There is a bull and bear case for Nigerian Banks and i will make both cases below. Take your pick

BULL CASE

Nigerian Banks valuations while expensive on a Price to Book basis, still have a lot of growth ahead which will make these valuations look cheap in 2 - 3 years.

There are millions of unbanked (CBN says 70- 80 percent) adult population who will be needing financial services in the future and whom these banks can serve with a healthy profit margin.

AMCON has brought stability to the system, yes there is no more 60 - 70 percent credit growth, however the banks are far from utilities.

There is a wall of money from offshore investors flooding into these banks, (due to QE in US,Japan and EuroZone) meaning even if u think they are expensive at these prices, they may not come down for you to nibble on them, so you might as well start accummulating.

Bond yieilds are dropping so equities are becoming more attractive.

Banks can still squeeze out profits from cutting costs, through technology and if the power reforms work, from lower energy costs.

BEAR CASE

NIM have peaked for these banks. They used to get one year t-bills for close to 20 percent in January 2012, now the CBN just sold T-bills last week at less than 10 percent.

Banks are expensive, GTB is trading at close to 3 times book value, thats because once you start valuing banks as growth stocks, you get into trouble.

Bank earnings follow the Interest rate cycle. The next leg in interest rates is down. meaning earning should begin to drop from here.

It all well and good to say banks will transition to consumer or retail lending to compensate for falling yields on T-bills and bonds, however that is fraught with its own difficulties and risks of ballooning NPLs.

Nigerian banks cost structure is still too high.

Banks have gotten most of the easy business,meaning in spite of Nigerias huge population of unbanked every incremental customer means lower margins.

Source: http://www.stockmarketnigeria.com/forums/157982-post826.html

Seun:

Source: http://www.stockmarketnigeria.com/forums/157982-post826.html

No matter how tempting, banks should never be looked at as growth stocks imho