Expecting a continued surge in growth for the financial year 2024, a finance and investment analyst at Vetiva Capital Management Limited has attributed the Nigerian banking industry’s performance to naira devaluation and soaring interest rates in 2023.
According to the “FY’24 SSA Banking Outlook” released on Friday, Vetiva stated that banks could potentially “earn 15.75% (18.75% – 3.00%) yield on their assets, a significant leap from the previous 11.75% (18.75% – 7.00%) through the SDF window.”
The analyst emphasized the 40% growth in customer deposits among the covered banks, primarily attributing it to the translation of the foreign-currency (FCY) segment of customer deposits.
Vetiva also identified a pivotal shift in deposit composition, leading to a rise in the cost of funds by an average of 73bps YTD to 3.3% (excluding FCMB).
The report shed light on the ripple effects of Naira devaluation, with most covered banks experiencing substantial FX revaluation gains due to positive net positions in foreign currency-denominated assets and the devaluation-induced expansion of their balance sheets.
“Elevated interest rates also played a pivotal role in supporting the growth of interest income, translating to an average 95% y/y increase in gross earnings and a remarkable 162% y/y growth in net profit as of 9M’23,” noted the report.
The report underscored the dual impact of higher asset yields across loans, advances, and Fixed Income (FI) securities, coupled with a rise in the cost of funds.
“Despite these challenges, the overall performance of banks on the NGX has been nothing short of impressive, buoyed by the proactive policies implemented by the new administration,” it added.
As the financial landscape continues to evolve, Vetiva’s outlook suggests that “strategic core banking initiatives will be key drivers in the anticipated 15.75% growth, setting the stage for a banking boom in 2024.”