Financial analysts have expressed confidence that bank stocks will yield impressive returns to their shareholders for the financial year ended December 31, 2022. But delay by leading industry players like Access Bank, FBN Holdings, GTCO Holdings, Union Bank among others to present their audited full year 2022 financial reports to the investing public and operators in the stock market has become a major source of concern for many. BAMIDELE FAMOOFO AND FESTUS OKOROMADU report.
Zenith Bank, UBA Plc and Stanbic IBTC Plc are three of Nigerian top banks that have complied with the listing rules of the Nigerian stock market to publish their audited financial results for the period ended December 31, 2022.
Access Bank Plc, FBN Holdings Plc, GTCO Holdings Plc and Union Bank Plc are four among other leading players in the industry whose financial outcomes are still being awaited by the investing public.
FBN Holdings Plc and Fidelity Bank Plc have since made it clear that their shareholders and other investors must wait for another one month until they know what they are up to.
No words have been heard from Access Bank Plc and GTCO Holdings as to when their 2022 financial performance and corporate announcements would be made.
However, financial experts at Coronation Research Limited have said they are confident that shareholders of the banks will smile to their respective banks when at last the financial results coupled with dividend announcements are published.
In a report titled, “Nigerian Banks: A year of resilience and grit,” Coronation research highlighted major factors that will shape banks’ financial performance in the year 2022 and affirmed that they remain top rewarding equities.
“In 2023 we expect the Nigerian banking industry to face pressures stemming from stringent regulations, high inflation, continuous dollar shortages and even asset quality issues”
Coronation noted that the Central Bank of Nigeria took a hawkish monetary stance, hiking the benchmark policy rate as well as Cash Reserve Requirement, which together with a rise in government borrowing, drove lending yields up and consequently banks’ net interest margins.
Speaking of some selected banks stocks featured in the report, the report stated: “We expect modest FY 2022E performance upside for most of the banks featured here, driven by improved asset yields, although capped by ongoing CRR debits. We expect earnings support from strong growth in Non-Interest Revenue (NIR).”
Forecasting the prospect of the sector for the current year, the analysts said, “In 2023 we expect the Nigerian banking industry to face pressures stemming from stringent regulations, high inflation, continuous dollar shortages and even asset quality issues.”
They are however optimistic, saying they expect modest growth in earnings from the banking industry in the future, which will be driven by rising interest rates, strong contribution from non-interest revenue derived from FX revaluation gains, growth in non-bank businesses and digital banking.
While encouraging investors to patronise banking stocks, the analysts argued that Nigerian banks currently trade at significant discounts to peers and thus offer an attractive entry point with a further case made by attractive dividend yields.
“We have bank specific sections, three-year financial forecasts and recommendations for six listed banks: Zenith Bank; Guaranty Trust Holding Company (GTCO); Access Holdings; FBN Holdings (FBNH); UBA; and Stanbic IBTC,” Coronation mentioned in its report
Meanwhile, the report maintained that Nigerian banks largely underperformed the broad equity market in 2022 returning only 2.8 percent in price terms as against 19.9 percent for the NGX All-Share Index, arguing that the market’s lack of enthusiasm stemmed from a combination of low earnings growth post-Covid and the inability of foreign investors readily to repatriate dividend and capital proceeds.
“We believe Nigerian banks currently trade at significant discounts to peers and offer an attractive entry point with a further case made by attractive dividend yields,” the researchers opined.
Zenith Bank grows gross earnings by 24% to N946bn
Zenith Bank Plc grew its gross earnings by 24 per cent from N765.6n as of the end of 2021 financial period to N945.5bn in the corresponding period of 2022.
The bank disclosed this in a statement on Tuesday on its audited results for the year ending December 31, 2022, titled ‘Zenith Bank grows gross earnings by 24 per cent to N945.5bn in 2022’.
As part of its commitment to shareholders, the bank also announced a proposed final dividend payout of N2.90 per share, bringing the total dividend to N3.20 per share.
Despite the persistent challenging macroeconomic environment and headwinds, the statement said the bank achieved double-digit growth.
It stated that, “According to the audited financial results for the 2022 financial year presented to the Nigerian Exchange, the double-digit growth in gross earnings was driven by a 26 per cent year-on-year growth in interest income from N427.6bn to N540.2bn and a 23 per cent year-on-year growth in non-interest income from N309bn to N381bn.
“Profit before tax also grew by two per cent from N280.4bn to N284.7bn in the current year. The increase in profit before tax was due to the significant growth in all the income lines.”
According to the bank, impairments grew by 107 per cent from N59.9bn to N124.2bn, while interest expense grew by 63 per cent YoY from N106.8bn to N173.5bn respectively.
The impairment growth, which also resulted in an increase in the cost of risk (from 1.9 per cent in 2021 to 3.3 per cent in the current year), was due to the impact of Ghana’s sovereign debt restructuring programme, the bank explained.
It added that the growth in interest expense increased the cost of funds from 1.5 per cent in 2021 to 1.9 per cent in 2022, due to hikes in interest rates globally.
Customer deposits increased by 39 per cent, growing from N6.47tn in the previous year to N8.98tn in the current year.
The growth in customer deposits came from all products and deposit segments (corporate and retail), consolidating the bank’s market leadership and indicating customers’ trust.
The continued elevated yield environment positively impacted the bank’s net-interest-margin, which grew from 6.7 per cent to 7.2 per cent, due to an effective repricing of interest-bearing assets.
Operating expenses grew by 17 per cent YoY, but growth remained below the inflation rate.
According to the bank, its total assets increased by 30 per cent, growing from N9.45tn in 2021 to N12.29tn, mainly driven by growth in customer deposits.
With the steady and continued recovery in economic activities, the Group grew its gross loans by 20 per cent, from N3.5tn in 2021 to N4.1tn in 2022, which increased the non-performing loan ratio modestly from 4.2 per cent to 4.3 per cent YoY.
The capital adequacy ratio decreased from 21 per cent to 19 per cent, while the liquidity ratio improved from 71.2 per cent to 75 per cent. Both prudential ratios were above regulatory thresholds.
“In 2023, the Group intends to expand its frontiers as it also reorganises into a holding company structure, adding new verticals to its businesses and growing in all its chosen markets, both locally and internationally,” the statement said.
UBA’s profit hits N201bn in 2022
Africa’s Global Bank, United Bank for Africa Plc, also released its audited financial results for the full year ended December 31, 2022, showing impressive performance across major indices.
The 2022 financials, filed by the Bank at Nigerian Exchange Limited on Thursday, showed that gross earnings rose significantly to N853.2billion from N660.2billion recorded at the end of the 2021 financial year, representing a strong 29.2 percent growth.
Total assets rose remarkably by 27.2 percent, crossing the N10trillion mark, to close at N10.9trillion in December 2022; up from N8.5trillion in 2021.
This is a very significant achievement and milestone in the history of the powerhouse financial institution.
Despite the highly challenging global economic and business environment, UBA recorded a laudable profit before tax, with a 31.2 percent growth, to close the year under review at N200.8 billion, rising from N153.01 billion recorded at the end of the 2021 financial year; while profit after tax (PAT) grew by 43.5 percent to N170.2billion in 2022, compared to N118.7 billion recorded the year before. Consequently, UBA Group Shareholders’ Funds rose to N922.1billion, as at December 2022, achieving an impressive growth by 14.6%, compared to prior year.
In the year under consideration, UBA Group cost-to-income ratio dropped to 59.2%, from over 60% in prior year, pointing at the Group’s improving efficiency.
In its usual tradition of rewarding shareholders, the Bank proposed a final dividend of 90 kobo for every ordinary share of 50 kobo, for the financial year ended December 31, 2022.
The final dividend which is subject to the ratification of the shareholders during its upcoming Annual General Meeting will bring the total dividend for the year to N1.10 per share, as the Bank had paid an interim dividend of 20 kobo, based on its audited 2022 half year results.
“We expect the CBN to maintain a hawkish stance for most of 2023 but expect lower rate hikes than last year as base effects are likely to keep inflation in check over the latter part of the year”
Also worthy of note, UBA recorded a 21.4 percent growth in loans to customers, moving up to N3.4 trillion in 2022, whilst customer deposits improved by 22.9 percent to N7.8 trillion, compared to N6.4trillion recorded in the corresponding period of 2021, reflecting increased customer confidence, enhanced customer experience, successes from the ongoing business transformation programme and the deepening of its retail banking franchise.
Commenting on the result, the Group Managing Director/CEO, Oliver Alawuba, said notwithstanding the tight and challenging operating environment, UBA continues to deliver significant performance.
He said, “The Group delivered record headline earnings (+29.2%) and profitability (+31.2%) amid significant headwinds in markets where we are present and a heightened global risk environment. Our record earnings, growth, and robust capital levels supported higher returns for the shareholders. The Group is on course to achieve its strategic goals, and we are confident we will deliver our targets.
“We have navigated unprecedented macroeconomic headwinds and made significant gains in our diversification strategy and Customer 1st philosophy as we build resilience in our operations across Africa and the Rest of the World to support the mission of providing superior value to our stakeholders. The Group’s Profit after Tax increased by 43.5% to N170.3billion, with underlying growth in our key income lines and moderation in our cost of funds, resulting in robust growth of 14.6% in the Group’s Shareholders’ Funds and stronger liquidity. We continued to sharpen our risk management structure and practices to align with evolving risks,” Alawuba said.
On the outlook for the year 2023, Alawuba said, “we are strategically positioned to increase our market share in our countries of presence, with expansion to Dubai, United Arab Emirates and strong growth of our digital banking and payment businesses, which is pivotal to the evolving cashless economy in Nigeria. We strive to deliver increasingly attractive returns to our shareholders and continue a positive impact in the geographies and economies in which we operate.”
UBA’s Executive Director, Finance and Risk Management, Ugo Nwaghodoh, said going by this recent performance, UBA remains on strong footing and is comfortably positioned to take on more opportunities in Nigeria, Africa and beyond.
“UBA Group’s 2022 FY performance was buoyed by strong balance sheet growth and improvement in Net interest margin, as Group’s Total Assets and customer deposits grew 27.2% and 22.9% respectively, whilst NIM grew to 5.61% from 5.57%. The continuous rejigging of the Groups’ risk management approach resulted in moderation of the NPL ratio, from 3.6% to 3.1%. The Group continued to rely on lower cost funds, further reducing its cost funds to 2.1%.
“We are delighted with the strategic progress we have made in FY22 riding on our customers’ trust, the dedication of our people, and the support of our wider partners and stakeholders. The bank remains committed to its business development drive, prudent risk management practices, and we are optimistic to deliver best value for our stakeholders in the days ahead,” he noted.
2023 in view
The report by Coronation Research Limited noted that performance of banking stocks in the 2023 financial year would be driven by three major themes, namely, earnings diversification; geographical diversification and elevated rates.
“We expect the CBN to maintain a hawkish stance for most of 2023 but expect lower rate hikes than last year as base effects are likely to keep inflation in check over the latter part of the year. That said, we also expect an elevated level of government borrowing. On balance, we think these factors are set to translate to rising yields over the course of 2023 though at a gradual pace.
“We believe the impact of rising yields will vary across the banks, depending on each bank’s ability to reprice its loan book and the composition and contribution of interest earning assets. Given the sticky nature of loan yields, we favour banks with large exposure to investment securities in this regard. Lastly, we think banks with low-cost deposits are likely to benefit on a net basis.”
2022 performance expectations
Access Bank- Ambitious growth to pay-off
Access recently closed out on its 5-year corporate strategy spanning 2018–2022 and we can say to a large extent that it has achieved its goals. As part of its drive to establish a strong franchise outside of Nigeria, the bank now has 12 subsidiaries throughout Africa, which together contributed 22 percent to the group’s PBT as at 9M 2022 (FY 2017: 16%). In addition, it has grown its asset and deposit bases by a CAGR of 28 percent and 30 percent respectively over this 5-year period.
The group has new ambitions for the period 2023–2028, namely to further expand and solidify its presence outside of Nigeria, leveraging its Holdco to diversify revenues in the areas of consumer lending, payments, insurance, asset management and pension fund management. We believe this diversification is set to improve earnings, particularly from its consumer lending and its pensions business, in which it aspires to attain a top-10 position by 2023 (currently #12).
Coronation forecast earnings to grow by 13.7 percent and 14.9 percent in 2022E and FY 2023F, respectively, with average RoAE over 2023F–2027F settling at 17.2 percent. We have a target price of N13.43 per share, which implies potential upside of 50.9 percent. Consequently, we have a BUY rating on the stock.
FBNH- Higher growth on the back of improved asset quality
FBNH has come a long way from a bank struggling with large asset quality issues (FY 2018 non-performing loans: 25.9%) to keeping them under control (9M 2022 NPL: 4.7%). We expect this to keep its impairment charges in check in FY 2022E and FY 2023F. For FY 2022E the bank is set to record the highest level of Net Interest Income since FY 2017, supported by a strongly-performing loan portfolio. We believe that the rise in the yield environment over the year is likely to be accretive to its NIM expansion given its low-cost deposit profile. We expect support from its international subsidiaries and non-bank subsidiaries. We expect a 10bps y/y expansion in its NIM during FY 2023F driven by growth in asset yields. Elsewhere, we expect strong performance in the bank’s digital banking business and its wealth management subsidiaries also to support earnings over the year.
That said, experts are cautious about its capital base, which stands at 17.8%1 as at 9M 2022. We believe this could restrict credit growth over the year.
“We expect net earnings to grow by 10.2% in FY 2023F with an average ROAE over 2023F–2027F settling at 12.9%. We have a target price of N13.21 per share, which implies potential upside of 18.5%. Consequently, we have a HOLD rating on the stock.”
GTCO- A choice in a tight period
Over recent quarters, Return on Average Equity for GTCO seems to have peaked following slow growth in its asset base and lacklustre earnings performance.
“However, we see a degree of change in this trend going forward following management’s adoption of the HoldCo structure. We believe its payments subsidiaries (Habaripay) and its PFA are set to enable Holdco to diversify earnings and multiply cross-selling opportunities.”
Coronation’s forecasts for GTCO assume low impairment charges and adequate cost control. We believe management will be able to exploit the increase in yields given the bank’s high proportion of investment securities and its low-cost deposit base (9M 2022 CASA: 86.6%).
“We expect earnings to grow by 4.3% and 10.0% in 2022E and 2023FY, respectively, with average ROAE over 2023F–2027F settling at 23.6%. We have a target price of N32.43 per share, which implies a potential upside of 29.2%. Consequently, we have a BUY rating on the stock.”
Stanbic IBTC -Earnings outlook tilting towards an upside
Stanbic IBTC was one of the first banks to adopt a Holdco structure and it now runs well-established corporate banking and asset management businesses with its retail banking segment growing rapidly. After taking a hit on its trading revenue line in FY 2021 due to low trading activities post-Covid, we expect to see improved trading gains in 2023F due to elevated fixed income trading activities and FX spreads.
Analysts anticipate an expansion in NIMs owing to strong credit growth and an elevated rate environment.
“Given the large contribution of its foreign currency (FCY) loans (51%), we also see room for revaluation gains on the back of potential Naira depreciation. We see limited asset quality issues on its loan book over the year.
“Overall, we like Stanbic IBTC’s diversified business model and its recent announcement of a fintech subsidiary. We expect management to take advantage of cross-selling opportunities among its business segments. We forecast earnings to grow by 21.2% in FY 2023F with average RoAE over 2023F–2027F settling at 26.5%. We have a target price of N44.30 per share, which implies a potential upside of 17.8%. Consequently, we have a BUY rating on the stock,” Coronation noted.
