By Samuel Adegoke
After a brief lull occasioned by the impact of Coronavirus (COVID-19) pandemic on global public health and extreme regulatory environment, Nigerian banks are returning to strong profitability, with improved returns on shareholders’ investment. The performance review of top five banks shows that cumulative earnings of the Tier-one banks increased to N2.32 trillion in nine months as against N2.18 trillion as at September 2019. Loan and advances to customers increased by N1.7 trillion in Q3, 2020 to N12.3 trillion as against N10.6 trillion in 2019.
The performance in Q3 could be a sign that things are gradually taking shape in the sector, as there are reasons to suggest that the sector, at least for the top banks, is out of the woods of the pandemic.
More relieving is the discovery that most of the banks in the industry are working very hard to clean up their balance sheets of the non-performing loans, as they now carry less risky assets with deposits beginning to look up.
HOW THEY STAND
GTB: All is not well!
The performance of GTbank as at September 30, 2020, shows that all is not too well with the lender. This is because the bank could not raise the bar as net profit dropped for a second consecutive quarters. Net profit plunged by 3.3% to close at N142.3 billion against N146.9 billion in 2019. It would be recalled that the financial institution’s net profit dropped by 5% at the end of its half year financial period ended June 30, 2020. The decline in profitability was attributed to sharp rise in interest expenses, operating expenses and impairment charges recorded in the review year. This suggests that cost of operation and rising bad loan portfolio are biting hard on the bank’s revenue. Similarly, Profit before Tax (PBT) dipped by 2% to N167.4 billion due to sharp increase in operating expenses and impairment charges.
Yet, the bank’s unaudited Q3 financial report made available through the Nigerian Stock Exchange (NSE) reported a marginal growth of 1.3% year-on-year (y/y) increase in gross earnings to N328.4 billion in third quarter of the financial year ending September 30, 2020, despite pressure on interest and non-interest income amid global public health crisis.
Meanwhile, net interest income grew by 9.7%, settling at N189.7 billion. An assessment of the driver of interest income revealed that this was driven by an increase in the volume of loans disbursed and an increase in financial investment securities. Non-interest income was up by 0.1% to N100.2billion. This was an improvement compared to second quarter figure which fell by 2.0% to N71.4 billion. Net fees and commission income fell to N37.4 billion from N48.4 billion in 2019. Notably, the sharp drop in fee and commission income is traceable to regulatory changes following the apex bank’s decision to slash various bank charges.
However, Cost to Income Ratio (CIR) came in at 40.18% in Q3, a drop from 43.2% posted in Q2 2020. Net loan to deposit ratio was 47.5% against 56.9% in Q3 2019. By implication, it shows that the management is stringent in percentage of deposit pull out as loan to customers. The return on equity which is a measure of the profitability of a business in relation to equity came in 26.3%, a drop from 31.6 5 in 2019 while the bank’s return on assets closed the quarter at 4.6%. Accordingly, PBT and PAT slumped 5.0% lower to N109.7 billion and N94.3 billion respectively. This impacted on net margins and profitability ratios as PAT margin, annualized ROA and ROE moderated to 41.9%, 4.6% and 26.8% respectively.
Zenith Bank: Strong earnings amid declined interest income
To a large extent, the Zenith bank’s financial report for the unaudited Q3 financial period ended September 30, 2020 was cheery to investors as key performance measuring ratios recorded modest growth. The bank is expected to declare a good return on investment for its shareholders at the end of the financial year ending December 31, 2020 barring any unforeseen circumstances in the last quarter of the year.
The nine months financial records of the bank obtained from the Nigerian Stock Exchange (NSE), indicated that the bank, one of Nigeria’s top-rated tier-one banks, recorded strong earnings growth.
Gross earnings (total revenue) increased by 3.6% from N491.3 billion in September 30, 2019 to N508.9 billion (second highest in the industry). Breakdown of total earnings indicates that interest income closed at N319 billion, supported primarily by decrease in interest expenses and income from loans and advances to customers which increased by 32.7% to N2.7trillion.
Profitability indicators were stronger, with profit-before-tax settling 0.6% higher year-on-year while profit-after-tax settled 5.7% higher year-on-year, on account of a 28% decline in income tax expense.
But interest expense declined by 12.7% y/y to N93.6 billion, reflecting lower interest cost on borrowings over the corresponding period of the prior year (-19% to N59.55billion) and increased cost on deposits from customers. Following a decline in interest expense, net interest income settled higher by 4.9% y/y at N225.2 billion. Continuing the trend during the year, non-interest income (NII) was strong, settling 12.3% higher y/y at N190.2 billion. The significant growth recorded was supported by growth in foreign exchange revaluation gains and gains on investment securities. This expansion in NII, alongside the growth in net interest income led to an expansion in operating income of 34% y/y to N89.8billion.
Operating expenses (Opex) growth was moderate as the bank continued to focus on cost management in the face of moderate gross earnings growth. Opex grew by 12.2% y/y to N115.2 billion, an improvement from N135.85 billion posted in its half year result. Consequent to the Opex growth relative to operating income growth, the bank’s cost-to-income ratio settled higher at 68.7% relative to 54.3%, and 51% in the prior quarters (Q1 and Q2) 2020.
The bank’s total deposits grew by 32.3% to N5.2 trillion while loan to deposit ratio settled at 51.9%. However, both return on equity and return on assets dipped from preceding year figure as they settled at 15.4% and 2.0% respectively.
UBA: Still On track despite all odds
United Bank for Africa (UBA) Plc, one of the large financial service providers in Nigeria with market capitalization of about N212 billion and estimated 10% market share shows a better performance in its nine months financial records. According to the bank report obtained from the Nigerian Stock Exchange (NSE), a majority of its performance measuring indices recorded an impressive growth compared to the preceding quarter. Impairment in loan book was moderate with a non-performing loan (NPL) ratio of 0.5%.
Analysis of the UBA audited nine months results for the period ended September 30, 2020 shows that the bank’s operating income increased by 10% from N265.9 billion in 2019 to N293.8 billion in 2020. This increase was buoyed by non-interest income which grew by 5% to N137.3 billion as against N131 billion posted in 2019. Total interest income, which is 69.8% of gross earning, stands at N317.1 billion, up 6.5% from N297.9 billion in 2019. The bank’s net interest income closed at N186 billion, having spent N131.1billion as expenses spent to achieve the interest income for the review period. This resulted in Profit Before Tax of N90.4 billion, down by 8 % from N98.2 billion achieved in 2019.
Similarly, Profit After Tax fell from N81.6 billion in 2019 to N77.13 billion at the end of nine months ended September 2020. It was observed that the drop in profitability was caused by a number of factors which includes 72% y/y growth in bad debt (impairment loss) which grew from N6.7 billion to N11.5 billion and 19.2% operating expenses (Opex) growth rate from Q3 2019 to Q3 2020.
The bank closed the Q3 of 2020 with gross earnings of N454.4 billion, which is an increase of 6.0%. In Q3 2019, the bank’s performance was better in term of asset turnover at 8 kobo compared to 6 kobo in review period. This means the assets yielded more revenue at 8 kobo in third quarter 2019 than for 6 kobo in 2020.
Total assets increased by 26% to N7.1 trillion in Q3 2020 from N5.6 trillion in 2019. This was primarily hung on the account of 13% increase in loan and advances to customers from N2.2 trillion to N2.5 trillion in 2020. The bank’s total assets could accommodate 35 % of the total loans and advances in Q3 2020 compared to 39 % in 2019, an indication that the bank’s rate of growing its assets in order to earn income and subsequently translate to improved return for its stakeholders in the medium to long-run is improving.
In addition to growing assets, UBA grew more deposit base in Q3 2020 at 36.6% to N5.6 trillion compared to N4.1 trillion in the first 9 months of the year 2019. The bank increased cash and balance that weighs higher to previous period at about N2.1 trillion in 2020 compared to N1.4 trillion in 2019. UBA deployed 44% of deposits into loans and advances in third quarter 2020.
Total operating expenses grew at the higher rate with gross income at 19% for 2020, amounting to N192.7 billion. UBA marginally reduced its cost margin to 80% in 2020 compared with 81% in 2019. This means UBA used 80 kobo to generate a Naira of its gross income in Q3 2020 against 81 kobo for the Naira of revenue in 2019. Net profit margin amounted to 20% for UBA in third quarter 2020. The profit margin ratios mean that for every Naira of gross revenue, UBA converted 20 kobo into profit for its shareholders.
Access: An improved performance
The pandemic had impacted on the performance of Access Bank as evidenced in the current nine months financial report published by NSE. Interest income, the major contributor to any financial institution’s gross income, was most affected in the review period. Interest income settled at N375billion compared with N405 billion in 2019. But despite the obvious challenges, the management’s ability to think outside the box helps the commercial bank to grow its earnings by 15%. The performance reasserts the capacity of the management’s team to deliver strong returns in spite of a tight operating environment.
According to the audited financial results released to the NSE, the bank recorded a gross earnings of N592.8 billion, representing an increase of 15% in the nine months of the year over N513 billion recorded in the same period in 2019. Growth in gross earnings was boosted by 100% increase in non-interest income to N217.5 billion in the Q3 of 2020 from N108.6 billion in the comparative period of 2019. The group posted a profit before tax of N116.6 billion which rose by 15.7% from N100.8 billion in 2019. Profit after tax was up 16% in 2020 to N102.3 billion, compared to N88.4 billion in the previous year.
The bank recorded 11% increase in total assets during the year, which is below the 15.4 % increase in total revenue. By implication, Access Bank achieved asset turnover of 8 kobo compared to 7 kobo in the review period. This means assets yielded more revenue at 8 kobo for Access Bank in the third quarter. Deposits base grew 10% to N5.9 trillion compared to N5.4 trillion in September 2019.
Loans and advances increased by 14.6% to N3.5 trillion compared to N3.0 trillion in the previous year. Access Bank however carries cash and balance that weigh less than the comparable period in 2019 at about N717 billion compared to N723 billion posted in 2019. It deployed 58% of deposits to loans and advances which is comparatively more aggressive than 56% in September 2019. Profit margin came in 16% y/y in Q3 2020 while return on equity stood at 14.2 %.
Total assets increased by 11% to N7.9 trillion in Q3 2020 from N7.1 trillion in 2019. This was primarily boosted by 15% increase in loan and advances to customers from N3 trillion to N3.5 trillion in 2020. The bank’s total assets could accommodate 44% of the total loans and advances in Q3, 2020 compared to 43% in 2019, an indication that the bank’s assets are growing in related to income.
First Bank (FBN): Firming growth
First Bank Holding of Nigeria (FBHN), the oldest commercial bank in Nigeria, recorded an improved financial performance in unaudited financial period ended September 30, 2020. The bank has not been the toast of investors in recent times due to its unimpressive performance but there are indications, going by the latest financial figures, that there are better days ahead for shareholders. Gross earnings have recorded a consistent growth in the last three years with Q3 figure standing at N439 billion. The figure grew 5% above N418billion recorded the preceding nine months ended September 30, 2019.
Just like Access Bank, FBHN’s interest income nosedived, dropping to N298billion compared with N319.6 billion in 2019. However, the bank’s unaudited third quarter report at NSE shows that majority of its performance measuring indices recorded impressive growth y/y. Non-interest income grew by 44% to settle at N141.3 billion while pre-tax profit closed at N63.3 billion having surpassed the previous year’s figure by 16%. Also, profitability measuring indices were stronger in the period, with profit after tax settling 32% higher year-on-year, on account of a 44% increase in non-interest income.
First Bank’s total assets increased by 17% to N7.2 trillion in Q3 2020 from N6.2 trillion in 2019. The bank’s total assets accommodate 28% of the total loans and advances in Q3 2020, compared to 29 % in 2019. In addition to a growing asset, FBHN grew Customer deposits by 15.2% to N4.6 trillion compared to N4.0 trillion in the first nine months of the year 2019. The bank increased cash and balance to about N1.8 trillion in Q3 2020 compared to N1.0trillion in 2019. The bank also deployed 44% of deposits into loans and advances in third quarter 2020, less than 46% achieved in the previous year.
Total operating expenses grew at a lower rate with gross income at -3.6% for 2020, amounting to N117 billion. It reduced its cost margin to 84% in 2020 compared with margin of 88% in 2019. This means First bank used 84 kobo to generate a Naira of its gross income in Q3 2020 as against 88 kobo for the Naira of revenue in 2019.
|Income statement||2020 Q3 (N’m)||2020 Q3 (N’m)||2020 Q3 (N’m)||2020 Q3 (N’m)||2020 Q3 (N’m)|
|Total Interest income||318,820||228,226||297,713||375,284||317,142|
|Total Interest Expenses||93,641||38,490||104,976||179,010||131,120|
|Net Interest Income||225,179||189,736||146,062||196,274||186,022|
|Fees and Commissions||89,817||37,401||87,592||87,883||85,011|
|Total Non Interest Income||190,155||100,174||141,287||217,516||137,258|
|Admin/ Operating Expenses||115,243||88,791||117,027||163,843||192,659|
|pre-tax profit (loss)||177,283||167,352||63,313||116,623||90,372|
|Profit after tax||159,315||142,283||68,156||102,300||77,132|
|Cash & Balance with other bank||1,799,136||622,760||1,751,965||717,253||2,103,690|
|After Tax Profit Margin||31||43||16||16||20|
|Return on total Assets||2.00||7.18||0.94||1.22||1.28|
|Net Interest margin||70.63||83.14||49.06||52.30||58.66|
|Non-interest Income/Gross Revenue||37.36|