Nigerian Banks are ingenious enough to overcome the wind of turbulence as they continue to see margin expansion in the first quarter (Q1) of 2019.
Hitherto, they bought up local government bonds that offered among the highest yields in emerging markets, though they reduced credit to companies and consumers hampered by challenges in an economy too dependent on oil.
Today, lenders are taking reaping the fruit of copious investment in latest technology, retail banking, and aggressive loans recovery as non interest revenue (fees and commission income and accounts maintenance charge) have helped compensate them to turn each Naira invested into higher profit.
Also cost curtailment also added impetus to profit, albeit there room for improvement.
A cursory look at the first quarter financial statement of 12 largest banks quoted banks quoted on the floor of the bourse shows cumulative average net profit margin increased to 19.40 percent in March 2019 from 18.15 percent the previous year, according to data gathered by Markets intelligence.
The major drivers of efficiency ratios were 24.15 percent reductions in impairment charge to N23.73 billion in the period under review. While total operating expenses were up by 3.39 percent to N309.81 billion, the figure is lower than the 11.25 percent inflation figure.
Ten of the twelve banks under our coverage recorded improvement at the bottom line (profit) as cumulative net income increased by 16.50 percent to N223.97 billion from N192.25 billion a year ago.
“We observed that profitability was supported by higher non-interest income and lower impairment charges, which partly offset the pressure on Net Interest Margin (NIMs),” said Analysts at Chapel Hill Denham Ltd.
“NIMs are under pressure due to lower fixed income yields as well as weak loan growth amid the soft macro,” said analysts at Chapel Hill.
Drilling down the figures shows Guaranty Trust Bank (GTBank)’s net profit margin of 41.27 percent as at March 2019 outperformed industry average of 19.48 percent, based on data gathered by Market Intelligence.
Access Bank recorded the largest expansion in margins among the lender under our coverage. Net profit margin increased to 37.14 percent to 37.14 percent in the period under review from 25.34 percent the previous year.
Zenith Bank’s net profit margin moved to 31.76 percent in the period under review as against 27.52 percent the previous year.
United Bank for Africa (UBA) saw margins increase to 31.76 percent in the period under review compared to 27.52 percent as at March 2018.
Stanbic IBTC Holdings Plc’s net profit margin of 31.76 percent in the period under review outperformed industry average, but the figure is lower than the last year’s 40.18 percent.
Analysts are of the view that yields on government securities will remain attractive since the Central Bank of Nigeria (CBN) is aggressively mobbing out excess liquidity with a view to curbing inflation and stabilizing the economy.
Following the unexpected interest rate cut in March, short term instruments rallied in April with average NITTY closing lower by 16bps mom to 13.03 percent due to the CBN’s accommodative stance with regards to money market liquidity.
“Even in the event of a moderation in yields on fixed income instruments, many banks believe that as long as yields remain above 10%, they still remain attractive considering that fixed income instruments have no Capital Adequacy Ratio (CAR) implications, are tax free and do not result in NPLs,” said analysts at CSL Stock Brokers Ltd.