Guaranty Trust Bank Plc in Lagos fended off a contracting economy by benefiting from a weaker local currency.
“GTB stands out in the Nigerian banking sector based on their ability to optimize their balance sheet and conservatively position themselves against any unforeseen shocks,” said Craig Metherell, an analyst at Avior Capital Markets Ltd. in Cape Town who has a buy recommendation on the stock.
He maintained his hold rating on Equity’s shares, saying they are trading close to fair value and that a re-rating may only happen should Kenya relax the rate-cap rules, which is only likely after elections scheduled for August.
GTB’s net income climbed 33 percent as earnings from lending increased and the naira’s decline against the dollar boosted non-interest revenue.
Investors still remain negative toward Nigeria because of a lack of foreign exchange that is curbing growth in the West African country, lenders are reorganizing bad debts, absorbing currency fluctuations and diversifying away from loans to the oil and gas industry following a more than halving in crude prices since mid-2014.
“Nigerian banks appear to be navigating current challenges better than anticipated,” said Aleksej Gren, a fixed-income analyst at Exotix Partners LLP in London, who has a buy recommendation on GTB’s bonds due November 2018 as well as 2019 notes issued by Zenith Bank Plc and 2021 debt securities from Access Bank Plc.
“Banks are prepared for naira weakness. Further asset quality deterioration is likely, but many of the problems have already been identified.”
With a 2.5 percent drop over the same period for an index of Nigeria’s 10 largest and most liquid banking stocks, with Guaranty adding 1.5 percent.
While policy issues remain a major hindrance to Nigeria’s economic health, GTB offers a hedge against naira devaluation and earnings may rise in 2017, said Avior’s Metherell.
Earnings per share at GTB will probably increase 1 percent this year before normalizing to 9 percent in 2018 and 8 percent in 2019, Metherell said.