• Thursday, March 28, 2024
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BusinessDay

UBA, Access Bank join Zenith, FBNH in N5trn+ asset club

UBA (1)
First they were two, now they are four. In the first quarter of the year, UBA and Access Bank joined Zenith Bank and First Bank of Nigeria Holdings (FBNH) in the elite club of banks with total asset above N5 trillion.
While Zenith and FBNH became the first Nigerian banks to enter this elite club in 2017, they were joined by two new entrants in Q1 after the completion of the Access-Diamond merger helped propel Access Bank to an asset base of N6.4 trillion and an expansion in deposit mobilisation helped push UBA to an asset base of N5.1 trillion in Q1 2019 from N4.8 trillion at year-end 2018.
The ranking of largest banks in Nigeria has now been changed based on the latest releases, showing as expected that Access Bank (Assets: N6.4trn) has now become the largest bank in Nigeria by asset, followed by Zenith Bank (N5.8trn), FBNH (N5.5trn), UBA (N5.1trn) and GTBank (N3.5trn).
The current ranking is based on the off chance that FBNH fails to grow its total assets, as the company’s first quarter result is expected to be released soon. Based on its 2018 performance, Nigeria’s elephant bank remains firmly at third position with a balance sheet size of N5.56 trillion as of year-end 2018.
Today, the only member of the Tier 1 bank that has an asset base below N5 trillion is GTBank. The bank posted asset growth of around N270 billion in the first quarter this year, moving from N3.28 trillion in December 2018 to N3.55 trillion by end of Q1 2019.
Although GTBank is the smallest Tier 1 bank, for years it has consistently being the most efficient bank in Nigeria in terms of return on assets, return on equity and cost to income ratio, which has helped the bank to be the second most profitable bank in the country behind Zenith Bank, despite its smaller size.
GTBank is currently N1.44 trillion short of joining the N5 trillion club and in the last conference call the bank spoke about a possible push for more retail customers, which will in turn lead to growth in size and thus further improve profitability.
UBA, a surprise entrant to the elite group, experienced a growth in deposits from customers by around N190 billion, which helped fund a growth of around N154.67 billion in cash and bank balances and N122.49 billion increase in financial assets.
Tochukwu Okafor, a financial analyst, told BusinessDay, “The strong performance in banks is premised on the increase in financial deepening in the country in the last few years. Also, banks have enjoyed rapid earnings expansion in recent times thanks to double digit treasury yields they can enjoy at zero risk in recent times.”
Investors have good reasons to believe profitability and size are related. Increasing bank size can increase bank profitability by allowing banks to realise economies of scale. For example, increasing size allows banks to spread fixed costs over a greater asset base, thereby reducing their average costs.
Increasing banks’ asset size can also reduce risk by diversifying operations across product lines, sectors, and regions. Lower risk can promote profitability directly by reducing losses or indirectly by making liability holders willing to accept lower returns, thereby reducing banks’ funding costs.
At the end of Q1, the members of the elite club (excluding FBNH, which is yet to release its Q1 results) controlled around N17.3 trillion in assets and generated about N120 billion in profit after tax, representing a return of average asset of 2.9 percent.
Among the elites, only Zenith Bank saw its total assets decline as the bank reported total assets of N5.87 trillion, a reduction of about N80 billon from its N5.95 trillion achieved by year end 2018 after gross loans declined by 4 percent and customer’s deposits declined by 3 percent during the first three months of the year.