The banking sector of the Nigerian Exchange Limited (NGX) has recorded a remarkable performance in the first nine months of 2023, despite the devaluation of the naira and other economic headwinds. According to data from the exchange, the banking index appreciated by 61.9 per cent in the period, surpassing the overall All-share index that measures the performance of listed firms.
Top performers in the banking sector
Some of the stocks that contributed to the impressive performance of the banking sector are Sterling Bank, United Bank for Africa (UBA), Access Bank, Fidelity Bank, Ecobank TransNational Incorporated (ETI), GTCO, FBN Holdings and Zenith Bank. A breakdown of the performance showed that Sterling Bank recorded the highest return on investment of 150 per cent in the sector, followed by UBA with 126 per cent capital appreciation. Fidelity Bank trailed, improving by 93 per cent while Access Bank and GTCO appreciated by 89 per cent and 57 per cent respectively. ETI recorded 51 per cent growth so far. FBNH and Zenith rose by 49 per cent and 33 per cent.
Factors behind the banking sector’s growth
The growth recorded by the banking sector within the nine-month period is higher than negative 6.62 per cent seen in the corresponding period in 2022 (January-September 2022) an indication that the banking industry has improved despite the harsh operating environment. Some of the factors that have boosted the performance of the banks are:
- Naira devaluation: As part of efforts to achieve a convergence between the official and the black-market exchange rates of the dollar, the present administration has allowed the naira to weaken. This has enabled lenders that have some of their loans denominated in the dollar to make bumper harvest.
- Rising interest rates: The Central Bank of Nigeria (CBN) has been increasing its monetary policy rate to fight inflation and attract foreign investors. This has given banks the leverage to charge more for loans and advances.
- Large foreign assets: Most tier-one banks have a large foreign asset base, which have given them the leverage to make many gains from foreign exchange transactions, coupled with the income from yield from the fixed income market.
Outlook for the banking sector
The banking sector also rose by 1.43 per cent at the end of last week’s transactions on the equities sector of the NGX, emerging as the best performing index last week. Analysts and operators have expressed optimism that the sector will continue to deliver robust returns to investors in the remaining quarter of the year. They also expect a generous dividend payout from most of the banks at the end of the financial year.
