• Friday, March 29, 2024
businessday logo

BusinessDay

Banks are star performers among NSE 30 firms

Nigeria’s banks most reluctant to lend among emerging markets – Bloomberg

The macroeconomic environment has been tough and unpredictable, while low consumer purchasing power and decrepit infrastructure are making it practically difficult for companies to thrive.

Amid these monumental challenges, the 30 most liquid and capitalised firms, otherwise known as Nigerian Stock Exchange (NSE) 30, that have released full-year results saw cumulative profit increase by 29.23 percent to N1.38 trillion in December 2018, from N1.06 trillion as at December 2017.

But a breakdown of the figure shows the major drivers of bottom-line were banks, who saw combined net income move by 24.92 percent to N778.85 billion in the period under review, thanks to a reduction in bad loans and foreign exchange gains that helped compensate for drop in interest income.

Banks have been leveraging on the high yield environment as impetus to revenue, a strategic plan that hinders them from lending to the economy as evidenced in slow loan growth.

“The business that they do is the gateway to the economy. Money must pass through the financial ecosystem. You can also see that there is competition as a lot of them have started retail banking,” said Ayodeji Ebo, managing director and CEO, Afrinvest Securities Ltd.

“For consumer firms, it is more of structural issues as consumer wallets remain squeezed and people are not buying as they used to. The cement firms are able to increase prices as they continue to enjoy oligopoly,” Ebo said.

The hardest hit by a sluggish economy are firms in the consumer goods sector, an industry that is beset by menacing gridlock at the Apapa port, competition, double taxation, smuggling, and pressured consumer wallets.

To further exacerbate the already anaemic situation of companies, they can no longer pass on cost to the final consumer because they had hiked the price of products three years ago to fend off the effects of a severe dollar scarcity on cost of production.

For instance, combined net income of nine largest companies on the NSE 30 lists dipped by 24.92 percent to N99.22 billion as at December 2018. However, only Nestle Nigeria and Unilever bucked the trend as they recorded an uptick at the bottom-line.

While a rebound in crude oil price since the start of 2018 is a boon for upstream oil and gas firms as OPEC and its allies continue to cut output with a view to stabilising price, the combined net income of both upstream and downstream oil and gas firms dipped by 47.48 percent to N207.28 billion in the period under review.

Other challenges that continue to hinder business growth and development in Nigeria include elevated borrowing costs, financial problem and insufficient demand and access to credit.

Analysts say there is the need for strong structural reforms to galvanise the various sectors of the Nigerian economy.
The most important thing is that Nigeria is stuck is low growth circle environment and companies are going to struggle to grow volumes and if they can’t, they will have to increase prices, according to analysts at Chapel Hill Denham Ltd.

“The Federal Government will have to formulate policies that will stimulate growth and help companies deliver higher return on investment to shareholders,” Chapel Hill analysts said.

Nigeria’s unemployment rate increased from 18.8 percent in the third quarter of 2017 to 23.1 percent in the third quarter of 2018, according to the National Bureau of Statistics (NBS).

While February inflation has fallen to 11.31 percent from 11.44 percent in January, the figure is below the 6 percent and 9 percent CBN range.

 

BALA AUGIE