Nigerian Banks Propel Local Stocks to Global Heights in 2024

Highlights

• Nigerian equities surge 11%, outpacing global counterparts.
• Banking stocks lead with a 16% rise this year, and 140% in the last 12 months.
• Standout Performers: Access Bank (21%), Zenith Bank (12%), Guaranty Trust Holding Co. (14%).
• Forex Gains: Zenith Bank reports $372 million in foreign-exchange gains.
• Investor Appeal: Profits from naira devaluation make Nigerian banks attractive.
• Equities vs. Fixed-Income: Negative real yields drive a shift to equities.
• Institutional Boost: Local institutions, including pension funds, increase equity investments.
• Upcoming Insights: Nigerian lenders set to release 2023 financial reports, revealing sector growth.

In a remarkable surge, Nigerian equities have emerged as global leaders in 2024, outperforming counterparts in the Europe, Middle East, and Africa region. Fueled by heightened confidence from pension funds and institutional investors, Nigerian stocks are on a trajectory of success, driven by the anticipation of record profits stemming from lenders strategically capitalizing on revaluation gains in their foreign exchange positions.

The NGX All-Share Index, comprising 151 members, has demonstrated an impressive 11% increase in local currency this year, positioning Nigeria just behind Argentina in global rankings. Over the past 12 months, the NGX has experienced a substantial uptrend, soaring by almost 60%, a stark contrast to the less than 2% advance observed in the MSCI Emerging Markets EMEA Index during the same period.

Driving this unprecedented surge are banking stocks, witnessing a robust 16% growth this year and an astounding 140% increase over the last year. Major players in the banking sector, including Access Bank PLC, Zenith Bank PLC, and Guaranty Trust Holding Co., have seen notable gains, with the banking index boasting a price-to-estimated earnings ratio of 2.24 times.

Ayodele Salami, Chief Investment Officer at Emerging Markets Investment Management Ltd., notes that substantial profits from the devaluation of the naira have rendered Nigerian banks particularly attractive to investors. Despite the Central Bank’s directive against using these gains for dividends, there is a likelihood that some will eventually be distributed to shareholders, possibly through bonus issues.

Zenith Bank, Nigeria’s largest lender, exemplifies this trend, reporting a significant 355.6 billion naira ($372 million) in foreign exchange gains, more than doubling profits in the first nine months of 2023. UBA Plc similarly achieved a remarkable profit increase of over 300% to a record 502 billion nairas during the same period.

Adding to the allure of equities, negative real yields on the nation’s fixed-income securities have made stocks relatively more attractive. The Central Bank of Nigeria’s recent sale of one-year treasury bills at a yield of 8.4%, significantly below the inflation rate of 28.2% in November, further emphasizes the shift towards equity investments.

Local institutional investors, including pension funds, are actively increasing their equity investments to enhance income, given the positive returns relative to inflation. Usoro Essien, Head of Research at RMB Nigeria Stockbrokers, highlights a “dearth of alternative investment options and asset classes” as a key factor influencing the growing interest in equities.

As the momentum continues, Nigerian lenders are poised to release their 2023 financial reports and dividend plans in the coming month, offering a closer look at the sustained growth and resilience of the nation’s banking sector.