Nigerian lenders struggling with a slump in oil prices, weak naira and stringent regulations by the Central Bank have managed to grow profits despite the headwinds.
Banks have temporarily meandered the obstacles as the cumulative net income of 14 commercial bank’s which have released half Year 2015 earnings, increased by 14.75 percent, to N293.95 billion, compared with N256.17 billion last year.
This compares with a 3 percent earnings decline between the 2013 and 2014 half year period.
The high yields on investment securities are largely responsible for the growth in income for the banks, according to Tajudeen Ibrahim, team head, Chapel Hill Denham Limited, a Lagos based securities firm.
“This can be sustained throughout 2015 given that interest rates will likely remain elevated over the period. The upward repricing of assets, in line with the higher interest rates in the market, also partly underpinned interest income in Q2-15,”said Ibrahim in an email note to BusinessDay.
Analysts say the 15 percent increase in interest income is laudable, given the rule forcing banks to place 31 percent of deposits with regulators.
This deposit regime is crimping the revenue generating capacity of lenders.
The Central Bank of Nigeria applied rules and restrictions to stabilise the naira after it declined to a record low in February as the price of oil, the nation’s major foreign-exchange earner fell by a half in the second half of last year.
The apex bank has devalued the naira twice since November and prevented banks from buying dollars in the interbank market without matching orders, steadying the exchange rate, while reducing liquidity.
The naira has dropped 17 per cent against the dollar in the past six months, the most among 24 currencies tracked by Bloomberg.
While banks top and bottom lines grew, cumulative loans to customers increased by a mere 5.33 percent to N1.26 trillion in the period under review, from N1.18 trillion last year as macroeconomic headwinds begin to take a toll.
Deposits from customers moved by a single digit 4.5 percent to N1.83 trillion.
The cumulative loan to deposit ratio increased to 70 percent in June 2015 from 68.90 percent last year.
“Largely on account of the challenged macro clime following the decline in oil price, we do not see a sector wide loan book growth in excess of the 20% recorded over the last two years over FY 2014,” said Wale Okunrinboye a research analyst at ARM Investment Managers, in an emailed response to questions
“Firstly, the tamer oil price provides a less compelling story for lending to upstream oil and gas which accounted for 40% of 2014 credit growth by our estimates,” said Okunrinboye.
Analysts at Chapel Hill in a June 30 report, identified three key factors that will in part determine the loan growth of the sector in the full year 2015.
The first is liquidity, which will be driven by the monetary policy of the CBN, particularly in relation of CRR.
The second is capital adequacy requirement as the banks brace up for Basel ll. The third is pricing, as the banks will have to charge competitive interest rates on loans, amid rising costs of fund.
Nigerian banks are also treading on dangerous ground, as non performing loans may exert pressure on balance sheets and increase loan loss expenses, signalling future dent to the bottomline.
The recent lists of delinquent debtors released by banks on the pages of newspapers, with some companies in a moribund state, means lenders will write-off more bad debts.
In the period under review, the cumulative impairment charges on financial assets of the 14 banks was N87.89 billion, representing a 69.86 percent increase from N51.74 billion recorded last year.
BALA AUGIE
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