Tier 2 banks rake in N228bn to account for 29% industry profits


Seven tier 2 banks in the country realised N228.32 billion profits after tax (PAT) in 2018 as against N140.11 billion in 2017 thus leading to an increase in their share of the banking industry profits last year. Their portion of the banking industry profits rose to 29 percent in 2018 up from 23 percent in 2017. The tier 2 banks in the focus include Unity Bank, Wema, Sterling, Fidelity, FCMB, Ecobank Nigeria and Stanbic IBTC.

The implication of this is that for every 100 kobo profit made by Nigerian banks in 2018, the tier two banks accounted for 29 kobo last year as against 23 kobo in 2017, the analysis of their audited financial statements of 11 banks comprising four tier 1 banks and seven tier 2 banks has shown.

On the contrary, the share of the banking industry profits by the tier 1 banks shrank to 71 percent  in 2018 from 77 percent in 2017.  The four tier 1 banks which have so far announced their audited financial statements for the period ended December 31, 2018 are Access Bank, Guaranty Trust Bank (GTB), Zenith Bank and the United Bank for Africa (UBA).

The combined PAT for the four tier one banks increased by 15 percent from N479.4 billion in 2017 to N551.6 billion in 2018. The total banking industry profit after tax for both the tier 1 and 2 banks rose by 26 percent to N779.9 billion in 2018 from N619.45 billion in 2017.

The two groups of banks realised N1.51 trillion as net interest income, which was slightly a decline of about 0.69 percent when compared with N1.52 trillion industry net interest income made in 2017.  From this, the tier 1banks accounted for N902.3 billion in 2018 representing 60 percent of the industry net interest income as against N875.7 billion made in 2017, which amounted to 58 percent of the industry net interest income.

The seven tier two banks earned N605.7 billion net interest income in 2018, which translated to 40 percent of the industry net interest income whereas in 2017, the tier 2 banks made N642.7 billion which amounted to 42 percent of the industry net interest income.

From the view point of net interest income, tier 1 banks increased their share in the industry from 58 percent in 2017 to 60 percent in 2018 while tier 2 banks had their portion reduced to 40 percent in 2018 down from 42 percent in 2017.

Meanwhile, for the first time after a hiatus, Unity Bank made a profit after tax of N1.27 billion last year compared with a loss after tax of N14.9 billion in the previous year. This as its net interest income for 2018 fell by 72.70 percent from N51.2 billion in 2017 to just N13.9 billion in 2018.

Wema Bank posted N3.32 billion PAT in 2018, which led to an increase of 47 percent over N2.26 billion made as PAT in 2017.  Following the same trend, Wema’s net interest income rose by 36.6 percent from N19.8 billion in 2017 to N26.9 billion in 2018.

Sterling Bank recorded 10.18 percent rise in net interest income which moved from N50.2 billion in 2017 to N55.3 billion in 2018, and a 15 percent increase in profit after tax from N8.02 billion in 2017 to N9.2 billion in 2018.

With the tier 1 banks dominating the banking space, analysts are ruling out the likelihood of mergers and acquisitions as it was in the case of Access Bank and Diamond Bank which has scaled the final hurdle with the court of competent jurisdiction endorsing the merger.

“For mergers, I doubt any will consider such move for now. You need to consider the perception it builds for the industry and the regulators. Also, most tier 2 banks have a threshold of 10 percent which is safer to keep.

‚ÄúFor those that may have had capital constraint, most have gone to the bond market to raise subordinated debt to boost their capital adequacy ratio (CAR)‚ÄĚ, said Chinonye Nnewuihe, senior analyst with Meristem Securities.

In Germany recently, Bloomberg reported that the German government was making efforts to help fix Deutsche Bank AG’s merger with Commerzbank AG.

“The high-level discussions,which have included Finance Minister Olaf Scholz and Deutsche Bank Chief Executive Officer Christian Sewing– are looking at concrete ways the government can assist in a potential combination of the country‚Äôs two largest lenders, said the people, asking not to be identified discussing the private deliberations. The talks include potentially changing existing laws to make the steps necessary for a merger less costly”, Bllomberg stated.

Further, Wema Bank is to pay shareholders whose names appear in the register of members N0.03 per share final dividend.

‚ÄúOn May 3, 2019, dividends will be paid electronically to shareholders whose names appear on the Register of Members as at April 26, 2019 and who have completed the e-dividend registration and mandated the Registrar to pay their dividends directly into their banks‚Äô accounts‚ÄĚ, Wema Bank stated in a notice sent to all the stakeholders through the Nigerian Stock Exchange last week.

At the close of business in the first quarter of the year, Sterling Bank led the banking stocks that gained the most during the period. Its share price closed at N2.40 per share representing 26.3 percent year to date gain.  Wema Bank closed at 77 kobo to record 22.2 percent year to date price appreciation while Union Bank of Nigeria (UBN) closed the quarter at N6.65 per share to record 18.8 percent share price appreciation in the first three months of the year.

GTB ended Q1 2018 at N36.05 per share , amounting to 4.6 percent YTD gain; First Bank of Nigeria Holdings closed at N8.20 per share representing 3.1 percent YTD gain; Fidelity Bank closed at N2.06 per share to end the first quarter at 1.5 percent YTD gain.

On the flip side, the worst performing banking stocks are ETI whose share price was down by 5.7 percent YTD; NPF Microfinance Bank at -9.7 percent and Unity Bank at -25.2 percent year to date.



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