Banks under spotlight as earnings’ season gets underway


With Jaiz Bank kicking off the earnings season for the banking industry with the release of its half-year 2020 unaudited financial statement last week, findings by New Telegraph show that there is now mounting speculation in financial circles that the impact of the coronavirus (Covid-19) crisis on lenders’ earnings might not be as severe as had been widely predicted.


According to Jaiz Bank’s H1’20 unaudited financial statement, the non-interest bank reported that its profit after tax (PAT) grew by 45.3per cent to N1.1 billion for the half-year period ended June 30, 2020 compared to N814.3 million in H1’19.


Also for the period under review, Jaiz Bank recorded gross income from financing transactions of N8 billion, indicating a 39 per cent increase when compared to N5.7 billion  reported in half-year 2019. In addition, the bank’s total assets increased by 11.6per cent to N186.6 billion as of June this year, from the N167.3 billion recorded in the corresponding period of last year.


As industry sources pointed out at the weekend, the somewhat positive improvements in key financial indicators that Jaiz Bank reported for H1’20 seem to suggest that predictions in some quarters that the pandemic crisis would take a heavy toll on banks’ half year performance this year might not come to pass after all.


Indeed, although Zenith Bank and Guaranty Trust Bank, two of the most profitable lenders in the country, usually pay interim dividends to their shareholders, analysts had predicted that many banks may put a hold on dividend payments in order to cope with the Covid-19 induced harsh business environment.


Thus, the announcement by both lenders earlier this month that the meetings of their boards of directors to consider the tier-1 lenders’ audited financial statements for half-year 2020, will see the directors likely discussing the proposal for recommendation of interim dividend for shareholders, came as a surprise to some analysts.


Last week, a notice from Zenith Bank, in fact, confirmed that shareholders of the financial institution could be paid an interim dividend for  the first half of 2020.


However, the amount to be paid as interim dividend was not disclosed as such payment is subject to the approval of the Central Bank of Nigeria (CBN). In May, the Managing Director, International Monetary Fund (IMF), Kristalina Georgieva, had advised banks to halt dividend payment for now.


She said that with the expectation of a deep recession in 2020 and partial recovery in 2021, banks’ resilience will be tested, adding that having in place strong capital and liquidity positions to support fresh credit will be essential.

She noted that one of the steps needed to reinforce bank buffers is retaining earnings from ongoing operations which are not insignificant. Analysts had predicted that given the key role Deposit Money Banks (DMBs) play in the financial system and the economy, the coronavirus crisis would affect their earnings.


For instance, in the June edition of his firm’s Lagos Business School (LBS) Executive Breakfast Session report, respected economist and Chief Executive Officer, Financial Derivatives Company (FDC), Mr. Bismarck Rewane, predicted that there was likely to be an increase in banks’ non-performing loans (NPLs) “due to  high sensitivity to devaluation.”


In the wake of the slump in the price of oil, occasioned by the Covid-19 crisis, the CBN, as part of its efforts to conserve the external reserves (oil accounts for over 90 per cent of the country’s export earnings), had in March, moved the foreign exchange sales rate on the Investors and Exporters’ (I&E) window to N380.2/$, from N366.7/$ and from N360/$ to N380 per dollar to Bureaux De Change (BDCs). It also moved the naira official exchange rate from N306/$1 to N360/$1.


Furthermore, although Covid- 19 lockdown restrictions were not fully imposed by the government until early April, three out of the country’s five Tier 1 lenders, as Rewane pointed out in the report, announced a sharp increase in impairments in their unaudited Q1’20 results.


While Zenith Bank’s impairment increased by 97.5 per cent to N24 billion, Access Bank’s rose by 154 per cent to N8.5billion and Guaranty Trust Bank’s went up by 87.7 per cent to N1.2billion.


According to the FDC boss, the lenders’ weak bottom line growth is also a reflection of the impact of the pandemic on the general economy.


Similarly, commenting on the negative impact of the coronavirus pandemic on the Nigerian banking industry, at a webinar organised by the Chartered Institute of Bankers of Nigeria (CIBN) recently, the Chief Executive Officer, Nigerian Economic Summit Group (NESG), Mr. Laoye Jaiyeola, warned that the crisis could trigger an increase in banks’ NPLs.


He said: “Thirty one per cent of the banking industry’s credit exposure is from the oil and gas sector. The oil and gas sector is particularly affected by the pandemic due to the low demand for crude oil.


This could cause a rise in non-performing loans considering the amount of loans given to the sector. Banks are also vulnerable to higher risk of cybercrime due to the increase in working online.”


According to the CBN, Nigeria’s banking system exposure to the oil and gas industry stood at 26 per cent as at April 2020, indicating that over 25 percent of the industry’s total loan portfolio went to the oil and gas industry.


In a report released in April, global credit rating agency, Fitch Ratings, stated that Nigerian banks’ credit profiles were at severe risk from the oil price slump and disruption to the operating environment occasioned by the coronavirus pandemic. The rating agency said that the biggest threat to Nigerian lenders’ ratings is their huge exposure to the oil and gas sector.


It noted that with crude oil exports representing 95 per cent of Nigeria’s export earnings and strongly influencing the broader economy, the country’s operating environment risks are bound to increase when oil prices fall.


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