Wednesday, September 15,
2021 / 10:47 AM / by FBNQuest Research / Header Image Credit: FBNQuest
With the Q2/H1 '21 earnings season all but wrapped up, we turn our attention to the results of Nigerian banks, most of which were delayed because of half-year audits. Unlike most of the non-financials that delivered double-digit sales and earnings growth, the performance of the banks was mostly mixed. In H1 2021, the average PBT and PAT growth for our universe of banks was c.7% and 9% y/y, respectively. Following fair value adjustments to debt securities passed through other comprehensive income (OCI), total comprehensive income for our universe of banks plummeted by c -50% y/y.
Zooming down on the Q2 numbers, Q2 PBT and PAT growth averaged 12% y/y and 15% y/y respectively, thanks to strong double-digit growth in PBT delivered by Fidelity (95% y/y), UBA (46% y/y), and Access (34% y/y). Similar to the H1 numbers, total comprehensive income fell by over 51% in Q2.
In terms of earnings drivers, funding income growth was generally underwhelming. Excluding Access and UBA whose funding income expanded by c.97% and 37% y/y respectively, and Zenith whose funding income was flat, funding income for the other banks under our coverage fell by c.-9% y/y due to a reduction in net interest margin (NIM) driven by the low yield environment. NIMs for our banks shrunk by an average of c.89bps y/y.
Non-interest income decreased by c.16% y/y on average, as most banks sustained trading losses on their fixed income and derivative books.
We observe that banks are beginning to taper their credit expansion, as net loan growth for our banks slowed to c.3.0% q/q from 5.9% q/q in Q1. The outliers were Access and Fidelity whose loan books grew by 10% and 8% q/q respectively.
On a positive note, banks' asset quality as measured by the NPL ratio improved by 78bps y/y (16bps q/q), thanks to a combination of loan restructurings, forbearance measures permitted by the CBN and interest rate adjustments.
Although market yields are trending downwards, after some retracement in Q2, they are still higher than the prevailing level of yields in Q1 '21. As such, we expect banks H2 '21 earnings to benefit from the slightly higher yields.
Nigerian banks are trading on a '21f P/B multiple of 0.6x for an ROAE of 15.5% in FY '22f. These compare with the average multiple of 1.0x for a '22f ROAE of 12% that MSCI EM banks are trading on. We see an average potential upside of c.42% across our coverage universe.
Sources: Company data; FBNQuest Capital Research; Total comprehensive income for Access was -NGN1.9bn in Q2 '21