The performance of Nigeria’s biggest banks supported industry gross earnings which grew 6.8 percent in the first half of 2019 as top-line growth of the tier-one banks dwarfed mid-tier peers’, a report by Lagos-based Cordros Securities show.
The banking sector reported a total industry gross earning of N2.36 trillion as tier-one banks recorded a stronger growth of 7.6 percent year-on-year to N1.86 trillion compared to the 3.9 year-on-year growth by tier-2 banks which recorded N502.17 billion recorded.
“The performance of the sector remained on track with our expectations,” analysts at Cordros said.
According to the analysts, the top-line growth was supported by interest income growth, rose 5.8 percent year-on-year to NGN1.68 trillion and contributed 71.1 percent to gross earnings.
The increase was on the back of growth from in income from investment securities (+18.6% y/ y to N611.13 billion), while income from loans to customers pared (-3.0% y/y to NGN932.52 billion).
“The weak growth in income from loans and advances was expected, especially in light of the marginal growth in loans and advances in the sector, ” Cordros also noted.
The report showed that in the period interest expense growth outpaced income growth and settled 8.5 percent higher year-onyear at NGN694.15 billion, as pressure was exerted on borrowing costs given high interest rates, while increasing competition for customers deposits also contributed to the upward pressure.
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“This was noticeable across the sector as pressure was exerted on both tier- 1 and tier- 2 banks, which recorded expansions of 8.6 percent yearon-year and 8.3 percent year-on-year to NGN507.97 billion and NGN186.18 billion respectively,” the analysts said.
“Given that yields are trending upwards, we expect interest expense to remain elevated through the rest of 2019.”
Despite the expansion in expense outpacing income, net interest income (NII) expanded by 4.0percent year-on-year to NGN984.92 billion.
Given the significant decline in credit impairment charges by 57.0 percent to NGN56.30 billion, NII (exLLE) settled 13.8 percent higher year-on-year, Cordros said.
The investment house also said the decline in loan loss expenses was expected, given that the pressured macro- economic environment in the previous financial year resulted in increased provisioning, due to change in credit worthiness of obligors.
Also, the analyst do not expect significant pressure on the line for the rest of 2019, but believes the adoption of the expected credit losses (ECL) model to impact the line item in future periods.
In the period, Noninterest income growth was strong and supported by the expansion in fee and commission income (+ 18.0% y/ y to N357.78 billion), the report shows.
According to Cordros, the greater proportion of growth was witnessed by tier- 1 banks, which recorded growth in fee and commission income of 20.8 percent year-on-year to N280.77 billion, relative to 9.0 percent year-on-year to N77.01 billion recorded by tier two banks.
Analysts at Cordros said the growth may be tied to the increased adoption of mobile services.
“We expect good growth in this line in the current period, and going forward (although not at this pace of expansion).”
Cordros also expect nonfunded income to be better supported by trading income from fixed income securities in the final part of the year as the yield environment is expected to be volatile. In H1-19, net gains on investment securities declined by 29.1 percent yearon-year to N114.63 billion.
