BusinessDay

Nigerian banks find non-core lending irresistible despite rate hikes

… Zenith outpaces peers

Nigerian banks are growing their income from investment securities, and other non-core banking functions to boost their earnings, despite the recent move by the Central Bank of Nigeria (CBN) to hike interest rates.

The banks saw gains from investing in bonds, treasury bills, and foreign exchange, reporting a cumulative net trading income of N139.76 billion in the first half of 2022, a 29.21 percent increase from N108.17 billion in the first half of 2021, according to BusinessDay’s findings. Additional data sourced from available half-year financial statements of eight commercial banks on the Nigerian Exchange Group showed Zenith bank reporting the highest trading income in the first half of 2022, with gains from the treasury bills contributing the bulk of total trading income.

Net trading income comprises gains and fewer losses related to trading assets and liabilities and includes all realised and unrealised fair value changes, dividends, and foreign exchange differences.

The surveyed banks include Zenith Bank, Guarantee Trust Holding Company (GTCO), FBN Holdings Plc (First Bank), United Bank for Africa (UBA), FCMB, Sterling Bank, Fidelity Bank, and Wema Bank.

Here is a detailed breakdown of BusinessDay’s findings:

Nigerian banks

Bright spots

Zenith Bank

Zenith Bank reported trading gains amounting to N85.19 billion in the first half of 2022, a 43.7 percent increase from N59.27 billion recorded in the first half of 2021.

Income generated from the trading of financial instruments by the bank accounted for 21.05 percent of the bank’s gross earnings reported in the first half of 2022. Zenith bank’s gross earnings grew by 17 percent to N404.76 billion in the first half of 2022 from N345.55 billion in the corresponding period of 2021.

Gain on treasury bills’ fair value through profit or loss (FVTPL) accounted for 94 percent of total trading income realised in the period. The gain on treasury bills reported by the bank amounted to N80.7 billion, while gains on bonds and other trading books amounted to N933 million, and N3.13 billion respectively in the first half of 2022. The bank also generated interest income on trading bonds amounting to N390 million during the period under review.

Guarantee Trust Holding Company (GTCO)

GTCO’s net trading income grew by 33.35 percent to N23.59 billion in the first half of 2022, from N17.69 billion in the corresponding period of 2021. Net foreign exchange trading gain accounted for 86.99 percent of the total trading income realised by the bank in the first half of 2022.
Gains from net foreign exchange trading amounted to N20.52 billion, gains from bonds amounted to N1.46 billion, gains realised from treasury bills, N1.45 billion, and gains from euro bonds, N165 million. The bank’s gross earnings during the period grew by 15 percent to N239.28 billion from N207.91 billion in the first half of 2021.

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United Bank for Africa (UBA)

United Bank for Africa reported a net trading and foreign exchange income of N9.15 billion in the first half of 2022, up from N9.1 billion reported in the first half of 2021.

During the period, UBA generated income from the trading of fixed income securities worth of N14.18 billion, foreign exchange trading worth N15.48 billion, and foreign currency revaluation worth N2.08 billion.

The bank, however, generated a loss from the net fair value on derivatives amounting to N22.6 billion in the first half of 2022.
FCMB Group Plc

Net trading income reported by FCMB grew by 131.8 percent to N6.12 billion in the first half of 2022, up from N2.64 billion in the corresponding period of 2021. During the period, the company generated income from trading treasury bills amounting to N4.66 billion, FGN bonds amounting to N905 million, and foreign exchange amounting to N557.98 million. FCMB gross earnings for the first half of 2022 grew by 33.95 percent to N126 billion as against N94 billion reported in the first half of 2021.

Sterling Bank

Sterling Bank’s net trading income in the first half of 2022 grew by 218 percent to N3.88 billion from N1.22 billion in the first half of 2021. It reported gains from the trading of bonds, treasury bills, and foreign exchange which amounted to N2.68 billion, N539 million, and N1.46 billion respectively, while it reported a foreign exchange revaluation loss of N804 million in the period under review.

The bank grew its gross earnings by 16.5 percent to N78.38 billion in the first half of 2022 from N67.26 billion in the first half of 2021.

Fidelity Bank

Fidelity Bank reported net gains arising from financial instruments amounting to N866 million, up from a net loss from financial instruments of N4.99 billion reported in the first half of 2021. The bank saw gains from the trading of bonds and treasury bills rise to N1.2 billion and N115 million respectively. A loss on derivatives amounting to N464 million was recorded in the first half of 2022.

Fidelity Bank grew its gross earnings by 37.88 percent to N154.8 billion in the first half of 2022 from N112.3 billion in the same period of 2021.

Few Odds

FBN Holding Plc (First Bank)

First Bank of Nigeria’s trading income in the first half of 2022 declined by 49.75 percent to N11.27 billion from N22.43 billion in the first half of 2021. During the period under review, the bank reported a trading loss on debt securities totalling N1.43 billion and fair value gains of N12.07 billion.
The bank also generated income from the gains realised on the sale of investment securities which amounted to N22.4 billion, and foreign exchange income of N10.76 billion in the first half of 2022.

WEMA Bank

WEMA Bank reported a net trading income of negative N290 million in the first half of 2022, down from N813 million in the first half of 2021. The bank, however, saw gains from trading fixed-income securities and foreign exchange trading amounting to N130 million and N126 million respectively in the first half of 2021.
The bank realised a loss on trading treasury bills which amounted to N530 million in the first half of 2022. Its gross earnings grew by 45.87 percent to N60.29 billion in the first half of 2022 from N41.33 billion in the first half of 2021.

Expert’s take

Oluwaseun Arambada, bank and telecommunications analyst at FBNQuest said: “the general view of banks is that the interest rate hike was anticipated. As a result, they had taken positions to mitigate a pronounced impact of the increase in the interest rate on investment securities.”

“They positioned themselves on shorter tenured securities. For some, trading income was driven by the increased volume of trades and some gains from FX trades,” he added.
Ngozi Odum, financial services analyst, CardinalStone also explained that “banks had anticipated the interest rate hike and as a result, positioned their balance sheets to take advantage of the hike.”

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