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Published On: Sun, Mar 25th, 2018

High NPLs hobble banks’ 2017 performance


The non-performing loans (NPLs) of commercial lenders in the country maintained an upward trajectory in 2017, despite Nigeria’s exit from recession at the end of the first half of the year.

A review of the 2017 full year financial statements of Stanbic IBTC, EcobankTransinternational, Access Bank, Zenith Bank and GTBank, who have so far released their financial results for last year, showed that their average NPL ratio jumped to 7.91 per cent against 4.58 per cent in 2016, although all of them posted improved profit, except Access Bank, whose post-tax profit dipped for the first time in six years.

Worried by the high level of toxic loans in the banking industry, the Central Bank had recently stopped banks with high NPL ratio and low Capital Adequacy Ratio (CaR) from paying dividends to their shareholders. The International Monetary Fund (IMF) had also earlier this month urged the apex bank to carry out asset quality review in order to identify any potential capital need and forestall rising banking sector risks in the country. The Fund stressed the need for the CBN to ensure strict enforcement of prudential requirements, and a revamped resolution framework would help contain risks.

The rising loan losses in the banking industry is a pointer to the weakness of the sector, which has relied majorly on government and activities related to it, like  oil and gas and construction for their lending, says Professor Leo Ukpong, a financial economist and Dean, School of Business, University of Uyo. He added that the dip in global oil price was responsible for these bad loans as this impacted the ability many borrowers to pay back their loans.

Access Bank, which had one of the lowest NPL ratios of 2.5 per cent in Q3 2017, saw its impairment charges ballooned 57 per cent to N34.47 billion at the end of 2017 pushing its NPL ratio to 4.8 per cent compared to 2.1 per cent in the corresponding period in 2016. The bank’s risk asset was worsened by its N40 billion to Etisalat, which went bad, prompting a consortium of 13 banks to head to court in a bid to take over the telecom company last year.

The bank admitted that “increase in impairment charges contributed to the decrease in PBT to ₦80.1bn, representing a -11% y/y decline compared to ₦90.3bn in 2016. Impairments were up 57% y/y and 780% q/q due to significant provision of ₦19.1bn taken in Q4’17.”  Consequently, Access Bank’s  profit-after-tax dropped -13 per cent  2017 to ₦62 billion from ₦71.4bn in FY 2016, the first profit declined it has suffered in six years. This brought Return on Average Equity (ROAE) to 12.8 per cent 2017 from 17.4 per cent in the previous year and Return on Asset to 1.6 per cent from 2.4 per cent in 2016. But it boasts of marginally improved Capital Adequacy Ratio which rose to 22.5 per cent against 21.1 per cent in 2016; liquidity ratio climbed to 47.3 per cent from 43.6 per cent in the preceding year and yield on assets increased 0.2 per cent to 11.3per cent. However, the bank’s cost of funds was also up 0.7 per cent to 5.1 per cent, while Cost-to-Income Ratio rose to 62.1 per cent from 58.8 per cent in 2016.

“In the coming periods, we will focus on the disciplined implementation of our strategy to drive efficient and operational excellence across all segments, expand revenue and increase profitability, with enhanced focus on risk management practices and a disciplined cost containment structure,” said Herbert Wigwe, Managing Director, Access Bank.

GTBank, which also had good NPLs ratio of 3.9 per cent in Q3 2017, has gone above the 5 per cent NPL regulatory benchmark despite  axing its loan loss provision by a whopping -81 per cent to N12.17 billion from N65.29 billion in 2016. The bank NPL ratio spiked to 7.66 per cent in 2017 on the back of its N42 billion exposure to Etisalat. Significant rise in toxic loans in the telecomm and transportation sector and other sectors such as hospitality, engineering services, co-operative societies etc. caused the bank’s NPL ratio to surge.

Meanwhile, the lender has been able to reduce the probability of loan default as its impairment charges to loan ratio dropped to 0.84 per cent in 2017 from 4.11 per cent in 2016 as it reduced its risk assets by -9 per cent to N1.45 trillion against N1.59 trillion in 2016.  GTBank coverageforNPLsstoodat119.6 per cent.

“Heightened NPL in Telecoms is in accordance with Group’s stance on strict compliance with applicable accounting standard which led to the classification of a single exposure within this sector.

This classification also negatively impacted the overall NPL of the Group closing at 7.66%,” the bank to investors. It is targeting to bring its NPL down below 5 per cent at the end of 2018.

GTBank gross revenue increased marginally 1 per cent to N419.23 billion in 2017 bolstered by 117 per cent upswing in securities trading income on the back of improved foreign exchange in the country and growth in Treasury Bills trading volumes. Its post-tax profit was up 29 per cent to N170.47 billion buoyed by -81 per cent drop in impairment charges and -37 per decline in fee and commission expenses.

The upward trend of NPL would propel banks to exercises more caution in disbursement of loans in the current financial year, DrOwolabiAkintola, a Corporate Financial Accounting expert and a member of Faculty, Lagos Business School told Business Hallmark.

Zenith Bank in the same vein had a  55.6 per cent rise in its NPL ratio to 4.7 per cent in 2017 compared to 3.02 per cent it had in the previous year in spite of trimming is loans and advances

-4.6 per cent to N2.25 trillion in 2017. Its impairment loss swelled 204 per cent to N98.23 billion in 2017 as it was part of the 13 banks consortium that provided N541 billion to Etisalat in 2013.

But the bank was able to rake in N745.19 billion as revenue, influenced by 456 per cent rise in trading gains, which was 46.7 per cent improvement from the N508 billion income it generated in 2016. Zenith Bank increased its profit for the year by 37.2 per cent to N177.93 billion.

Although Ecobank was able to return to profitability last year after posting N52.6 billion loss in 2016, its NPL ratio rose to 10.7 per cent in 2017 instead of 9.6 per cent in 2016. It lowered its impairment loss -43 per cent to N125.89 billion in 2017 as loans and advances grew slight 1 per cent to N2.86 trillion.

The Pan-African bank grew gross earnings 15 per cent  to N763.63 billion on the back of 12 per cent rise in interest income and fee and commission income, which was up 15 per cent. It posted a profit-after-tax of N69.99 billion during this period compared to N52.6 billion loss it declared in 2016.

“We have reduced our efficiency ratio to 61.8% which evidences the effectiveness of these actions and we will continue to drive this ratio down.

“We have reorganized our businesses, overhauled our risk management, improved our controls and systems, adopted technology to drive efficiency, and we are addressing capital allocation. In 2018 and beyond our focus will be on one thing: relentless execution,” Ade Ayeyemi, EcoBank Group CEO told investors.

In 2017, Stanbic IBTC NPL ratio worsened to 7.9 per cent from 5 per cent in 2016 swayed by more toxic loans in the transportation and telecomm sector, which is connected to the Etisalat loan facility and the oil downstream sector.

“The non-performing loans increased to N31.7 billion (2016:N18.7billion). The main driver of the increase in NPL was the classification of some corporate clients in construction & real estate, oil & gas downstream and transportation & communication. We believe the loans will be resolved soon and our NPL ratio will decline accordingly,” explained Victor Yeboah-Manu, Chief Financial Officer, Stanbic IBTC Holdings PLC. Its impairment provision rose by 29 per cent to N25.6 billion as risk asset increased slightly by 5 per cent to N372 billion

Moreover, the bank’s gross revenue rose 36 per cent on swung by 41 per cent improvement in interest income toN122.9 billion (2016:N87.5billion), largely due to growth in income from investment securities despite a 33 per cent growth in interest expense. It profit for the year consequently jumped 70 per cent to N48.38 billion in 2017.

With the current trend of rising NPLs, banks would further bridle their risk appetites, especially with the implementation of IFRS 9, which took effect from January 1, 2018, which requires commercial lenders to be forward looking in the provisioning. Better risk management by banks would help bring down NPLs by the end of 2018, said AbayomiAjayi, research analyst with Afrinvest.

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