From FUGAZ to Fidelity: How Investors Can Identify Profitable Bank Stocks in Nigeria’s Ever-Evolving Financial Market

 

Nigerian bank stocks are enjoying heightened attention from investors, thanks to their massive contribution to the Nigerian Exchange (NGX), their steady dividend culture, and high liquidity that keeps them among the most actively traded equities. With a combined market capitalization of over N16 trillion as of July 2025, banks remain the dominant force on the exchange and continue to be a major magnet for both local and foreign investors.

The heartbeat of any economy is its banking sector, and Nigeria’s case is no different. Banks connect depositors with borrowers, provide credit for businesses, and facilitate payments across the economy. In Nigeria, this critical sector is tightly supervised by the Central Bank of Nigeria (CBN), while listed banks also fall under the regulatory oversight of the Securities and Exchange Commission (SEC) and the NGX.

A landmark moment for the industry came two decades ago when then CBN Governor Charles Soludo raised minimum capital requirements from N2 billion to N25 billion in 2004. That single move forced a wave of mergers and created stronger, more resilient institutions. Fast forward to 2024, the CBN announced another capital hike, demanding between N250 billion and N500 billion in new minimum thresholds for commercial banks. The policy reinforced the sector’s importance and reshaped investor interest.

Among listed banks, the industry is broadly split between Tier-1 giants often referred to as FUGAZ (FirstBank Holdco, UBA, GTCO, Access Holdings, and Zenith Bank) and smaller Tier-2 banks that include Fidelity Bank, FCMB, Wema Bank, Sterling Holdings, Unity Bank, Jaiz Bank, Ecobank Transnational Incorporated, and Stanbic IBTC. While Tier-1 banks provide relative safety and more reliable dividends, the mid-tier names offer higher growth potential with greater risk.

The size of Nigerian banks is staggering. As of December 2024, listed banks controlled assets valued at N169.48 trillion, up sharply from N112.39 trillion a year earlier. Assets matter because they represent the deposits and loans that drive bank earnings. On the equity side, banking stocks consistently rank among the top five most traded shares, giving investors the comfort of liquidity and ease of entry or exit.

Access Holdings leads the industry in customer deposits, while Zenith Bank commands the largest retail deposit base, offering it cheaper funding options. Although the bigger banks dominate, smaller players like Wema Bank and Fidelity Bank have shown that they can deliver impressive returns for investors who are willing to stomach more volatility.

Understanding how banks make money is critical before buying their stocks. Their income sources include net interest margins (the gap between lending and deposit rates), fees and commissions on services, trading and investment income from foreign exchange and securities, and returns from subsidiaries in pensions or asset management. The year 2024 highlighted just how volatile earnings can be, with many banks booking exceptional profits from foreign exchange revaluation gains.

Still, investors must look beyond profits to risk management. The Non-Performing Loan (NPL) ratio and the Capital Adequacy Ratio (CAR) are essential indicators. A low NPL ratio suggests that fewer loans are going bad, while a higher CAR indicates that the bank has enough capital to absorb potential losses. These two ratios together give a clear picture of resilience and sustainability.

Profitability remains the most visible attraction for shareholders. Dividends are a central feature of Nigerian bank stocks. Zenith Bank has consistently posted the largest profit figures in the industry, but GTCO in 2024 paid the highest dividend per share at N8.03. Over the last five years, Zenith rewarded shareholders with over N2.4 trillion in cumulative payouts, making it the undisputed leader in dividend history. For long-term investors, consistency in dividend distribution often outweighs one-off bumper payouts.

Efficiency is another vital area. Return on Equity (ROE) and Return on Assets (ROA) reveal how effectively banks deploy capital and assets. Interestingly, Wema Bank managed to outshine some Tier-1 banks in ROE in 2024, a reminder that size does not always guarantee efficiency. The cost-to-income ratio is also worth watching; GTCO has long set the benchmark with around 45 percent, far better than peers that spend as much as 70 percent of income on expenses.

Valuation is the final piece of the puzzle for investors. Price-to-Earnings (P/E), Price-to-Book (P/B), and Price-to-Sales (P/S) ratios help determine whether a stock is cheap or expensive relative to peers. A higher P/E suggests investors are paying a premium for expected growth, while a lower P/E could mean the stock is undervalued. Comparing these ratios with the sector average is essential before making a buy decision.

Investors keen on exposure to Nigerian banks can buy directly on the NGX through licensed stockbrokers or via digital trading apps. On the exchange, UBA, Zenith, and FirstBank Holdco sit on the Premium Board, while GTCO and other listed banks feature on the Main Board.

The banking sector remains the backbone of the NGX and a key driver of Nigeria’s capital markets. For risk-averse investors seeking stability and reliable dividends, the Tier-1 banks are a safe bet. For those chasing higher returns and willing to take on more risk, select Tier-2 banks such as Fidelity, Wema, or Sterling may provide lucrative opportunities.

The message is clear. Whether one is hunting for steady dividend income or long-term growth, Nigeria’s banks continue to offer some of the best value propositions in the local stock market. Careful scrutiny of profitability, efficiency, and risk metrics will always separate the good buys from the costly mistakes.