The Nigerian banking industry’s performance in 2023, driven by naira devaluation and rising interest rates, has set the stage for further growth in the upcoming financial year of 2024, as forecasted by a finance and investment analyst at Vetiva Capital Management Limited.
In the “FY’24 SSA Banking Outlook,” released on Friday, Vetiva said banks can now 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 highlighted a significant 40% growth in customer deposits across the banks studied, largely driven by the translation of foreign-currency (FCY) segment deposits.
Vetiva highlighted a notable change in deposit structure, resulting in a 73 basis points increase year-to-date to an average of 3.3% in the cost of funds (excluding FCMB).
Additionally, the report detailed the widespread impact of Naira devaluation, citing substantial FX revaluation gains for most covered banks. These gains stemmed from favorable net positions in assets denominated in foreign currency and the resultant expansion of their balance sheets due to the devaluation.
“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.
“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.”
