FBN Holdings, Fidelity Bank and Stanbic IBTC have posted the most improved growth in profit after tax(PAT) in the last three years. This is one of the findings from the analysis of the growth in banks’ profit after tax (PAT) from 2016 to 2018. This analysis focused on the financials of Fidelity Bank, Stanbic IBTC, FCMB, Sterling, Union Bank, Zenith, Access Bank and Wema. Others are GTB, UBA, FBN Holdings and Unity Bank.
While PAT is just one of the metrics to measure banks’ performance, it will not be out of point to say that the consistency in profitability by the three banks shows their resilience in an economic characterised by uninspiring growth in the last three years. Recall that the Nigerian economic growth averaged about 2 percent during the reference period.
FBN Holdings late last week announced its audited financial statement for the period ended December 31, 2018. It posted N59.67 billion profit after tax for the period, which amounted to a 58 percent increase over N37.71 billion PAT in 2017. The 2017 PAT also translated to 208 percent increase over N12.24 billion PAT realised in 2016. This amounts to an average increase of 133 percent over the three-year period, a performance that not only beat the industry PAT growth of 24 percent; it equally placed FBN Holdings as the best performed financial group by PAT growth between 2016 and 2018.
“I will have to say that FBNH profit levels were higher than we projected, owning to our impairment charges expectation. The bank took impairment of N86 billion while we projected N100 billion because of our perception of the weak asset quality.
“However, as good as the profit is, the key element to evaluate for the bank is its NPL levels and impact it is having on its capital buffer (CAR). NPL ratio came in higher at 25.7 percent while CAR weakened to 17.3 percent”, said Chinonye Nnewuihe, senior analyst with Meristem Securities
Fidelity Bank’s PAT growth during the 3-year period averaged 127 percent. In 2016, the bank made N5.46 billion PAT which increased by 226 percent to N17.77 billion in 2017. Fidelity bank further increased its PAT to N22.92 billion in 2018.
Stanbic IBTC’s PAT during the period rose by 60 percent on the average. From N18.89 billion in 2016, the bank grew its PAT by 51 percent to N28.5 billion in 2017, and further by 70 percent to N48.38 billion in 2018.
First City Monument Bank, FCMB, recorded an average of 37 percent growth in its PAT during the period. It recovered from a decline in PAT which fell from N3.73 billion in 2016 to N1.52 billion in 2017, but later rose to N3.55 billion in 2018, translating to an increase of 133 percent between 2017 and 2018.
With three banks operating holdings company licenses among the top five when measured by the 3-year growth in PAT, the debate will continue to range among industry analysts the best banking model between those operating holdings company structures, international banking and national banking licences. In the last banking reforms, deposit money banks were given the options by the Central Bank of Nigeria (CBN) to operate any of the holdings company structure, international, national or regional banking licenses.
In addition to having international banking presence, banks with Holdings Company licenses are permitted to have subsidiaries, while those with international banking licenses are not allowed to have subsidiaries.
FBN Holdings with controlled 9 percent of the industry profits in 2018 as against 7.1 percent in 2017 in spite of the strong growth in PAT during the period. Fidelity Bank with a national banking license topped the three-year PAT growth chart but controlled just 3.8 percent of the industry profits in 2018, an increase over 3.6 percent share of industry profits in 2017.
Stanbic IBTC with a holdings company license performed strongly on the PAT growth chart but controlled 7.3 percent industry profits in 2018 compared with 5.4 percent in 2017. FCMB exhibited the trend with 0.5 percent share of industry profits in 2018 as against 0.3 percent share in 2017.
On the contrary, Zenith Bank with recorded 26 percent growth in PAT during the three-year period controlled 29.2 percent share of the industry profits in 2018 compared with 32.9 percent share in 2017. Guaranty Trust Bank (GTB) which posted 15 percent growth in PAT during the 3-year period accounted for 25.2 percent share of the industry profit in 2018 in contrast to 30.1 percent share in industry profits in 2017. And Access Bank, which recently absorbed Diamond Bank, witnessed 23 percent growth in 3-year PAT but controlled 14.3 percent share of the industry profits in 2018, which was in increase over 11.4 percent share of industry profit in 2017.
The marginal share in industry profits of banks operating holdings company structures compared with banks with international banking licenses on one hand, and the significant three-year PAT of each bank as shown by industry performance, which doesn’t really show a clear cut trend, implied that a caution has to be exhibited when comparing the efficacy of banking licences in Nigeria, some analysts said.
United Bank for Africa (UBA) saw its three-year PAT growth decline by 7 percent during the reference period. It posted an average of N41 billion PAT during the period.
“It will be wrong to conclude that holdings companies are not profitable like other banks because Stanbic IBTC, which is also an holdings company reported strong growth numbers and it has the highest return on average equity in the banking industry as at 2018FY. It is pertinent to understand the key fundamentals underlying each business, be it a pure play commercial bank or holdings company before making that generalization.
Nonetheless, the rationale for most banks like ours to choose pure play international commercial banking license is simple: maintain lean, cost efficient structure that avoids duplicated cost, potential double taxation, and bureaucracies that are often common in holding companies, particularly as the contribution from the non-core banking businesses were so strong to justify keeping them within an holding company structure. Interestingly, shareholders are today better-off with the creation of those non-core businesses as separate companies, as it has been a major value creation for UBA shareholders, who now earn dividends from multiple sources and continue to see value creation from all fronts”, Rasak Abiola, head investor’s relations, the United Bank for Africa (UBA), said.
First Bank Holdings has proposed to pay shareholders 26 kobo final dividend for 2018. Closure period is from April 23-29, 2019 while the Annual General Meeting (AGM) will hold on May 3,2019 at the Grand Ball Room, Oriental Hotel, VI, Lagos.