Banks’ return on owners’ funds improve to 5 year-high in Q1

Banks returns on owners fund

Nigerian banks demonstrated greater efficiency in utilising owners’ investment to generate earnings as the return delivered on shareholders’ fund accelerated to a 5-year high in the first quarter of 2019. The return on equity (ROE) of all the 13 listed banks on the Nigerian Stock Exchange (NSE) climbed marginally to 4.16 percent in the review quarter, 0.04 percentage
points more than 4.12 percent recorded in the previous comparable period.

The return on equity ratio is a key efficiency indicator that evaluates he ability of a company
to generate profit from its shareholders investment. ROE shows how much profit each naira of
common stockholders’ equity generates. A high ROE when compared with peer(s) or historical performance of a company indicates how the company is effective in using equity financing to fund operations for growth and expansion.

Given the first quarter ROE figures, lenders were able to generate N4.2 from every unit held in banking stocks in 2019, an addition of 4 kobo year-on-year, while they grew profit marginally to a 5 year high of N255 billion. Since 2016 when Africa’s largest economy witnessed its first economic downturn, lenders have been growing their returns on shareholders’ fund steadily even though the latest growth seen in three months to March 2019 has been the weakest.

The combined ROE figure for the 13 lenders averaged 3.75 percent in 2015, dipped 0.43 percentage points to 3.26 percent in 2016, and rebounded to 3.75 percent again in 2017, after which it trended upwards to 4.12 percent and 4.16 percent in 2018 and 2019 respectively. The five tier-one lenders, First Bank, Zenith Bank, UBA , GTB and Access Bank generated N5.9 on each unit of common stock in the review quarter, N2.8 higher than N3.1 realized by their mid-tier counterparts.

While the big banks saw improvement in their ROE by N1.7 in the first quarter of 2019, then figure for the mid-tier banks contracted 2 kobo. The cumulative net income of the 13 quoted
banks grew faster than their shareholders’ equity at 64 percent versus 23 percent, without adjusting for inflation.

The combined after tax profit of the five big lenders surged 72 percent to N185.1 billion in 2019’s first quarter, from N107.4 billion five years earlier, higher than the 43 percent appreciation in eight mid-cap lenders net earnings to N69.4 billion. Total shareholders’
funds of big lenders climbed N1.1 trillion higher to N3.1 trillion in the review quarter, while the figure shed N200 billion for mid-tier banks in similar period.

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