If there were any doubts that banks are true titans of business in Nigeria, the 2019 performance of Nigerian banks is set to dispel any such thought. The New Year marks the beginning of the audit season for Nigerian banks who will be preparing their financial performance for the full year 2019 for stakeholders.
Analysts who spoke to BusinessDay say they forecast that the 13 publicly listed banks on the Nigerian Stock Exchange (NSE) earned between N920 and N960 billion in 2019, representing an 11.35 percent growth in Profit after Tax over what was recorded in 2018.
BusinessDay analysis of the 2019 nine months performance of the banks revealed that they generated about N716.9 billion in net profit between Q1 and Q3. Assuming the profit trend continues till year end, the annualized 2019 net profit is expected to reach N955.8 billion.
In the two years post-recession, the profitability of the 13 banks have grown from N447.8 billion to N858.4 billion in 2018, marking a growth of 92 percent. With profits expected to exceed N900 billion in 2019, this will mean that banks have been able to double their profit in just 3 years post-recession.
This remarkable profit report speaks volume to the financial strengths/levers of banks who have continued to expand their bottomline at double digit pace despite the slow economic growth environment. While the industry appears to be very profitable, almost three quarters of the profit generated by the banks was contributed by the five Tier 1 banks alone.
Tier 1 banks generated profit of N521 billion in the first 9 months of 2019, which is 14.5 percent greater than the N455.9 billion generated during the same period in 2018. The 9 months profit by Tier 1 banks in 2019 accounted for 73 percent of the industry profit, up from 70 percent during the same period the previous year, proving that profit growth in the Tier 1 banks outpaced the other bank Tiers.
Despite the 11.35 percent growth forecasted for Nigerian banks, the banking index returned -11 percent in the last one year as bank shareholders have continued to suffer from broad market selloffs on the local bourse.
Many analysts struggle to comprehend why banks are most affected by the negative sentiment of bearish investors in the capital market.
“Banks have been the main muscle of the Nigerian capital market for years. Investors have earned steady dividends which we expect to climb by at least 10% considering the strong growth in profitability recorded last year,” said Obinna Uzoma, chief economist at EUA Intelligence.
“I think the surge in regulatory risk for banks last year caused investors to panic and triggered another round of selloff like we saw in 2018 during the election selloff season. However, considering most foreign investors are invested in bank stocks, anytime they exit our markets, banks stocks typically decline on increased selling pressure,” he added.
“I don’t think 2020 will be as rosy for the banks as the last 3 years considering that yields which were in double digits since 2016 have now declined to less than 7 percent. Also, cost of risk and non-performing loans is expected to trend higher with the rush to increase loan exposure based on the new directive of CBN to raise loan to deposit ratio to 65 percent. The increased loan loss provisioning and lower prime lending rates and lower treasury yields in 2020 will have a negative impact on profit growth this year. However, we already see banks trying to protect their net interest margin by giving very low deposit interest rates which should pull interest expense lower this year which adds some positives to hope for a decent profit growth for 2020,” Uzoma concluded.
