The banking sector’s pre-tax profit will reach 23% of ROE – Agusto&Co

By Chinwendu Obienyi

panafrican credit rating agency and leading business information provider, Agusto&Co. Limited, said it expects the Nigerian banking sector’s pre-tax profit on average equity to reach 23% by the end of the year.

The agency stated as much in its 2022 report on the Nigerian banking sector which was released yesterday.

The report expected the industry’s net interest spread to decline as current low yields on government securities, which dominate industry investment securities, will moderate the impact of rising interest rates. ‘interest.

“However, we expect an increase in net profit primarily due to higher trading revenue and electronic banking fees. Nevertheless, we note that the upcoming elections and the growing budget deficit have forced the FG to modify several existing tax laws, which will moderate the profits of the banking sector. Overall, Agusto&Co expects pre-tax return on industry average equity to increase to 23% (fiscal 2021: 20.6%) in fiscal 2022,” said the CEO. ‘agency.

The agency in its report noted that the resilience shown by the Nigerian banking sector in fiscal year 2021 was impressive, with the sector’s loan book growing by 21% despite the weak economy and constraints. regulations.

He added that despite prevailing global supply constraints, the Russia-Ukraine crisis and insecurity issues that continue to hamper food and crude oil production in Nigeria, he forecasts loan growth of 16.5 % YoY in 2022 as more banks now have a better understanding of macroeconomic headwinds.

The report adds that traditional sectors such as oil and gas, manufacturing, general trade and agriculture sectors are expected to drive loan growth given the upstream integration initiatives of obligors, CBN intervention and the import dependent nature of the Nigerian economy. while arbitrary cash reserve deductions and currency illiquidity would remain limits to the growth of the industry’s loan portfolio. “We note that more banks are now favorably willing to access the Differentiated Cash Reserve (DCRR) window to reduce the value of barren earmarked funds with the CBN. In the near term, we believe the sector’s asset quality will remain acceptable, with the impaired loan ratio hovering around 6% as of December 31, 2022,” said Agusto&Co.

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