Analysts Name UBA, Access Bank as Nigeria’s Most Attractive Banks

Analysts at FBN Capital, a firm of investment bankers, have predicted United Bank for Africa (UBA) and Access Bank and currently traversing the tier 1 versus 2 divide are the most attractive in the sector.

This was contained in the 2015 second quarter result preview released at the weekend. In the preview, they said they expect a better performance for Nigerian banks in the second quarter results for 2015 after most of these banks posted good result in first quarter 2015 results.

However, the analysts said with good results for a number of Nigerian banks in first quarter 2015, they expect a degree of normalization in their second quarter 2015.

“After what we would describe as a best-foot-forward quarter for a number of Nigerian banks in first quarter 2015, we expect some degree of normalisation in the second quarter 2015 results. First quarter 2015 profit before tax growth for our universe averaged 13.9 per cent year on year which was slightly below the 16.0 per cent year on year for full year 2014.”

One reason for the slightly lower growth in the first quarter, according to the analysts, was that the positive impact of non-interest income-forex trading income to be precise – was less than what was recorded in fourth quarter of 2014.

With this as the background, analysts said the second quarter 2015 growth will be slower at 3.6 per cent year on year, which was well below what was recorded in the first quarter 2015 due to their finds.

“Sequentially, our PBT estimates imply an average quarter on quarter decline of 1.4 per cent quarter on quarter, the analysts said.

They, however, excluded Stanbic IBTC, which they said is expected “to show a rebound in profits from a depressed first quarter”. The quarter on quarter decline comes in at a decline of 12.1 per cent.

“Although some of the larger banks showed healthy loan growth in first quarter 2015, others were constrained by regulatory capital concerns. While margins, on average, have held up relatively well in a challenging operating environment, just as we expect a combination of weak underlying macroeconomic environment and a marked reduction in FX-related income due to decisions by the central bank to weigh on second quarter earnings.

The banks, they said, will be relieved that the pace of newly introduced rules and regulations has slowed significantly since the end of 2014: although the harmonisation of public and private sector cash reserve ratios (CRR) to 31 per cent at the last monetary policy (MPC) meeting was a net tightening step, while the N140 billion outflow from the banking system is likely to have a modest negative impact on earnings.

“Notwithstanding, we do not expect any meaningful positive surprises from the banks, particularly as far as risk asset growth is concerned,” they said.

“In contrast, we think there is a growing risk that asset quality issues will become more meaningful as we move into the second half of the year – a scenario we do not believe that banks have captured adequately in their guidance. In the very near term, we continue to recommend that investors hold the quality tier 1 banks whose 2015 earnings guidance we find more realistic.

“In the medium term, we think banks traversing the tier 1 vs 2 divide are most attractive, namely Access and UBA. We would use any near term disappointments or market overreaction to build up positions in these,” the analysts said.