Banking Sector: Q2 2015 Earnings Review

BETTER-THAN-EXPECTED RESULTS AND SELL PRESSURE DROVE ATTRACTIVE UPSIDE POTENTIALS.

 

•We have made upward revision to our FY 2015E following the better-than-expected Q2 2015 results. Our new forecasts combined with the current depressed price levels have led to rating upgrade across our universe of banking stocks: Guaranty Trust Bank (GTB, upgrade to HOLD); FBNH (upgrade to BUY); Access Bank (upgrade to BUY) and Zenith Bank (BUY recommendation maintained).

•Across our coverage universe, we have made upward revisions to our earnings forecasts post the Q2 2015 results. This was informed by a mix of a strong q/q growth in interest income, which more than offset the rise in OPEX and the huge spike that we saw in the sector’s impairment charges. We highlight that our conservative estimates post the Q1 2015 results also contributed to the upward review of our earnings forecasts.

 

•Specifically for FY 2015, we have, on the average modelled an c.500bps improvement in our net interest income forecast across the four banking names that we cover.  We have also increased our loan impairment charges and OPEX by about 3000bps and 300bps respectively.  

•Going forward, we do not see substantial expansion in the sector’s loan book given the fragile macro environment and the challenges posed by 1) the current restructuring of risk assets; 2) difficulty in raising the needed capital in order to meet Basel 2 capital requirement. In our view, banks are more likely to be content with the potential loan growth occasioned by the conversion of foreign currency loans to Naira.

•We expect the benefits from the current high yield environment to impact further positively on banks’ earnings in the second half of the year as the expected slowdown on the drive for deposits helps to reduce cost of funds.

 

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