Published On: Mon, Apr 30th, 2018

Banks low risk assets stunts Q1 results


Low fixed income yields and slower growth in loans and advances have stunted first quarter (Q1) performance of Nigeria’s slowly recovering financial sector. In what analysts see as a tonal change in the composition of bank assets, banks have had to restructure their loan books and search for alternative investment incomes as returns from fixed income assets fizzle out.

The financial statements of three tier banks that have so far been released show that the rate of growth of their post-tax profit in March 2018, was lower than what they posted in the same period in the previous year as drop in income from loans and advances impeded the pace of their growth, despite decrease in impairment charges on loan loss.

Yields in the country’s debt market have dipped significantly due to federal government’s resolve to lower domestic debt and has concluded plans to spend $3 billion of the $5.5 billion Eurobond it intends to raise to refinance local obligations. Economists note that the frailness of the economy, makes it difficult for borrowers to service their debts while the coming into force of IFRS9 on January 1, 2018, has hurt commercial lenders ability to feather their loan losses.

Delay in the passage and signing of the country’s annual budget, which usually slows down economic activities in the first quarter of the year, was responsible for the weaker growth in banks revenues and profits, said Johnson Chukwu, Managing Director of Lagos-based Cowry Assets Management Company Ltd. “In the first quarter of last year, banks’ earnings from investments in federal government debt instruments were huge. Their interest income was largely impacted by revenue from government fixed income securities, which was not the case in the first quarter of this year. So, if there is a common factor that affected the growth of the banks, is the fact that income from investment in federal government debt instruments has shrank significantly and they have not been able to switch to other classes such as loans,” he further explained.

According to Chukwu, with the Nigerian economy rebounding, there is gradual pay down on existing loans, but banks have not been able to create more risk assets, which also dragged down their interest income.

Although GTBank, Nigeria’s most capitalized bank’s profit after tax (PAT)  was up 7.7 per cent to N44.7 billion in Q1 2018 against N41.5 billion in the corresponding period last year, this was far lower than 62 per cent post-tax profit growth it had in the first three months of 2017.

In the same vein, Zenith Bank, the country’s biggest bank in terms of assets, had 25.5 per cent year-on-year appreciation in its PAT to N47.08 billion, but this was way below 41.1 per cent profitability growth it posted in Q1 2017.

More so, UBA’s post-tax profit only rose 6 per cent to N23.74 billion as at this March this year, compared to 32 per cent profit-after-tax growth it had in the first three months of 2017.

The lower interest earnings from fixed income securities, bridle risk appetite as well as increasing operating expenses decelerated the growth of the commercial lenders’ revenues in Q1 2018.

GTBank gross revenue rose 5 per cent to N108. 97 billion on the back of improved non-interest income , which surged 40.8 per cent underpinned on 11.3 per cent growth in fee and commission income and growth in other Income comprising Advisory, Discounts, rebate Commissions & revaluation gains.

But lower earnings from loans and advances,which dropped  -7.7 per cent and 300 basis point decline in yield of fixed income securities dragged interest income, down -4 per cent to N80.8 billion. The bank’s risk asset dipped -7.8 per cent to N1.526 trillion in Q1 2018 from N1.645 trillion in March 2017. The management of the lender attributed the decline to “drop in FCY components of the Loan book as a result of pay-down of pent up obligations owing to improved FX liquidity in the market following the introduction of the investors’ and exporters’ window in April 2017.”

 GTBanktotal assets appreciated 5 per cent to N3.51 trillion in March 2018 instead of N3.35 trillion in 31 December 2017 propelled by 33 per cent rise in financial assets held for trading and N103.84 billion investment securities held at amortised cost, which was not in its books in the same period last year. While the bank’s net loans and advances was down -7. per cent to N1.35 trilliondue to lower term loan, deposits from customers increased 7 per cent of N2.21 trillion (31 December 2017:N2.06 trillion).

The bank improved risk management, which consequently lowered its NPL ratio to 6.2 per cent against 7.7 per cent at end of 2017. However, GTBank capital adequacy ratio dropped to 24.6 per cent from 25.7 per cent in December last year and loan-deposit ratio plunged to 58.6 per cent from 67.5 per cent in FY 2017, while liquidity ratio was up to 55.9 per cent instead of 47.6 per cent at the end of last year.

“Despite the challenging environment, we focused our resources on strengthening relationships with our customers, building our digital capabilities to ensure that our customers enjoy the same superior experience across all touch points, whilst consolidating our leading position in all the economies wherein we operate,” asserted SegunAgbaje, Group Managing Director, GTBank.


On its own part, Zenith Bank ramped up its gross revenue 15 per cent N169.19 billion in Q1 2018 as interest income up picked 21 per cent. But the growth in the bank’s earnings was way below 48.6 per cent rise recorded in March 2017, due to contraction innon-interest income, which fell -10 per cent in Q1 2018 instead of the 94 per cent rise posted last year on the back of -26 per cent decline in income from financial guarantee contracts issued and massive -71 per cent drop in corporate finance fees. Foreign exchange trading income, which was down whopping -86 per cent also,had adverse impact the growth of Zenith Bank revenue in the first three months of 2018.

The challenge of rising NPL, forced Zenith Bank to scale down its loans and advances -10 per cent to N2.03 trillion from N2.25 trillion in Q1 2017. And subsequently, its impairment for loan loss dropped significantly by -42 per cent to N4.57 billion in March 2018. Deposits from customers also followed the same trajectory, dropping -1.2 per cent to N3.4 trillion compared to N3.44 trillion in the preceding year. Meanwhile, significant 237 per cent leap in derivative assets and 95 per cent rise in dues from other banks managed to mitigate to the drop in the bank’s risk asset as total assets were up marginally 1.2 per centto N5.68 trillion.

 “The macro-environment continues to improve and we remain optimistic about the stability and liquidity in the FX market, declining inflation rate and firm crude oil prices to support economic growth. We aim to strategically explore all available opportunities to expand our customer base and businesses while consolidating on our industry position,” the CEO of the Zenith Bank, Peter Amangbo noted.

UBA on the other hand, improved its gross earnings 18 per cent to N119.37 billion in Q1 2018 underpinned on 79 per cent rise in cash and bank balances, which helped pushed interest income up 18 per cent to N90.33 billion.  And 859 per cent increase in other operating income and fee and commission income, which was up 15 per cent, lifted non-interest earnings 14 per cent to N24 billion, in spite of -13 per cent drop in net trading and foreign exchange due to improved dollar liquidity in the Nigerian economy.

Although the lender was able to prune down its impairment chargeson loan loss by 53 per cent to N1.45 billion instead of N3.1 billion in Q1 2017, its income expenses almost doubled, rising 46 per cent to N36.78 billion as a result of cost deposits from customers and borrowings, which climbed 55 per cent and 87 per cent respectively in the first three months of this year. Credit-related fees and commissions cost which was up 48 per cent and money spent to rake in trade transactions income, which increased 46 per cent also caused fee and commission expenses to rise 21 per cent to N20.03 billion.

And just like GT Bank and Zenith Bank, UBA also lowered its risk appetite in Q1 2018, reducing loans and advances to customers by -2 per cent to N1.61 trillion in contrast to N1.65 trillion it gave out in Q1 2017. However, deposits from customers swelled 4 per cent to N2.85 trillion. And the bank total assets grew 6 per cent, while its total liabilities also expanded at the same rate during this period.

Meanwhile, there is belief that commercial lenders would experience accelerated growth as the year progresses as a result of an anticipated improvement in the economy as the government is expected to investment heavily in public infrastructure in 2018.

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