Nigerian banks add N11.2trn in value despite valuation discount

Nigerian banking stocks have added about N11.17 trillion to their combined market value in less than nine months, but several major lenders still trade at relatively modest valuations compared with African peers, highlighting the market’s lingering caution despite a near 68 per cent sector rally.

The NGX Banking Index gained 67.96 per cent year-to-date as of September 14, outperforming the broader NGX All-Share Index, which rose 56.35 per cent over the same period.

The rally lifted the combined market capitalisation of 12 banks reviewed from about N16.44 trillion at the end of 2025 to N27.61 trillion by September 14, with most of the increase coming from higher share prices rather than new listings.

Yet the re-rating has been uneven. The average price-to-earnings ratio of the banks rose to 5.83 times from 4.38 times in 2025, while the average price-to-book ratio increased to 1.26 times from 0.86 times.

Several lenders still trade below the value of their net assets, while others command lower earnings multiples than comparable banks in Kenya, South Africa, Ghana and Tanzania.

The valuation gap is significant because Nigerian banks have recorded strong earnings growth in recent years, while the sector has also completed a major recapitalisation exercise intended to strengthen balance sheets and support future expansion.

Analysts say the completion of the recapitalisation removed a major uncertainty that had weighed on banking stocks. Afrinvest Research has also linked the sector’s appeal to stronger earnings and dividend yields.

But investors are increasingly looking beyond headline profit numbers to determine how sustainable bank earnings will be.

The sharp naira depreciation following the 2023 foreign-exchange reforms produced substantial foreign-currency revaluation gains for some banks, boosting reported profits. As currency conditions become more stable, investors will increasingly assess whether lenders can maintain earnings growth from core banking activities such as lending, fees, payments and other recurring income.

The distinction matters because a banking sector whose earnings are driven mainly by recurring operations can command more durable valuations than one heavily dependent on volatile foreign-exchange gains.

FirstHoldCo has been one of the strongest performers, gaining about 194.4 per cent this year. Its rise demonstrates how quickly investor sentiment can narrow a valuation gap when confidence improves.

Market capitalisation remains concentrated, however. Only FirstHoldCo and Zenith Bank are valued above N5 trillion, while GTCO is worth about N4.7 trillion. UBA and Access Holdings have market values of roughly N1.9 trillion and N1.5 trillion respectively, with Stanbic IBTC at about N2.4 trillion.

Fidelity Bank and Wema Bank are valued at approximately N1.26 trillion and N1.1 trillion, while ETI is around N1.2 trillion.

The distribution shows that the sector’s N27.61 trillion value is heavily concentrated among a small number of lenders, even after the broad market rally.

For investors, the issue now is whether the next phase of the banking rally will be driven by stronger and more sustainable earnings rather than simply higher valuation multiples.

That will depend increasingly on the stability of the naira, interest rates, regulation, credit growth and the ability of recapitalised banks to convert their stronger capital bases into productive lending and recurring income.

The 68 per cent rise has therefore already changed the value of Nigeria’s banking sector. The harder test is whether earnings can catch up with the new market valuations and convince investors that the discount attached to Nigerian banks is narrowing for fundamental reasons rather than market momentum alone.