Making Money From Banking Stocks

The banking or financial sector comprises companies that provide consumers with financial services. This includes retail banks, insurance companies, and investments services firms.

This sector has a great impact on the economy. The stronger it is, the stronger the economy becomes. But as the sector weakens, as evidenced by the events leading up to the Great Depression, the economy begins to trail. So, a healthy, stable economy requires a strong financial and banking sector.

Many of the stocks in this sector pay dividends, which many value investors believe is a good sign of a company’s quality. The longer the dividend history, the better it is for the investor, as it demonstrates a good track record of success. It also shows that the company has a history of providing investors with a share of the profits.

With the new government policy, Nigerian banking stocks are having their best quarter in six years, with a 34 per cent increase, outperforming emerging-market stocks. This is the right time for investors to invest in the sector and boost their investment.

The appointment of President Bola Tinubu and the removal of the central bank governor have boosted confidence in the Nigerian economy. The devaluation of the Nigerian naira and the potential for economic growth have created opportunities for investors in Nigerian banks.

Also, analysts explained that “Nigerian banks have consistently traded at lower price-to-book ratios compared to their African counterparts, and have not yet fully recovered from the economic impact of the pandemic. However, despite the harsh operating environment, Nigerian banks have remained relatively stable since 2016, offering a potential opportunity for long-term capital growth and improved dividends for investors.”

The Banking stocks on the Nigerian Exchange include; Access Holdings, United Bank for Africa (UBA), Zenith bank, Ecobank Transnational Incorporated (ETI), Guaranty Trust Holding (GTCO), FBN Holdings, Union Bank for Nigeria, Stanbic IBTC Holdings, FCMB Group, Wema Bank, Sterling Bank, Fidelity Bank, Jaiz Bank and Unity Bank.

The NGX Banking index as at June 23, 2023 recorded Year-to-date growth of 43.44 per cent and one of the best sectoral indices, out performing the overall market NGX All Share Index with a growth of 15.52 per cent.

The founder of Tradelines DotBiz Investment Limited, Mr Tunde Jeariogbe stated that, as baton changed hands in the country, two major sectors, the oil and banking sectors had experienced policies redirection, as the new government vowed to grow the nation’s economy.

“For example, the banking sub sector of the equities market had grown astronomically since the news of the suspension of the then Central Bank Governor, Godwon Emefiele hits the market and the unification of the exchange rate.

“In the month of June, the banking sector index gained 17.15 per cent as at June 26, 2023. Complementing the positive expectation in the banking sector is the half year earnings season that will commence from July, please understand that good numbers of the listed equities in this sector pay half year interim dividend. We expect the move to continue through the third and fourth quarter of the year, since the true impact of the ongoing policy changes will be more evidence in their respective earnings from the third quarter.

“Technically, a rising triangle had been formed on the lead index chart pattern M-o-M, this implies that the market is strong enough to achieve new highs. Also, a careful look at the banking index chart shows that, the formed a very similar pattern to that of the leading index. In conclusion, we warn that, this impressive patter will not continue without pull backs due to profit taking activities, nevertheless, we are more positive that, for the better part of this year, the general direction in the sector is an uptrend,” he explained.

Why Banking Sector Is Good Choice For Value Investing

The banking sector is a good choice for value investors. Value investors look for stocks that trade for less than their intrinsic value.

The banking sector pays dividends, which demonstrates a great history and provide investors with a share in profits.

Value investors are drawn to bank stocks, which are the most susceptible to emotional short-term forces given the leverage and nature of the business.