It is a mixture of good and bad for Nigeria’s largest banks that have released second quarter/half-year (HI) results. Coming into 2020, investors and analysts had anticipated that interest and non-interest income would be further pressured while margins constrained.
But the unprecedented economic uncertainties caused by the coronavirus pandemic that disrupted business activities across the globe has worsen the pains of operators in the industry.
Expectedly, the combined interest income and similar charges of the largest listed lenders dipped by 0.79 percent to N1.37 trillion from N1.38 trillion the previous year, data gathered by BusinessDay show.
Analysts had expected the drop in interest income components of revenue as banks had been forced to lower interest rates earlier in a bid to meet the Loans to Deposit Ratio Requirement.
Also, the hike in Cash Reserve Ratio (CRR) by the central bank to stimulate the economy during Covid-19 crisis and the low interest rate environment and declining rates on fixed income securities (OMOs and bonds) cast a pall on future earnings of banks.
“Banks have announced various types of relief programmes and made provisions for restructuring of loans, which involve payment holidays,” said analysts at United Capital in a recent note to clients.
“The summary of the factors highlighted above means that the interest income on loans is expected to reduce,” they said.
The combined total and advances for the 12 largest lenders increased by 8.37 percent to N16.46 trillion in June 2020 from N15.19 trillion the previous year, according to BusinessDay calculations.
Combined total assets were up 19.10 percent to N41.56 trillion as at June 2020, thanks to increases in deposits from customers, trading assets and loan growth, according to the data gathered by BusinessDay.
According to a recent report by the Central Bank of Nigeria (CBN), banking sector’s credit to the private sector rose by N757 billion or 2.57 percent to N30.189 trillion as at July 2020, compared with the N29.432 trillion it was at the end of June.
The surge in lending to the private sector could be attributed to the central bank’s aggressive development finance as well as measures it introduced to cushion the effects of the COVID-19 pandemic on households and micro, small and medium scale enterprises, in which the banks are the participating financial institution.
Nigerian listed banks made money from fees and commission income and gains on foreign exchange transactions as they collectively realised N695.47 billion in non-interest income as at June 2020, thanks to a 148.88 percent surge in Access Bank’s non-interest income.
A breakdown of the figures shows Access Bank’s net income dipped by 1.35 percent to N61.03 billion as at June 2020, as the lender continues to grapple with spiralling operating expenses and deteriorating asset quality despite realising N103.12 billion from net gains on financial instruments.
Of the 12 banks analysed so far, only Zenith Bank, FirstBank Holdings, First City Monument Bank (FCMB) Group, Fidelity Bank, and Stanbic IBTC Holdings recorded profit growth.
The current economic trend shows the banking sector was among the winners as a recent data by the National Bureau of Statistics (NBS) show the financial institutions recorded growth of 24.18 percent in the second quarter.
“We highlight that the financial institutions growth was driven by credit growth, which was on the back of the minimum loans to deposit ratio (LDR) requirement by the CBN of 60 percent at the end of the third quarter of 2019,” analysts at Chapel Hill Denham Limited said.
