Market News

Nigeria’s biggest banks are trading at much lower valuations than their African peers, even though they deliver similar or better returns on equity (ROE), according to a new report by Chapel Hill Denham.

The report shows a clear valuation gap. While South African and Moroccan banks enjoy high price-to-book (P/B) ratios, most Nigerian banks are trading below their book value (P/B less than 1.0x).

For example: FirstRand (South Africa) trades at 2.07x P/B with 18.6 percent ROE Attijariwafa Bank (Morocco) at 1.97x P/B with 16.1 percent ROE Stanbic IBTC (Nigeria) at 1.93x P/B with a high 42.4 percent ROE

In contrast, major Nigerian banks trade at deep discounts: Access Holdings at 0.36x P/B (17.6 percent ROE)

UBA at 0.45x P/B (19.7 percent ROE) FCMB at 0.66x P/B (22.4 percent ROE)

Investment experts expect banks with high returns on equity to trade at higher prices. However, Nigerian banks are priced as if they are high-risk, despite showing strong profitability and solid balance sheets.

Chapel Hill Denham says the lower valuations are not mainly due to poor management inside the banks, but because of difficult economic conditions in Nigeria. These include:

Sharp falls in the value of the naira and high inflation.

Frequent changes in banking rules by the Central Bank of Nigeria (CBN), such as Cash Reserve Ratio (CRR) adjustments;

Lower country credit rating compared to South Africa and Morocco

Even when returns are adjusted for inflation, Nigerian banks still appear undervalued compared to peers.

Stanbic IBTC is the clear exception among Nigerian banks. It trades at a premium, mainly because it is backed by South Africa’s Standard Bank and is seen as having stronger governance and lower risk.

The report notes that current low prices suggest the market has already priced in the worst possible problems. With the ongoing bank recapitalisation exercise bringing in hundreds of billions of naira, Chapel Hill Denham believes this could be a turning point.

The big Nigerian banks (often called FUGAZ) now hold total assets of N164 trillion (about $113 billion), making them very important to the economy. As they move away from foreign exchange trading profits toward more stable income from interest and digital services, their earnings quality is expected to improve.

The report sees room for these banks’ valuations to rise by 2027 if the naira becomes more stable and economic conditions improve.

Chapel Hill Denham concludes that Nigerian banks currently offer value, but investors remain cautious due to macroeconomic and regulatory risks.