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Published On: Mon, Jan 30th, 2017

Anxiety over Banks’ year end results

Okey Onyenweaku
Anxiety has begun to drench the expectations of analysts and other stakeholders alike as they continue to fret over the release of year end 2016 results for banks listed on the Nigerian Stock Exchange (NSE). The anxiety of investors reflects the adverse impact a full year of falling gross domestic product (GDP) growth (the first in 25 years) has had on corporate bottom lines. Already third quarter results of the various banks on the NSE for the period have played up possibility of an extremely disappointing year. Audited Results of the banks usually made public between the months of January and February may begin to tell woeful tales of a very difficult business year.
This has put many equity investors on edge as most local equity portfolios have had banking sector stocks account for between 25 and 33 per cent of portfolio allocation. This means that many individual and corporate stakeholders will see incomes tumble as both capital values and expected dividend payouts dip. Dapo Olofintoba, analyst at CreditVeritas, notes that, ‘stock yields in 2016 may likely end up being the worst in over two decades, dividends as a proportion of current market prices may seldom rise above 2 per cent and capital appreciation for even the brightest stocks may not rise beyond 5 per cent on average meaning that the total yields would perhaps be around 7 per cent and with inflation at 18.55 per cent as at November last year, real returns on stock investments will turn out negative. You may want to cry, but that wouldn’t bring relief or satisfaction. Stocks last year were deadends.’
From the beginning of 2016, national revenue shrank by 70 per cent as a result of a slide in crude oil prices,which dropped to about $30 per barrel from $114 per barrel in June 2014 before settling above $50 per barrel recently. At the same time, the exchange rate fluctuated between N168, N197 and N305 a dollar in the official market and exchanged for N400 and N495 at the end of 2016. With Monetary policy rate at 14 percent, cash reserve ratio at 22.5 percent and liquidity ratio at 30 per cent, lending rate stood at a minimum of 28 percent per annum.
Unfortunately as the Nigerian economy suffered the bitter aftermaths of a full blown recession, several banks found themselves over exposed to the energy and oil & gas sectors leading to an explosion in their non-performing loan portfolio presently estimated at a collective N1.7 trillion. Indeed, the treasury single account (TSA) policy implemented by the federal government early last year left the banks hollow and illiquid for a substantial part of 2016. Factors that conspired to shrink business activities in the course of the year and kick dents into bank profitability.
‘’How can the banks survive in such operating environment. Really, I don’t expect magic in their results’’, a former Managing Director of one of the big banks who would not want his name mentioned in print told Business Hallmark. Critical assessment of Banks results in the third quarter 2016 reveals that many of them posted very disappointing third quarter results. Therefore, year end projections for these institutions are not better than their dreary third quarter performances.
The situation had earlier been predicted by Business Hallmark based on reports of its economic intelligence group that had predicted that the central bank of Nigeria (CBN) would retain a hawkish monetary policy in the course of the year and that the federal governments tardiness at fiscal expansion would slow economic growth and cause unemployment to rise. Business Hallmark’s economist had also seen that a contraction of the economy would pull the stock market into a declining tailspin. Accentuating the problems faced by portfolio investors who were already jittery about the cascading fall in market yields, was the rise in domesting inflation which rose from 9 per cent at the beginning of the year to 18.55 per cent by November. Business Hallmark’s summary review of the third quarter results of a selected number of local banks orchestrates concerns about their full year fiscal performances. For instance:
Unity Bank profit crashes by 172% in Q3 2016
The harsh operating environment in the country took a massive toll on the profit of Unity Bank in Q3 2016, falling by almost 172 per cent to N3.4 billion compared to N9.3 billion in Q3 2015.
Its gross income slipped by 0.4 per cent influenced majorly by the lender’s net interest income that went down by 116.7 per cent to N9.6 billion in Q3 2016 (Q3 2015: N20.9 billion).
Unity Bank’s net fee and commission income also crashed by 451.6 per cent to N1.3 billion in Q3 2016 against N7.2 billion during the same period in 2015.
Despite cutting its credit losses expense significantly by 1106.4 per cent to N144.6 million during this period, this did not prevent the lender’s net operating income to dip by 41 per cent to N23.5 billion (Q3 2015: N33.2 billion).
The bank was able to grow its loans and advances by 7.4 per cent to N264.3 billion in Q3 2016 compared to N246.1 billion in Q3 2015.

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Sterling Bank PAT dips by 36%

Sterling Bank profit after tax (PAT) went down marginally by 36.3 per cent to in 9M 2016 to N7.5 billion against N5.5 billion in 9M 2015, largely caused by its fee and commission, net trading and other operating incomes that declined during this period.
While the bank’s fee and commission income went down by 55.3 per cent to N8.2billion during the period under review (9M 2015: N12.8 billion), net trading income fell hugely by 270.5 per cent to N1.4 billion (9M 2015: N5.2 billion) and other operating income also declined by 126.7 per cent to N1.1 billion (9M 2015: N2.6 billion), spurred by its forex transaction the was diversely impacted by the severely forex challenge in the country and gains on investment securities that dropped drastically by 431.9 per cent to just N149,000.
Meanwhile, the bank increased its interest income marginally by 12.4 per cent to N68.9 billion in Q3 2106 and also grew slightly its operating income by just 3.1 per cent to N52.3 billion during this period.
However, the lender’s impairment provision increased by 37.4 per cent to N7.2 billion, even though its loan and advances to customers grew by 0.46 per cent to N495.3 billion during this period.

Wema profit declines slightly by 2.3%
Fall in net interest income, operating income and trading income pushed Wema Bank profit downward marginally by 2.3 per cent to N1.26 billion in the third quarter of 2016 as against N1.3 it recorded in Q3 2015.
The bank’s net interest income fell by 3.7 per cent to N12.8 billion in 9M 2016 versus N13.3 billion in same period last year, while non-interest income dipped by 0.3 per cent, though fee and commission income improved by 16.8 per cent to NN4.4 billion (Q3 2015: N3.8 billion).
In the same vein, net trading income went southward massively by 61.9 per cent to N943.3 million during this period compared to N1.5 billion in Q3 2015, caused by fall in fixed income securities by 19.5 per cent and income from Treasury Bills, which slipped by whopping 809.6 per cent.
Wema Bank succeeded in making a huge cut in its impairment charge by 187.2 per cent to N79.2 million in Q3 2016 against N229 million in Q3 2016, despite increasing its loan and advances to customers by 20.8 per cent to N177 billion (Q3 2015: N146.6 billion).
Fidelity Bank profit down by 30.8%
High impairment charges made by the bank in the third quarter saw to a dramatic drop in Fidelity’s operating income resulting in the lender’s profit after tax (PAT) dipping -30.8 per cent to N8.8 billion in Q3 2016 from N11.4 billion made in Q3 2015.

The bank recorded a sharp increase in impairment charges to N7.96 billion in the third quarter of 2016 from N3.94 billion in Q3 2015, a 102 per cent rise, indicating that more of its loans were non- performing during this period as its loans and advances to customers grew by just 33.1 per cent to N729 billion in Q3 2016.
This was bolstered by forex gains that plunged drastically by 86.7 per cent to N2.7 billion in Q3 2016 against N5 billion in Q3 2015 and dividend income that crashed by 2186.7 per cent to N60 million during this period (Q3 2015: N1.4 billion).
Consequently, its Profit Before Tax (PBT) declined by 40.2 per cent to N9.8 billion in the first nine of this year against N13.8 billion it recorded at the same period last year, although the bank’s gross earnings increased marginally by 3 per cent to N110.3 billion during this period.
Lower income, higher impairment charge slow Diamond Bank profit by 355%

A steep decline in Diamond Bank’s net interest, non-interest and operating incomes and significant increase in its impairment charges caused the bank profit after tax to dip massively by 354.8 per cent to N3.5 billion in Q3 2016 from N16 billion in the corresponding quarter last year.
The lender’s net interest income, tumbled over by 8.7 per cent to N78.4 billion and 22.7 per cent to N75.8 billion respectively in third quarter of this year, but its fee and commission incomes grew by 17 per cent during this period.
Diamond Bank’s impairment charges astonishingly by 106.6 per cent to N40.3 billion in Q3 2016 against N19.5 billion in Q3 2015 and dealt a splitting blow to its bottom-line.

Ecobank PAT down by 17.1%
Fall in Ecobank interest and non-interest revenue as well as higher impairment charge dragged its profit after tax down by 17.1 per cent to N51.6 billion in Q3 2016.
The bank gross earnings increased by 10.8 per cent to N456.4 billion during the period under review against N411.8 billion in Q3 2015, spurred by 20.8 per cent rise in its net interest income to N200 billion from N165.6 billion at the same period last year and operating income rose by 9 per cent to N343.5 billion during this period.

However, Ecobank non-interest revenue dropped by 4.7 per cent from N150.2 billion in Q3 2015 to N143.5 billion in Q3 2016.

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The 47.6 per cent rise to N51.2 billion in the bank’s impairment charge during the period being reviewed, stifled its profit gravely, even though, it’s loans and advances to customer upped by 36.8 per cent to N3.1 trillion in Q3 2016 (Dec 31, 2015: N2.2trillion billion).
However, few strong banks were able to buck the trend and posted impressive performance in 2016.
While the G T Bank increased its profit after tax (PAT) by 59.6% to N199.9 billion in third quarter of 2016 compared to N75.2 billion in Q3 2015,the bank made N93.6 billion revenue from forex revaluation gain in Q3 2016, a 1282.3 per cent increase from NN6.8 billion in raked in as a result of this in the same period in 2015, making its other income to grow by 1259.3 per cent to N94 billion in Q3 2016 (Q3 2015: N7 billion). Analyst believed this was a one-off gain this may not repeat itself in the last quarter of the year.
Despite its forex troubles, Access Bank emerges as one of the few banks that were able to grow their profit after tax (PAT) in Q3 2016, defying the downward impact of the broad economy on the industry.
Its PAT went up by 18.7 per cent to N57.1 billion in the 9th month of 2016 from N48.1 billion in the corresponding period of 2015.
This came on the heels of interest income growing by 16.6 per cent to N181.2 billion during the period compared to N155.4 billion earned in Q3 2015, the bank spent 6.2 per cent less than the N79.5 billion it spent as interest costs during a comparable period last year.
Union Bank PAT up by 27%
The management of Union Bank succeeded in growing profit after tax (PAT) by 27 per cent to N12.3 billion in Q3 2016 from N9.7 billion in the corresponding period last year, despite the troubling headwinds posed by declining systemic liquidity and rising loan defaults rates which currently averages about 12 per cent industry wide.
UBA profit grows by 7.6%
United Bank for Africa (UBA) was among the league of few banks that were a to grow their profit after tax (PAT) in Q3 2016, in spite of the lull in the country’s economy at its PAT went up by 7.6 per cent to N52.3 billion compared to N48.6 billion in Q3 2015.
The bank’s gross earnings upped by 8.2 per cent to N265.5 billion at the end of September 2016 (Q3 2015: N245.5 billion) with net interest income growing by 9.8 per cent to N112.1 billion (Q3 2015: N102.1 billion) and non-interest income increased by 11.9 per cent to N71.2 billion (Q3 2015: N63.6 billion), though its other operating income tumbled massively by 63 per cent to N3.1 billion

Zenith Bank profit grows by 20.4%
Increase in net interest income and other income helped in improving Zenith Bank profit after tax (PAT) marginally by 20.4 per cent to N100.1 billion (Y-o-Y) in Q3 2016.
While the bank’s fee and commission income slipped by 17.8 per cent to N46.3 billion occasioned by the removal of Commission of Turnover (COT) by the CBN, interest income and other income, however, rose by 17.6 per cent to N189.8 billion and astronomically 229.7 per cent to N32 billion respectively during this period, moving its gross earnings up by 12.9 per cent to N380.4 billion.
Given the above performance, analysts and other stakeholders do not seem to expect flamboyant performance when the results eventually start trickling in.
Commenting on the issue, Chief Timothy Adesiyan of National Solidarity shareholders od Nigeria (NSSA) told Business Hallmark in a phone interview that shareholders are not expecting any bank to perform as before given the discouraging operating environment.
Adesiyan explained that while some of the banks will still do well, many others may find it difficult to buck the trend and pay dividend to shareholders.
According to him, despite other challenges which have affected banking especially now, huge non-performing loans which they must make provisions for would eat into their profit margin.
‘’We are not very optimistic that banks can deliver fantastic results at end of year and we are not expecting the kind of dividend we used to get. However, we want are appealing to the boards to be considerate and pay we shareholders dividends as these dividends come as our salaries now’’, he said.
Managing Director of HIGHCAP Securities believes that those banks that performed well in the third quarter will still come out with good performance and pay good dividends.
‘’I expect that those who did not perform well in the third quarter 2016 will not be able to pay mouth- watering dividends. In fact, I think that G T Bank, Access Bank and UBA should be able to reward shareholders’’, he said.
As the New Year sets in, investors are having trouble sorting out how best to cope with the inevitable crash of their equity portfolios; the more they think about it the worse their headaches.

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