The banking sector is forecast to grow 15 percent year-on-year in 2011, as toxic assets of banks are cleaned up by the Assets Management Company of Nigeria (AMCON). Some top rated banks in the country could grow as high as 25 percent, investment banking analysts, Rencap said on Tuesday in its Nigerian banking report released in Lagos. RenCap’s optimism of the growth in credit, follows recent positive trends from the banking sector, especially with the on-going clean-up process on banks’ toxic assets being undertaken by the Asset Management Corporation of Nigeria (AMCON). Making reference to financial trends, RenCap noted that credit growth has started to recover and should deliver 15 percent sector-wide growth in 2011 (expected), while margins should see upward pressure from a rising-rate environment. “Cost focus at many banks is already paying dividends while provisioning charges are falling fast, in line with improving asset quality. On heavy capital bases, Return on Equities (RoEs) are trending to double-digit territory while Return on Assets (RoAs) of 2percent-plus are the norm by 2012-2013, and are more indicative of profitability,” RenCap stated in the Nigerian banking sector report. The analyst’s report incorporates coverage on: Zenith Bank plc, First Bank plc, Access Bank plc, Diamond Bank plc, Guaranty Trust Bank (GTB) plc, and United Bank for Africa (UBA) plc, Skye Bank plc, First City Monument Bank (FCMB) plc and Fidelity Bank plc. The report also incorporates strong buy recommendation for Zenith Bank, First Bank, UBA, FCMB, Skye Bank and Fidelity Bank as the sector looks to a new growth spurt. Renaissance Capital, the emerging markets investment bank launched the 2011 Nigerian Banking report re-initiating coverage on those nine Nigerian banks and presenting a positive macro economic outlook - 7-8 percent GDP growth in 2011 for the nation, following the recently concluded elections. David Nangle, an analyst at RenCap said: “Following the relatively smooth and orderly election process in April and taking into account AMCON’s success at restoring confidence in the Nigerian banking sector, we believe it is poised for a new era of growth. This is based on Nigeria’s strong macro-economic outlook, with growth projected to be between 7-8 percent in 2011 and the strong capitalisation in the banking sector, which is majority deposit-funded and ample liquidity provide an enticing structural backdrop for Nigerian banks.” Highlights of the report indicated macro economy and politics looking good. “In 2011, we think Nigeria is set for another year of 7-8 percent GDP growth (2010: 7-8 percent), and with the oil price running north of $100/bbl, the current account should run a surplus of 9 percent. Inflation remains a concern, at 12 percent 2011 (expected), while we expect the naira to remain broadly stable. The recent election cycle has, on balance, been positive, and should shift market focus away from political risk,” Renaissance Capital noted. They (analysts) also made reference to a clean and structurally attractive base at the start of a fresh cycle. “Strong capitalisation, being majority deposit-funded (with low-cost current/savings accounts dominating) and ample liquidity provide an enticing structural backdrop for Nigerian banks. Accompanied by the recent, generous Asset Management Corporation of Nigeria (AMCON) asset quality clean-up process, we believe this leaves Nigerian banks working from a tabula rasa for the next leg of growth,” the analysts stated. “Our key stock calls: Buyers of Zenith Bank, First Bank and Skye Bank. With this report, we reinitiate coverage of nine Nigerian banks (our ratings and target prices on each are set out below). While taking a positive top-down view on the timing and core investment case for Nigerian banks, we highlight our three favoured names at this juncture: of the modern giants, Guaranty Trusty Bank (GTB) may be our favoured Nigerian bank, but Zenith Bank is our preferred stock on relative valuations. We prefer First Bank of Nigeria over United Bank for Africa (UBA) in the franchise space, as it provides an underlying multi-year restructuring story on top of impressive franchise potential. From the pool of mid caps, Skye Bank stands out for us, for its focused, mid-corporate strategy and still attractive valuations. A word on the risks - We still highlight macro and political risks as key top down concerns, particularly with oil remaining a key factor for Nigeria’s budget and revenues. At the sector level, post the recent crisis, regulation will need to prove itself through the cycle before we are fully comfortable,” they stated. Source: B&FT