nigeria (FGN) bonds and Tbills are down y/y, leading several banks to guide to net interest margins declining slightly this year. That decline in yields can be traced back to the surge in demand for paper following the announcement in August 2012 that three of the more liquid FGN bonds would be added to the JPMorgan government bond index. Yields fell by close to 600bps between August 2012 and February 2013, “they stated.
Furthermore, they noted that following the recent sell-off in the stock market, Diamond Bank Plc, Fidelity Bank Plc and Skye Bank Plc, remained cheap
“Although the average upside potential implied by the fair value estimates across our universe is just 6.7 per cent, Diamond Bank, Fidelity Bank and Skye Bank offer value at current levels, with upside potential of 22 per cent, 27 per cent and 48 per cent respectively, “they added.