ACCESS Corp. released its H1 2022 financials last week, bringing an end to an extended earnings season. According to Coronation research, the results across the banks were decent overal, with all except one (Guaranty Trust HoldCo) recording growth in Net profits.
However, the earnings growth was not enough to realize the market’s positive expectations, with most of the reported earnings, when annualized, missing analyst’s consensus estimates by some margin. As a result, the rout in bank stocks which began at the start of May continued into Q3. Since end-July, when results began to trickle out, share prices of our covered banks have all tanked (save for Stanbic IBTC Holdings, which reported better-than-expected earnings)
According to the report by Coronation Research, most covered banks doubled-down on their core function, with Net interest income (NII) growing by an average of 24.8% y/y and accounting for an average of 55.7% of the net revenues. With asset yields still low and limited room for Net Interest Margin (NIM) expansion, the major income growth driver for our coverage banks was increased risk-asset creation as they grew their loan books by an average of 8.5% y-t-d during H1 22.
Elsewhere, the CBN’s discretionary CRR debits squeezed system liquidity, and led to many banks tilting their funding mixes towards expensive term deposits. As a result, Cost of Funds (+20bps y/y on average) came under pressure. The growth in Non-interest revenues (NIR) also complemented the solid NII performance across our covered banks with many recording substantial rises in Trading revenues and Fees & Commission income.
However, significant inflation and regulatory fee-induced cost growth weighed on Net revenues and led to a deterioration in operating efficiency. Specifically, the average Cost-to-Income ratio across our coverage rose by 160bps y/y in H1 22 (excluding Stanbic IBTC Holdings).
FX
Last week, the exchange rate at the Investors and Exporters Window (I&E Window) strengthened by 0.02% to N436.25/US$1. Elsewhere, the foreign exchange (FX) reserves of the Central Bank of Nigeria (CBN) decreased by 0.59% to US$38.69bn as the CBN continues interventions across the various FX windows. The FX reserve position remains close to its historic high, and we doubt that the CBN wishes to see the exchange rate slip this year.
Bonds and Treasury Bills
Trading in the Federal Government of Nigeria (FGN) bond secondary market was bullish as the average benchmark yield for bonds fell by 24bps to close at 12.73%. Across the curve, the yield on the 3-year (-1bp to 13.00%) and 7-year (-1bp to 12.68%) bonds fell, while the yield on the 10-year bond was flat at 13.05%. At the FGN bond auction, the Debt Management Office (DMO) is expected to offer N225.00bn (US$515.76m) worth of instruments across the March 2025, April 2032 and April 2037 bonds.
”Our view remains that the combination of thin system liquidity and elevated Federal Government domestic borrowing is likely to continue to drive yields upwards overthe coming months. Activity in the Treasury Bill (T-Bill) secondary market was bullish as the average benchmark yield fell by 7bps to 7.57%. Notably, the yield on the 265-day T-bill fell by a marginal 1bp to 6.77%. At the T-bill primary auction, the DMO offered and allotted N159.60bn (US$365.84m) worth of bills. Demand was strong as the auction recorded a total subscription of N407.33bn, the highest since 9 March, implying a bid-to-cover ratio of 2.55x (vs 1.03x at the previous auction). Across the curve, the stop rate on the 364-day bill fell by 25bps to 9.75% (implied yield: 10.80%), the rate on the 90-day bill was flat at 5.50%, while the rate on the 182-day bill rose by 15bps to 6.19%.”
OIL
Last week, the price of Brent extended its decline for the third straight week, shedding 1.60% w/w to settle at US$91.35/bbl. Nonetheless, Brent is up 17.45% year-to-date and has traded at an average of US$103.28/bbl, 45.69% higherthan the average of US$70.89/bbl in 2021. Following intensified worries over the threat of a global recession, given the higher-thanexpected US consumer price index (CPI) data for August, oil prices maintained their downward trend. In addition, ongoing COVID-19 curbs in China remained a major headwind for prices, outweighing support from a robust OPEC oil demand growth forecast. In this exceptional year for oil prices, we maintain that prices are likely to remain above the US$73.00/bbl set in Nigeria’s government budget. Given very low levels of production in Nigeria at the moment, however, this is unlikely to translate into a significant windfall for the government.
EQUITIES
Last week, the NGX All-Share Index extended its decline for a second consecutive week, falling by 0.44% w/w to settle at 49,475.42 points, the lowest level since 22 August. Consequently, its year-to-date return fell to 15.82%. Zenith Bank (-1.50%), FBN Holdings (- 5.66%) and Stanbic IBTC Holdings (-1.67%) closed negative, while Honeywell Flour Mills (+5.78%), Cadbury Nigeria (+5.77%) and Sterling Bank (+2.04%) closed positive. Performances across the NGX sub-indices were broadly negative as the NGX Banking (- 3.31%), NGX Insurance (-2.58%), NGX Pension (-1.74%), NGX-30 (-0.50%), NGX Consumer Goods (-0.27%), NGX Oil & Gas (-0.16%) and NGX Industrial Goods (-0.16%) indices all declined. See Model Equity Portfolio on page 4.
