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When Banks Confront Economic Downturn

If the predictions of experts and rating agencies on the 2015 financial year were to be taken serious, majority of Nigerian banks, especially, the Tier 1 banks should be planning to close shop by now. However, despite all these concerns four banks in this category have reported higher profit to the surprise of many.

There were widespread predictions that the impact of the oil price slump, coupled with regulatory headwinds, will lead to Nigerian banks reporting lower profits for 2015.

In fact, international rating agency, Fitch Ratings, had, in a report issued last August, stated that Nigerian banks were operating in increasingly difficult conditions, which may result in a sharp deterioration of their profitability, asset quality, liquidity and capital ratios.

It noted that Nigerian lenders have had to contend with the increased vulnerability of the oil and gas sector, pressure on the naira, the slower economy and the impact of the full implementation of the Treasury Single Account (TSA).

Few weeks ago, First Bank Holdings, Diamond Bank and First City Monument Bank (FCMB) showed indications that things were not well with the sector when they issued profit warnings almost in quick succession.

Specifically, First Bank Holdings, the industry’s oldest and biggest lender by assets, explained that the reduction in earnings “is a result of the recognition of impairment charges on some specific accounts resulting from a reassessment of the loan portfolio within our commercial banking business.

“This reassessment was driven by the challenging macro-economic environment, coupled with fiscal and monetary headwinds, which have resulted in marked reduction in domestic output.”

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Good News

These profit warnings notwithstanding and in clear contrast to predictions, four tier 1 banks released their result with better improvements from the 2014 results.

Guaranty Trust Bank Plc (GTB) in its audited financial results for the year ended December 2015 showed positive performance across all financial indices. It posted a profit before tax of N120.7 billion, an increase of N4.3 billion or 3.7 per cent over the N116.4 billion reported in December 2014 and gross earnings of N301.9 billion, a surge of 8.4 per cent from the N278.5 billion recorded in the same period of 2014.

Also, the bank’s balance sheet remained strong with 7.2 per cent growth in total assets, from N2.36trillion in 2014 to N2.52 trillion in 2015. Loans to customers grew by 7.5 per cent to close at N1.37 from N1.28 trillion in 2014.

Significantly, despite the implementation of TSA, customer deposits remained relatively stable with a marginal year-on-year decline of 0.49 per cent from N1.62 trillion in 2014 to N1.61 trillion in 2015.

Equally, the bank’s NPL ratio remained low at 3.21 per cent, up slightly from 3.15 per cent in the comparative period of 2014. Following the strong financial showing, the bank is proposing total-Year Dividend of N1.77 kobo per share (inclusive of the 25 kobo interim dividend paid at half year 2015).

Similarly, United Bank for Africa Plc’s audited full year results for the year ended December 31, 2015, showed that the lender recorded a 25 per cent growth in its Profit After Tax (PAT) to N60 billion, translating to a 20 per cent return on average equity.

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The lender’s pre-tax profit rose 21.80 per cent to N68.454 billion, from N56.200 billion a year earlier.

The company also said its full year net earnings grew to N59.654 billion during the period under review, from N47.907 billion recorded in 2014, representing an increase of 24.52 per cent. Besides, the lender said that gross earnings leapt to N314.830 billion compared with N286.624 billion the previous year, accounting for an increase of 10 per cent.

Following the performance, the board, according to a statement by the bank, is proposing a final dividend of 40 kobo per share.

According to the statement, this brings to 60 kobo the total dividend for the 2015 financial year. UBA had earlier paid an interim dividend of 20 kobo per share, following the audit of its 2015 half year results.

Also, Zenith Bank Plc announced a PAT of N105.67 billion, which was a 6.3 per cent increase from the N99.455 billion recorded in 2014 and a 4.9 per cent increase in PBT to N125.616 billion from the N119.796 billion reported in 2014.

The lender also recorded gross earnings of 432.535 billion in 2015, up by 7.2 per cent in 2014. Net interest income grew by 8.8per cent from N206.503 billion to N224.582 billion.

Based on the performance, Zenith Bank Directors recommended a final dividend of N1.55 to shareholders.

The final dividend is in addition to the N0.25 dividend already paid, bringing the total return for the year to N1.80 per share.

Zenith Bank Plc had paid N1.75 dividend per share in the previous year.

After the release of the results, the lender announced that it expects pre-tax profit of N126 billion as well as a loan growth of 5-10 per cent this year.

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Access Bank also announced a modest performance. According to the results announced by the lender, it recorded a PBT of N75 billion for the financial year ended on December 31, 2015, representing a growth of 44.23 per cent compared with N52 billion recorded in the comparative period of 2014.

In addition, aided by its successful rights issue, the bank’s profit after tax appreciated to N66 billion against N30 billion achieved in the preceding year while its gross earnings stood at N337.4 billion in contrast with N245.4 billion in 2014, indicating a growth of 38 per cent.

Furthermore, interest income grew by 17 per cent to ₦207.8 billion in 2015 from ₦176.9 billion in the previous year.

The bank said in a statement that based on the improved performance, the directors recommended a final dividend of 30 kobo per share, bringing the total dividend for the year to 55 kobo.

However, reacting to the development, analysts at Afrinvest Securities noted that the Tier 2 banks may not find it easy like the Tier 1 banks as they had been more adversely affected by the oil price slump than their tier 1 counterpart.

“We imagine that the preference is based on high revenue/profitability upside, stronger cash flow and developed supportive infrastructure that have lowered risk perception.

“However, the current challenges of lower crude oil prices have significantly weakened the assets quality of banks, with oil and gas related NPLs contributing an average of 12.7 per cent to NPL ratio across banks.”