Banking industry’s pretax profit to hit 23% RoE –Agusto&Co

By Chinwendu Obienyi

Pan-African credit rating agency and the foremost business information provider, Agusto&Co. Limited, has said it expects the Nigerian banking industry’s profit before tax return on average equity to rise to 23 per cent at the end of the year.

The agency stated this in its 2022 Nigerian Banking Industry report which was released yesterday.

The report projected a decline in the industry’s net interest spread as the prevailing low yields on government securities, which dominate the Industry’s investment securities, will moderate the impact of the uptick in interest rates.

“However, we anticipate an increase in the net earnings driven largely by higher trading income and electronic banking fees. Nevertheless, we note that the forthcoming elections and growing budget deficit have forced the FG to modify several extant tax legislations, which will moderate the banking industry’s profits. Overall, Agusto&Co expects the Industry’s pre-tax return on average equity to increase to 23 per cent (FY 2021: 20.6 per cent) in FY 2022,” the agency said.

The agency in its report noted that the resilience shown by the Nigerian banking industry in FY 2021 was impressive as the industry’s loan portfolio grew by 21 per cent despite the weak economy and regulatory constraints.

It added that notwithstanding the prevailing global supply constraints, the Russian-Ukraine crisis and insecurity challenges that continue to hamper food and crude oil production in Nigeria, it anticipates a 16.5 per cent year-on-year loan growth in 2022 as more banks now have a better understanding of the macroeconomic headwinds.

The report added that traditional sectors such as oil and gas, manufacturing, general commerce and agriculture sectors are expected to drive the loan growth given the backward integration initiatives of obligors, the intervention activities of the CBN and the import-dependence nature of the Nigerian economy while the arbitrary cash reserve deductions and foreign exchange illiquidity would remain limitations to the growth of the Industry’s loan portfolio. “We note that more banks are now favourably disposed to accessing the differentiated cash reserve requirement (DCRR) window to reduce the value of sterile restricted funds with the CBN. In the near term, we believe the Industry’s asset quality will remain acceptable, with the impaired loan ratio hovering around 6 per cent as at 31 December 2022,”  Agusto&Co said.