● Banking profits to remain weak on cash reserves
The financial services sector will continue to hurt largely due to negative regulations
Agusto & Co., one of the leading rating agencies in the country, has projected that weak performance by quoted companies and apathy by foreign investors towards the Nigerian stock market mean another lacklustre year on the Nigerian Exchange Limited (NGX).
The rating agency stated this at its virtual seminar titled: “Nigeria in 2022 – Will 2022 be a year of strong growth driven by herd immunity from COVID-19?”
The seminar, which was facilitated by Mr. Olabode Agusto, founder Agusto & Co/ Agusto Consulting, was in commemoration of its 30th anniversary.
Agusto, in a presentation, also noted that banking industry profitability would remain weak because of a high level on non-earning cash reserves, continuation of the AMCON levy beyond the ten years initially agreed and higher effective tax rate.
“We project real GDP growth of three to four per cent in 2022 driven largely by the services, manufacturing and oil and gas sectors. The financial services sector will continue to hurt largely due to negative regulations – above normal CRR and negative real interest rates,” he said.
He noted that after-tax return on equity (ROE) across most industries would remain weak and below the cost of equity, which “we estimate at around 27 per cent for 2022. “However, key businesses in the real sector should deliver ROE that is above average inflation of about 15 per cent in 2022.
Financial services businesses will struggle to meet this hurdle rate largely due to negative regulations and a higher effective tax rate. “In 2022, businesses will need to grow their nominal sales by about 15 per cent to keep pace with inflation.
This will be difficult for most as the real wages of consumers are unlikely to keep pace with inflation.
“In 2022, businesses and households in Nigeria will fare slightly better than they did in 2021 as the World recovers from COVID-19.
“However, Returns delivered by key businesses will still be below the expected return (cost of equity), which we estimate at about 27 per cent for Nigeria.
“This, in addition to foreign exchange policies that are unattractive to investors, will impact the valuation of these businesses adversely.
Real GDP per person will still be below what was recorded in 2015. Real wages will continue to drop and unemployment will keep rising,” he said.