Kings of Broad Street: GT, ZENITH, UBA, ACCESS

BY OKEY ONYENWEAKU

As the banking industry gets tighter with narrowing operating margins and tougher competition for retail customers, the big four financial institutions are revising their strategies and setting up camp to fight an unconventional warfare. The new terms of engagement are moving from terrestrial combat to digital battlegrounds.

‘Banks will increasingly need to go into the stratosphere to sharpen their tools of conflict as speed, efficiency and knowledge become the tests of competitive advantage’ says Chairman Nova Merchant Bank, Phillips Oduoza, during a recent exclusive interview with Business Hallmark. According to Oduoza, the opportunities emerging for financial institutions in Nigeria will only be exploitable if the banks have the right technology, experience and personnel, ‘the battles of the future will be won by those with the right kind of people than those with the right kind of hard drives’, says the Nova Merchant Bank boss.

Coming off the back of the first recession in 25 years, different banks are in various states of financial health, with the big four, GT Bank, Zenith Bank, UBA and Access Bank proving that they are still ahead of the industry curve with assets growth, earning margins and liabilities that dwarf their closest competitors. Furthermore, the four banks show strong underlying liquidity, capital adequacy and forward earning capacity.

Despite softening macro-economic indices, G T Bank, Zenith Bank UBA and Access Bank have been formidable. In many of the financial benchmarks, the banks have proved stronger except in terms of loan loss provisions and worsening loan default. Bank stocks have gained substantially this year. A look at their stock market  performance reveals that Zenith bank has gained 22.05 % year to date, Access 21.6 % ,  GT Bank 14.6% and UBA 18.63%.

GTBank

Guaranty Trust Bank (GTB) Plc posted profit of N125.58 billion for the third quarter ended September 30, 2017.

The report showed that the profit represented a growth of N8.49 billion or 7.21 per cent as against N117.08 billion achieved in the corresponding period of 2016.

Its profit before tax rose to N150.03 billion from N137.99 billion recorded in the preceding period of 2016.

Further analysis by the bank showed that total assets surged to N3.21 trillion from N3.12 trillion reported at the end of 2016 financial year.

The bank’s total liabilities inched up to N2.63 trillion from N2.61 trillion in Dec. 2016.

Also, the result showed that interest income surged to N248.270 billion from N181.91 billion in the comparative period of 2016.

Net interest income stood at N189.58 billion during the period under review from N132.75 billion in the preceding period.

Fee and commission income dropped from N50.410 billion reported last financial year to N39.676 billion while, Net fee and commission income declined to N37.977 billion in September this year from N48.134 billion reported in Dec. 2016. Loan impairment charges stood at N8.36 billion from N57.08 billion reported in the same period of 2016, representing a drop of N48.73 billion or 85.36 per cent.

Zenith Bank

Zenith Bank Plc recorded significant growths in the top-line and bottom-line in the third quarter, raising prospects of better returns for the 2017 business year.

The interim report and accounts of the bank for the nine-month period ended September 30, 2017 showed gross earnings of N531.3 billion, showing a growth of 39.7 per cent above the N380.4 billion posted in the corresponding period of 2016. Net interest income rose marginally by 6.2 per cent from N189.8 billion to N201.5 billion, while non-interest income surged by 123 per cent to N169.5 billion, from N94.7 billion.

Zenith Bank grew its profit before tax by 30.8 per cent from N116.6 billion to N152.5 billion while profit after tax (PAT) grew faster by 36 per cent to N129.2 billion, compared with N95.4 billion in 2016.

Also, deposits grew from N2.6 trillion at the end of December 2016 to N3.1 trillion as at September. But loans and advances fell marginally by 2.6 per cent to N2.2 trillion, from N2.4 trillion. Total assets stood at N5.1 trillion, up from N4.6 trillion in December 2016.

Chairman, Zenith Bank Plc, Mr. Jim Ovia recently assured that the bank would continue to work to improve shareholders’ value in spite of the challenging operating environment.

He noted that the bank’s performance was due to its ability to fully exploit the available opportunities, pointing out that in line with its commitment to delivering superior returns to shareholders, the bank ensured that a good chunk of the profit would be distributed to the shareholders.

“As a bank, we are monitoring developments both in the local and global economy and applying pragmatism and dynamism as appropriate. Our strategy and approach to the pursuit of financial inclusion and sustainability gives us a lot of competitive advantage to explore even new frontiers in the market,” Ovia said.

UBA

UBA  has scripted its projections for the 2018 to achieve a deposit growth of 10%, loan growth of 10%. The Pan African Bank also targets a return on average assets of 2.3%, return on average equity of 20% and net interest margin of 7%.

United Bank for Africa (UBA) Plc, third quarter financial results ended September 30, 2017, shows remarkable performance across key financial indicators.

UBA’s gross earnings grew by 26 percent to N333.9 billion, as against N265.5 billion reported in September 2016.

The group’s operating income stood at N236.9 billion, compared to N183.3 billion recorded in the corresponding period of 2016, representing a 29.3 percent growth.  The group also delivered an impressive profit before tax (PBT) of N78.3 billion, marking a significant growth of 33.2% as against N58.8 billion recorded in the same period of 2016.

In the same vein, Profit after Tax (PAT) grew to N60.9 billion representing an impressive 23% growth over the N49.5 billion recorded in the third quarter of 2016. While the group closed the third quarter with Total Assets of N3.77 trillion, a YTD growth of 7.6 percent. It prudently grew net loans to N1.6 trillion, a 6.0 percent YTD growth in the loan book.

Commenting on the result, Kennedy Uzoka, the Group Managing Director/CEO, said, “These extremely positive third quarter results are an attestation of our ability to sustainably grow earnings and market share, notwithstanding the challenging operating environment. They are a tribute to our enhanced customer engagement and focus on continuous improvement in service quality.”

He said, “Our Africa operations (ex-Nigeria) again grew strongly in the period, contributing a third of top-line and approximately 40% of earnings.”

He further noted that the bank’s nine-month top-line grew by 26.3%, to an unprecedented N334 billion, driven particularly by the strong performance of its recurring core revenue lines.

Access Bank

Access bank’s five year financial playbook appears to rest on a favourable outlook for the economy in the course of the year and leans largely on a strategy of strengthening its retail and wholesale banking businesses at a continental level, while equally improving digital technology applications. How this pans out could prove crucial to the banks medium term performance.  Industry analysts are non-committal on the outcome preferring to watch from the sidelines on how the first year works out.

Nevertheless, a few of the banks traducers are of the opinion that its revenue and profit figures will grow much less than its business plan projects. Their key observation is that apart from great infographics the plan provides very little in terms of unique service propositions, despite the fact that, according to the banks chief executive officer, Herbert Wigwe, the plan rests on six key growth elements; Global collaboration, Customer-focus, Digital led banking, retail and wholesale banking, Analytics-driven insight/ Robust risk management and Universal Payment Gateway.

Access Bank Plc achieved a profit after tax of N56.4 billion for nine months ended Sept. 30, 2017.

The profit after tax increased by 4.25 per cent when compared to N54.1 billion recorded in the corresponding period of 2016.

Its gross earnings rose to N245.87 billion as against N181.2 billion achieved in the preceding period of 2016.

The results also indicated 33 per cent growth in gross earnings year-on-year to N365 billion from N275 billion in 2016, driven primarily by the strong performance on core revenue lines.

Commenting on the bank’s performance, the bank’s Group Managing Director, Herbert Wigwe, said that strategies embarked upon between 2013 and 2017 contributed to the growth.

“We continue to gain momentum in our efforts to achieve more diversified earnings as we strengthen our retail and digital offerings. I am excited at the prospects in the coming months,” Wigwe said.

He said that the reporting period marked the last quarter of the 2013 –2017 strategic period, adding that the bank remained committed to improving the quality of its balance sheet. “The board and management remain extremely grateful to our more than eight million customers, shareholders and dedicated employees for enabling us achieve several milestones within this period.

“We look forward to the next five years, with confidence in our ability to deliver superior service and optimised shareholder value,” Wigwe stated.

He said that the bank’s third quarter performance showed that operating costs reduced significantly by 18 per cent quarter-on-quarter to 49.5 billion in Sept.

Wigwe said that the development reaffirmed the bank’s commitment to rein in costs and improve operating efficiency.

According to him, capital and liquidity buffers of 20.5 per cent and 46.0 per cent respectively are well above the minimum regulatory requirement.

Access Bank is a full service commercial bank operating through a network of 371 branches and service outlets located in major centres across Nigeria, Sub Saharan Africa, and the United Kingdom with representative offices in China and the UAE.

The bank has more than 830,000 shareholders, including several Nigerians and international institutional investors and has enjoyed what is arguably Africa’s most successful banking growth trajectory in the last twelve years.

These banks belong to the Domestic Systematically Important Banks in Nigeria, issued by the CBN in May, which recognizes First Bank of Nigeria Plc, United Bank for Africa Plc, Zenith Bank Plc, Access Bank Plc, Ecobank Nigeria Plc, Guaranty Trust Bank Plc, Skye Bank Plc, and Diamond Bank Plc as the banks that must be closely monitored to ensure that they did not catch the distress bug.

Systematically Important Banks (SIFIs) include banks, insurance, and other financial institutions whose distress or failure, as a result of their size, complexity and systemic interconnectedness, is capable of significantly disrupting the wider financial system and economic activity in the country.

Available industry data showed that the eight banks, measured in terms of size, account for more than 70 per cent of the industry’s total asset, credits and deposit liabilities, in addition to their constituting more than 60 per cent of the industry net-interbank transactions.

The regulator also structured a strategy of supervising the eight systemically important banks in order to stem, control and stop a financial systems failure in Nigeria.

The CBN had in 2016 said eight of Domestic Systemically Important Banks (D-SIBs) accounted for N11.76 trillion (72.2per cent) of the aggregate industry loans of N16.29 trillion.

However,  “These banks were required to meet more stringent prudential regulations to reflect their systemic importance.

“At end-December 2016, the D-SIBs accounted for N20.87 trillion (69.06per cent) of industry total assets of N30.22 trillion.

“Similarly, the D-SIBs accounted for N13.04 trillion (70.25per cent) of total industry deposits of N18.56 trillion and N11.76 trillion (72.2per cent) of the aggregate industry loans of N16.29 trillion, said the report.

A peep into 2018

There appears to be bright prospects for the stock market in 2018. Stock analysts believe that with 2018 being a pre-election year the government would be under severe pressure to reflate the economy and generate demand needed to expand the real sector and create jobs.  With a staggering local unemployment rate of 36 per cent between the ages of 18 and 34, the unemployment question will be a major campaign issue in 2019.

There is strong belief that fiscal and monetary policies of the federal government will be expansionary in the New Year as the government struggles to push the economy ahead faster. Of course, those who want to win election will pretend to have the masses at heart and loosen the tight policies to provide liquidity. In this light, President Muhammadu Buhari has already presented a budget of N8.6trillion for 2018.

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele may  also temper down monetary policy rate (MPR) from 14 per cent to affect  lending rate which hovers between 20 to 25 per cent in the banking industry. This will prompt higher earnings for companies and attract investors to invest in the market. Analysts note that it may not be out of place to see investors drifting from money market securities to the stock market. More so, interest rates for deposit savings accounts are still very low at 3 to 4 per cent while coupon rates have declined to about 14 per cent. Many market observers agree that this may have been caused by the Federal Governments shift to borrow from the international market and not crowd out the private sector.

Late last year, the Minister of Finance, Mrs Kemi Adeosun released N750billion capital expenditure, the price of crude still hovers reasonably at $62 and $66 per barrel and there is relative calm in the Niger Delta. These many believe will provide liquidity to players in the market.

The banking kings of Broad Street may have had a turbulent time between 2015 and 2017 but they are gradually steeping out of the clouds as stronger fiscal stimulus and more predictable monetary policy create a kosher environment for corporate earnings growth. The battle for top prize may remain heated but the spoils of war will evidently remain attractive even for those that straggle in battered and bruised.

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