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CardinalStone Research: Banking Sector Update - Impact of ongoing monetary reforms and the banking sector
(Source: CardinalStone Research, Date: 01-Mar-2024)

Impact of ongoing monetary reforms and the banking sector 

The banking sector has experienced a material shift in its operating environment since our last publication in January 2024. This shift was due to aggressive policy decisions, which were mostly inspired by efforts to contain the currency crisis and surging inflation, and improve banks' capacity to withstands unexpected changes in key variables. In this report, among other things, we assess potential changes in net earnings and 12-month target prices (TP) of our coverage banks that may be occasioned by the following: 

  1. The new requirement that the NOP limit of the overall foreign currency (FCY) assets and liabilities of banks should not exceed 20.0% short or 0.0% long of shareholders' funds unimpaired by losses
  2. Discontinuation of daily CRR debits and the adoption of a structured weekly statutory debit on the increases in banks' weekly average adjusted deposits
  3. Sharp increases in stop rates at auctions and the 400bps increase in monetary policy rate to 22.75%
  4. The increase in statutory CRR from 32.5% to 45.0%
  5. The adjustment of the asymmetric corridor to +100bps/-700bps from +100bps/-300bps, previously

 

We have identified potential implications to banks' earnings in 2024 as follows :

Higher other income on disposal of net-long balances: The new rule on NOP is likely to put an end to the reporting of foreign exchange gains that are the consequence of net-long FX positions across banks. However, banks that are net short are likely to be favoured by an appreciation of the Naira. The impact of this policy is likely to result in a material surge in banks' other incomes in Q1'23, given the 43.1% depreciation of the Naira YtD and its implication for realised gains upon disposal of excess NOP positions.  

  

Please click here for the full report.

Regards,

CardinalStone Research 

Lagos Office: 5 Okotie Eboh Street 

                        South-West Ikoyi, Lagos

                        Nigeria

Abuja Office: 4 Misratah Street

                        Wuse II, Abuja, Nigeria

Tel: +234(1) 7100433, 7100434

Email: research@cardinalstone.com 

Website: www.cardinalstone.com   



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CardinalStone is an investment management firm located in Nigeria and registered with the Securities and Exchange Commission (SEC).

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