Update1: Banks 2016 dividend pay-outs hit N175 bn

…As interest income boosts profits by 3%.

Nigerian Banks are rewarding long suffering shareholders with higher dividend pay-outs for 2016, despite a tough operating environment and rising bad loans.

The 12 lenders that have released 2016 Full Year results are cumulatively paying out N174.8 billion in dividends to shareholders, a 13.5 percent increase from 2015 levels.

The higher pay-out ratio comes despite a paltry 3.16 growth in net-incomes for the banks.

The combined net income for the 12 lenders increased to N461.68 billion in 2016, from N415.87 billion the previous year, which was largely driven by an increase in interest income.

Cumulative Interest income moved by 14.58 percent to N2.20 trillion as the Central Bank of Nigeria (CBN) raised rates for much of 2016 while interest expense increased by 5.79 percent to N832.04 billion.

The cost of funds went up and even the government borrowing rate also went higher, said Saheed Bashir, head of research at Meristem Securities Limited.

“Interest expense was generally high, as some banks are net borrowers and net lenders,” said Bashir.

Nigerian banks charge as high as 23 percent on customer loans and as low as 3 percent on deposits, thereby ensuring juicy net interest margins (NIMs).

Seven of the 12 banks declared dividends for 2016, with four (Zenith, Access, Guaranty Trust, and United Bank for Africa UBA) boosting their dividends pay-outs from last year’s level, while two names (FCMB and Stanbic IBTC ) maintained the same level of pay-outs as in 2015.

Zenith Bank would be paying the single largest amount of dividends with N63.4 billion, followed by GTB N58.8 billion and UBA N27.2 billion.

Nigerian banks have returned – 0.63 percent this year, outperforming the broad NSE all share index which has returned -5.08 percent as at April 13.

Sentiment for the sector improved somewhat, following recent moves by the CBN to increase intervention in the interbank foreign exchange (FX) market and increase supply of FX.

According to Fitch Ratings, “the measures announced on 20 February by the Central Bank of Nigeria (CBN) may ease some of the severe foreign currency liquidity pressure faced by Nigerian banks.”

An economic downturn in Africa’s most populous nation has hammered industry loan books that are half denominated in foreign currency. Lower oil prices have sent the currency plunging and caused acute dollar shortages.

The adoption of a flexible exchange rate policy last year, by the central bank after a 15 month peg on the naira, saw the naira lose a third of its value against the U.S currency.

The devaluation of the currency drove up the naira value of foreign loans, as the cumulative loans and advances of the 12 lenders increased by 17.79 percent to N12.58 trillion from N10.58 trillion the previous year, based on data gathered by BusinessDay.

Cumulative loan loss expense, otherwise known as impairment losses on financial assets of lenders under our coverage spiked by 113.20 percent to N461.68 billion as against N218.49 billion the previous year.

Analysts say the inability of contractors and oil companies to pay back money borrowed from banks due to the economic downturn resulted in huge write offs.

Nigeria’s Gross Domestic Product (GDP) shrank 1.5 percent in 2016, according to the National Bureau of Statistics (NBS) , which would be the first full-year recession since 1991.

Despite their relative outperformance so far in 2017, most banks are trading at a significant discount to book value, with only GTB and Stanbic IBTC trading above book value.

UBA, which has rallied some 87 percent in the past year, has also managed to boost its valuation to around 0.6xs book value.

“We are focused on executing our strategy and management believes the market will eventually appreciate UBAs diverse income generating levers, especially its rest of Africa operations,” Abiola Rasaq, Head of Investor Relations at UBA told BusinessDay.

 

PATRICK ATUANYA & BALA AUGIE