Financial Intuitions play important role in economic development of any nation. It is evident that no sector in the economy can flourish without the support and services of the banking sector. The banking system is a catalyst that drives growth in every sector of the economy.
Performance of banking stocks for half year 2020 was quite impressive despite the fact that Covid-19 pandemic disrupted business operations in the country. Apart from the fact that the results were good, some of them still declared interim dividend.
On the strength of impressive Q2 results and interim dividend payout, we observed price rally for most of these banking stocks. How sustainable could this price rally be? We are already rounding up the third quarter of the year, hence the market is anticipating Q3 results of quoted companies.
Commenting on the performance of banks and their impact on the Nigerian economy, Aruna Kebira, Chief Dealer of Global View Capital Limited stated thus:
“I believe the banks will consolidate on what they did for quarter two, especially when they can raise their head above the water in those difficult times, there is no way they will not do better. The economy is more or less open. Even if we are not running into capacity. And if we continue like this, Q3 report will be better than what we saw in Q2 report.
Without the banks, the whole economy is finished. If the banks are not there, a number of things will go wrong. You cannot access credit. There will be no development. When a company grows to a certain level and they want to expand their market share, they will have to go to the bank to access credit. If the bank are not there, there will be no development.
Without banks in place, the rate of arm robbery will be higher. Robbers don’t attack people anyhow on the street because what they carry is just ATM cards, not cash anymore.
Through banks, people are able to save. In elementary economics, aggregate savings is equal to aggregate investment. It is from savings that people will be able to invest. It is what is saved that banks give out for investment. Hence, there is no economy that will survive without the banks.
Banks’ contribution to the capital market is significantly high. If you remove all the banks from the capital market, then nothing will remain. Most of their dividend is what dictates the market. Dividend yield from banking stocks is significant. If Nestle at N1200 pays N30 dividend, dividend yield will be lower than that of Zenith at N16 that paid N2.80 dividend, which gives higher dividend yield. Most of all the banks pay dividend. Banks capitalization contribution to the capital market cannot be over-emphasized. When the capital market was booming, it is banks that was moving it.
Banking stocks are fundamentally sound. Most financial institutions in Nigeria are fundamentally strong because they do the same business which is financial intermediary. The number of unbanked, most especially in the urban area is very low. You can hardly see somebody that does not have a bank account. Banks’ products are well embraced. Most Bank stocks are fundamentally sound; whether you look at it from their prices, management and products.
The banking sector provides liquidity to the capital market. 90% of banks quoted on NSE are highly liquid, which means you can enter and get out as much as you like.
It is actually the banking sector that is moving the market because they herald the bulls. The moment the market want to go up, it is from the banking sector that you quickly understand; and if the bears are coming, it is also from the banking sector that you will understand it. So they lead when the bulls are coming and also show when the bears are coming.
Q3 Expectation for Banking Stocks
FBN Holdings Plc
The big elephant released a fantastic Q2 results with growth in topline and bottom line figures. The holding company grew profit after tax by 56.33% to N49.46 billion from N31.64 billion. The current management is working diligently to bring their non-performing loans to the barest minimum. The moment this is achieved, there earnings will go up and the market will react positively to this, which will obviously push the price upward. Going forward, Q3 earnings of FBN Holdings Plc is expected to better than what they declared in their Q2 result.
Access Bank:
Access Bank did well in their Q2 result. People were thinking that the effect of Diamond Bank merger will weigh them down but we can see what happen. The Bank reported Gross Earnings of N396.76 billion, up by 22.31% from N324.38 billion achieved in the first half of 2019. Profit before tax grew by 1.84% to N74.31 billion. The Bank reported Profit after tax of N61.03 billion and still paid 25 kobo interim dividend. What they need to do is to build this result and the bank is bound to give a better result in their Q3 earnings.
Zenith Bank
Zenith Bank grew its topline and bottom line figures in the first half of 2020 and that was quite impressive. Though the market sentiment is still actually pricing Zenith Bank lower than GT Bank for obvious reasons. By the time we see Q3 result of Zenith Bank better than Q2, the share price of Zenith is bound to mover than its current level. It is possible Zenith Bank might up their final dividend payout to N3.
Guaranty Trust Bank
Guaranty Trust Bank dropped in their Q2 earnings as most their metrics declined. The unique thing about GT Bank is that they don’t make noise. What they do is that they just release result for people to see their performance. We believe that the management of the bank will deal with the reason why their half year account dropped, and will work on it to give a better performance in Q3.
UBA
Half year earnings of UBA drooped, just like Guaranty Trust Bank. There interim dividend payout dropped to 17 kobo from 20 kobo. If UBA worked on what caused the drop in their Q2 earnings, they will come out better in Q3 result.
Stanbic IBTC
Q2 result of Stanbic IBTC was impressive as the the bank achived growth in its topline and bottom line figures. The only thing that may work against them is the 6 million ordinary shares they listed. It will further dilute their earnings per share. Instead of paying dividend, they gave option of Scrip. A lot of people opted for scrip and it has been listed on the NSE. It will dropped their earnings per share because they will have more outstanding number of shares.
Fidelity Bank
Q2 result of Fidelity Bank was impressive even though they did not pay interim dividend. The bank reported Gross Earnings of N105.76 billion, up by 2.03% from N103.66 billion reported in the first half of 2019. Profit before tax (PBT) appreciated by 21.92% to N11.96 billion from the PBT of 9.81 billion in H1’19. Profit after tax grew by 33.01% to N11.30 billion from N8.498 billion reported in the first half of 2019. Earnings per share increased to 39 kobo form 29 kobo which translates to 33.01% year on year. We expect Fidelity Bank to build on this result and come out with a better Q3 earnings.