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Banks show resilience amid sluggish economy



Banks show resilience amid sluggish economy

Contrary to forecasts that the economic downturn will significantly impact their bottomline in the short and medium term, deposit money banks (DMBs) in the country generally posted positive results for the first half of this year. Tony Chukwunyem reports

Concern about how the banking industry is faring in the face of a struggling economy certainly eased a bit following the release of impressive half year 2017 results last week by one of the country’s key mid-tier lenders, Fidelity Bank.

Fidelity Bank
The audited results, which were eagerly anticipated given that Fidelity Bank is widely regarded as the bellwether of the country’s mid-tier lenders, showed that the lender’s gross earnings rose by 22.1 per cent from N70.3billion in H1 2016 to N85.8 billion for the corresponding period at June 30, 2017. The growth in gross earnings was driven primarily by a 27.8per cent increase in interest income and a 0.7 per cent growth in net fee income to N11.2 billion.

Similarly, profits increased by 66.7 per cent from N6.1 billion in 2016 to N10.2 billion, in the period under review, just as it recorded significant improvement in other key performance indices such as Net Interest Margin of 7.4per cent, Cost Income Ratio at 67.3per cent and Capital Adequacy of 18.4 per cent.
Fidelity Bank’s CEO, Mr. Nnamdi Okonkwo, attributed the double digits growth in earnings and profits to an effective execution of the Bank’s medium term strategy, which focused on deepening its market share in the Small and Medium Enterprises (SME), Retail and Digital banking business segments.

“Our balance sheet optimization initiatives continued to deliver improved results as Net Interest Margin (NIM) increased by 7.4per cent in H1 2017 from 6.4per cent (2016FY), just as the growth in the yield on our earning assets outpaced the increase in funding costs. The process improvement and digital banking initiatives in the period helped to optimize our cost profile as total expenses declined by 1.8per cent (despite the high inflationary environment), leading to a reduction in our Cost to Income Ratio (CIR) to 67.3per cent” he stated.
He explained that Fidelity Banks’ retail strategy continued to deliver impressive results in HI 2017 as savings deposits, a measure of customer confidence, increased by 3.9per cent to N161.1 billion in June 2017 on the strength of improved cross selling of its digital banking products with about 30per cent of customers now enrolled on our flagship mobile (*770#) and Internet banking products.

Stanbic IBTC
There was also further evidence last week that the country’s lenders are defying the sluggish economy to report positive performances as another leading Tier 2 lender, Stanbic IBTC, released equally impressive results for the period ended June 30, 2017.
The bank’s audited results for the first six months of the year showed that gross earnings jumped to N97.198 billion, an increase of 36.28 per cent over the N71.320 billion recorded in the corresponding period of last year.

The results also showed that Profit Before Tax (PBT) increased by 86 per cent to N29.169 billion during the period, from N15.682 billion last year. Similarly, Profit After Tax (PAT) at N24.112 billion, was a growth of 113 per cent compared to N11.317 billion in the corresponding period of 2016.
Interestingly, commenting on the performance, Chief Executive Officer, Stanbic IBTC Holdings Plc, Yinka Sanni, stated: “The domestic environment in the first half of 2017 recorded a decline in headline inflation, improved foreign exchange liquidity and a gradual economic expansion as measured by the Purchasing Managers’ Index. The improved operating environment positively impacted our businesses leading to significant improvement in our financial results.”

Tier 1 banks set the pace
Indeed, earlier, four out of the industry’s five Tier 1 lenders, had reported half year 2017 results, which so beat estimates that they sparked a flurry of reactions from financial experts trying to explain how the banks were able to perform so well despite the tough economy.
For instance, Guaranty Trust Bank (GTB) reported a 16.6 per cent increase in PAT from N71.8 billion in the first half of 2016 to N83.7 billion for the same period this year. At N101.1billion, the bank’s PBT grew by 18 per cent over N85.69 billion recorded in the corresponding period of June 2016.

The bank has also seen its gross earnings for half year 2017 grow by two per cent to N214.1billion from N209.9billion reported in June 2016; driven primarily by growth in investment securities income, as well as income from risk assets.
Also, the half year 2017 results of another leading Tier 1 lender, Zenith Bank show that gross earnings rose by 77.1 per cent to N380.44billion from N214.81billion reported for the same period in 2016. It also declared a PAT of N75.32 billion, a 112.35 per cent rise from the N35.47 billion posted in the preceding period of 2016. Its PBT rose to N92.18 billion, compared with N53.91 billion in 2016.
Similarly, Tier 1 lender, Access Bank’s, audited half-year June 2017 results show that gross earnings grew year-on-year by 41.70 per cent to N246.58 billion. The lender’s PBT rose to N52.05billion from N43.99 billion, an 18.31 per cent increase while PAT rose by 17.31 per cent to N39.46 billion from N33.64 billion.

In the same vein, the pan- African Tier 1 bank, UBA’s, 2017 half-year results indicate that pre-tax profits rose 65per cent to N57.5 billion (2016 HY N42.3 billion) while the group recorded a PAT of N42.3 billion, translating to a 56.2 per cent growth over the N27.1billion recorded in the half-year of 2016. The lender also reported gross earnings of N386 billion, representing a 41per cent increase from the N273 billion reported a year earlier.

Fitch May report
The banks’ performances certainly contradict the report issued by international credit rating agency, Fitch Ratings, in May this year in which it stated that Nigerian banks were still exposed to significant risks that undermined their ability to repeat the good financial performance recorded in 2016.

The rating agency, in the report entitled: “Nigerian banks post good results but risks persist,” had stated : “Nigerian banks posted good financial results for 2016, despite turbulent operating conditions, but Fitch Ratings believes that significant financial risks persist beyond reported figures. The banks’ healthy 2016 net income was lifted by large one-off revaluation gains after Nigeria allowed its currency to devalue in June.
“The banks also made higher US dollar core income (in naira terms) and booked sizeable foreign-currency (FC) trading income, which offset rising impairment charges. While the banks’ performance ratios improved in the year, we note that a substantial part of earnings were non-recurring and will be difficult to repeat.”

Moody’s report
Interestingly, also in May this year, another leading credit rating agency, Moody’s Investors Service, had released a report, entitled: “Banking System Outlook: Nigeria,” in which it explained that it was maintaining its stable outlook on the Nigerian banking system because, in the agency’s view, the acute foreign-currency shortages will gradually ease, though loan risks will remain high.
As the Vice President and Senior Analyst at Moody’s, Akin Majekodunmi, stated: “With oil prices and economic activity gradually recovering in Nigeria, we expect banks’ dollar liquidity pressures to gradually ease over our outlook period. However, we expect asset quality to worsen slightly over the outlook period, as historically low oil prices, currency depreciation and economic contraction experienced in 2016 continue to generate new nonperforming loans in 2017.”

Predicting that the banks’ loan-loss provisioning will weaken their net profitability, the Moody’s said it expected return on assets to decline to around 1 per cent in 2017 from 1.3 per cent at the end of 2016 on account of high provisioning costs at around 3 per cent of gross loans.
“System-wide pre-provision income will likely remain robust, however, at around 4 per cent of average total assets, supported by high yields on government securities and profits on open foreign currency positions. Lastly, Moody’s considers there to be a high probability of the Nigerian government supporting banks in case of need, given the significant consequences of a bank collapse to both the payments system and the wider economy,” the agency stated.

Obviously, going by half year results reported by the banks, Moody’s came close to the mark, predicting the outlook for Nigerian banks this year.
Specifically, the agency’s forecast that it expects banks’ dollar liquidity pressures to gradually ease seems to have come to pass as financial analysts have attributed the lenders’ positive performance in the first half of this year largely to the increased availability of forex occasioned by Central Bank of Nigeria’s (CBN) forex liberalisation measures.
In fact, New Telegraph recently reported that an analysis of the H1 2017 results of Zenith Bank, Access Bank, and the United Bank of Africa (UBA), show that they raked in a combined sum of N148billion from forex trading income, forex reevaluation gains and fx derivatives.
For instance, Zenith Bank’s performance was significantly boosted by its forex trading income, which soared to N46billion in the first six months of the year from a loss position in the preceding period of 2016 as well as significant income from forex reevaluation gains.
Commenting on the result,

experts at ARM research stated: “Excluding the outsized FX trading income (N46billion) and FX revaluation gains (N15billion), H1 17 Earnings Per Share (EPS) would have declined 60per cent YoY, although adjusting for similar Cost of Risk as with prior period (1.2per cent), EPS would have risen by 20per cent YoY.”
Besides, the analysts said: “Zenith’s results owed much to gains on currency forward positions of N69.5billion (derivative assets and liabilities of N82.1billion and N17.2billion respectively). We believe the change in the reporting of forward contracts from NIFEX to NAFEX in April 2017, which embodied a 16per cent gain helped Zenith book gains on existing counter-party forward contracts.”

Last line
However, as a financial analyst, Mr. Ebenezer Ejiogu, argued: “Apart from forex, banks have so many ways of making money that no matter how tough the economy, bankers that know their onions will always come up with profitable products, especially in this our environment where about 60 per cent of the population is still financially excluded.”

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