The Nigerian equities market recently came to the end of a busy earnings season. Among our covered banks, ACCESSCORP, GTCO, STANBIC, UBA and ZENITHBANK published Q1 2022 unaudited results.

It has been a challenging 2022 thus far for Nigerian banks' stocks. Year-to-date, the sector index has returned a disappointing 7.4% and has grossly underperformed the broader equity gauge (NGX-ASI: +24.3%). Notably, it is the second-worst performing sector index. Stock performance within our coverage universe tells a similar story: FBN Holdings (+4.8%) and Access Holdings (+3.8%) have recorded small gains, UBA has been flattish, while GT Holdco (-8.1%), Stanbic IBTC Holdings (-8.3%), Zenith Bank (- 2.6%) have fallen. We discuss the reasons for the underperformance on Page 2.

Q1 22 was a decent quarter in terms of earnings for our covered banks. Four of the five banks which published results reported EPS growth; GTCO surprisingly reported an EPS decline. Notably, most of the growth across our coverage was driven by increased funded income, following the expansion in banks' loan books and some upward repricing ofloans. Higher yields in Q1 22 (vs Q1 21) also saw banks earn higher interest on their investment securities portfolios y/y. Overall, banks' Yields on Assets (YoA) were much improved compared with the prior year. Elsewhere, banks' Cost of Funds faced some upward pressure: however, they were able to keep rises below the rise in yields. As a result, Net Interest Margins (NIM) were resilient. Non-interest revenues (NIR) also continued on their upward trajectory.

The narrative that the fundamentals of the banking sector are compelling has persisted, even as investor apathy around bank stocks remains. In our view, although bank margins and profitability have come down slightly in recent years, bank stocks have been oversold. In an environment where negative inflation-adjusted yields remain the theme, bank dividends continue to offer more attractive yields than Treasury bills. In addition, with yields on the rise, we think FY 21 may have been the bottom in terms of banks' profitability. The valuations of our coverage banks remain compelling and hold value for long-term investors, in our view.

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