How healthy are Nigerian banks?

There has been recent speculation about the health of the Nigerian banking system in the face of lower oil prices, a squeezed consumer and tighter regulations that have hit profits.

Most Nigerian banks are tightening their risk management systems and cost structures, while some have entirely exited some risky businesses like funding fuel importation by downstream operators.

We think that while the banks are facing some headwinds, suggestions about their demise are greatly overblown.

GTBank’s recent FY2014 results give an insight into some of the issues banks have to deal with.

The firm reported that interest expense was up by 20 percent in 2014 compared with 2013, while its loan loss provisions also rose by 146 percent.

However, the bank was still able to grow gross earnings by 15 percent, while net income rose 10 percent. It also declared a final dividend of N1.75 per share

We think most lenders will report profits, although not all would be as spectacular as GTBank’s. We do not foresee any lender reporting losses for the FY2014 period.

In the same vein, Fitch recently affirmed the long-term Issuer Default Ratings (IDRs) of 10 Nigerian banks, with stable outlook.

They are Zenith Bank plc, FBN Holdings plc, First Bank of Nigeria Limited, United Bank for Africa plc, GTBank plc, Access Bank plc, Diamond Bank plc, Fidelity Bank plc, Union Bank plc, and First City Monument Bank Limited.

The ratings are underpinned by continued strong underlying economic growth in Nigeria, particularly in non-oil sectors, according to Fitch.

Fitch expects non-oil GDP growth of 5.5 percent in 2015 (2014: 7.5%), driven by continued economic reforms and limited impact from public sector austerity.

We think the banking sector will rally if FY2014 results continue to be better than expected. GTBank rose 10 percent on Friday to N24.28 per share paring losses this year to -3.75 percent.

 

PATRICK ATUANYA & BALA AUGIE