• Thursday, March 28, 2024
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BusinessDay

Banks’ profits surge the most since 2015 bad loan crisis

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The gradual recovery in the Nigerian economy combined with higher oil prices is beginning to show up in the numbers of banks as their profit has grown the most since the recent bad loan crisis.
For the year ended December 2017, after tax profits for the 10 lenders that have reported results spiked by 44.28 percent to N693.92 billion from N478.19 billion the previous year (2016).
The banks are Zenith Bank Plc, Access Bank Plc, Fidelity Bank Plc, First City Monument Bank (FCMB) Plc, Guaranty Trust Bank (GTBank) Plc, Stanbic IBTC Holdings Plc, First Bank Nigeria Holdings Plc, Sterling Bank plc, Wema Bank Plc, and United Bank for Africa (UBA) Plc.
For the full year period ending 2016 the 10 banks saw their profits increase by 21 percent, while there was a 12.32 percent decline in profits in 2015 a period when the sudden drop in crude oil prices from above a $100 per barrel to near $40 forced banks with heavy exposure to the sector to write off loans that began to go bad.
The unprecedented growth at the bottom line (profit) means these lenders have surmounted some of the issues that undermined earnings in the crisis period as a gradual economic recovery helped bolster earnings since customers are paying back some the money borrowed.
Also, some lenders have taken a haircut in 2016 on Non-Performing Loans (NPLs), a proactive strategy that validated their risk management strategy.

Between 2014 and 2015, the number of banks with NPL ratio in excess of the 5 percent threshold rose from 3 to 8. Furthermore, NPL in 3 of these banks exceeded 10 percent, while NPLs rose in 18 of the 22 buckets into which the CBN classified Deposit Money Bank (DMB) lending.

The period that profit dipped was when non-performing loans (NPLs) were rising, according to Wale Okunrinboye, analyst at Sigma Pensions Limited.
“High yield environment boosted bank’s interest income. Yields were between 22 percent and 18 percent at some point in 2017,” said Okunrinboye.
The gross domestic product of Africa’s largest oil producer expanded for three straight quarters last year after a 1.6 percent contraction in 2016, with year-on-year growth reaching 1.9 percent in the final three months of 2017.
Apart from an increase in crude prices, the introduction of a new foreign-exchange system that ended a crippling shortage of dollars helped attract more investment flows into the country, while improving liquidity for the nation’s lenders.
Drilling down the numbers of some banks shows First Bank Holdings Plc’s profit surged by 226.10 percent to N40.01 billion as at December 2017, an upswing when compared to an 81.97 percent slump in the 2015 crisis period.
First Bank made N288.59 billion interest income on short term government securities as at December 2017, which is 61.40 percent of total gross earnings.
Stanbic IBTC Holdings Plc’s, Zenith Bank Plc, and Guaranty Trust Bank Plc saw profit grow by 69.63 percent, 37.23 percent, and 28.86 percent in the period under review.
Zenith Bank’s profit in 5 years sums up to N604.29 billion, the largest in the industry, based on data gathered by BusinessDay.
This is followed closely by GTBank, with N590.90 billion in cumulative profit for five years as the lender is the most efficient among its peers given its cost curtailment strategy.
Investors and analysts are more concerned about the ability of banks replicating the growth momentum this year as falling yields on treasury bills since August 2017 could be challenging for the industry.
Yields on treasury bills now hovers between 11 percent and 13 percent while bond yields that were between 16 and 17 percent last year now hovers around 12 percent and 13 percent.
For instance, analysts at Fitch a global ratings agency in a recent report said they expect Banks’ profit to take a hit in 2018 on the back of the decision of federal government to cut back on the issuance of treasury bills in 2018.
“We expect falling T-bill yields and lower issuance to put pressure on Nigerian banks’ profitability in 2018. The CBN’s latest issuance schedule shows N1.1 trillion (USD3.6 billion) of rollovers in the first quarter of 2018 against N1.3 trillion of maturing bills,” said Fitch.
Volatility in foreign-exchange related gains, limited scope for cost efficiencies and rising political risks before elections are other challenges that could cloud industry outlook.
Analysts are of the view that banks may see revaluation gains wane while the transition to the IFRS 9 could drive impairment loss especially of the ones that have weak capital adequacy.

 

BALA AUGIE