Published On: Tue, Sep 29th, 2015

TSA: Now how will banks make money?

 

By RICHARD MAMMAH, JULIUS ALAGBE and FELIX OLOYEDE

Godwin Emefiele

Introduction of the Treasury Single Account, TSA, by the Muhammadu Buhari administration has sent financial shock waves down the banking services industry. With the expiration of the deadline for the full implementation of the scheme last week, focus has now shifted to how the sector would respond to the attendant challenges that are expected to follow.
Hardest hit perhaps would be Deposit Money Banks, DMBs, which had been long nourished on funds from the Ministries, Departments and Agencies, MDAs.
While the full scope of the challenge is yet to be fully underscored, one point that is clear to analysts is the inevitability of an interest rate spike.
This is attendant upon the loss of funds by the DMBs to the Central Bank of Nigeria, CBN, who within the new regime would be the primary custodians of government funds.
It will also challenge the banks to implement policies designed to boost a return to the practice of aggressive retail banking. And then there is the potential escalation of fees for all kinds of services being rendered.
Gross Earnings portfolio
The new challenge is coming on the heels of earlier developments in the sector.
In 2014, for example, the bigger deposit money banks had posted fairly impressive improvement in their top line financial statement items. Aided by its size, scope and longevity, FBN conveniently declared a 21.3% rise in gross earnings from N396 billion in 2013 to N480.6 billion at the end of financial year 2014.
On its part, Zenith Bank also achieved a 14.79% increase in gross earnings from N351.5 billion in 2013 to N403.3 billion in 2014.
Equally, GTBank’s gross earnings rose by 14.75% in 2014 as it grossed N278.5 billion, up from N242.7 billion in 2013.
Presumably on the back of increased scale of operations that followed its incorporation of the erstwhile Oceanic Bank as well as its own self-assigned recapitalization mandate, Access Bank Plc’s gross earnings moved up by 18.51% from N206.9 billion in 2013 to N245.2 billion in 2014.
As for UBA Plc, its gross earnings grew by 9.56%; from N264.5 billion in 2013 to N290 billion at the end of 2014.
Profit before tax
Even as the sector witnessed a surge in overall earnings, the story at the profit end of bank books was mixed.
FBNH for example was only able to raise profitability by 1.75% in 2014, a pointer to what some analysts believed was its difficulty in managing rising overhead expenses as cost of finance continued to erode profit from operations. In the first half of 2015, the trend persisted but optimists believe that end of year adjustment may vote in favour of the holding company, particularly if it is able to manage the ongoing TSA threat.
While FBNH struggled with profitability, Zenith Bank demonstrated that profitability was a function of agility. The bank’s operational focus led to a 12.81% spike in pre-tax profit from N106.2 billion in 2013 to N119.8 billion in 2014. In its first half year result for 2015, the bank showed that regardless of a recession it could still turn a tidy profit. Analysts explain that the result was the outcome of a combination of economic efficiency, a robust business model and a strategic approach to product marketing.
On the other hand, the performance of UBA Plc was patchy. In 2014, the bank’s pretax profit jerked up marginally – less than 1%- to N56.2 billion from N51.2 in the corresponding year. This was traced to low business penetration in the course of the year. However, the bank’s first half result in 2015 showed promise. Analysts are of the opinion that the management seems to have woken to the task of improving operational efficiency by cutting back on avoidable overheads. But there is presently the added burden of a TSA-induced liquidity squeeze.
Assets
FBNH’s asset was valued at N4.34 trillion in 2014. This was an increase of 12.24% above the corresponding year value of N3.869 trillion. The bank’s asset growth though commendable carries with it concerns over the capacity of the institution to sustain a competitive return on fresh assets.
While FBNH did a 12.24% increase in total assets, Zenith Bank Plc saw a need to raise its total capital employed for banking operations by 19.48% to N3.755 trillion from N3.143 trillion in 2013. Also, Zenith Bank currently provides a higher average return on asset to investors.
UBA, on the other hand, pushed up total assets by 4.55% to N2.76 trillion from N2.64 trillion in 2013. The bank’s balance sheet was put on pause mode of sorts, leaving its management with a renewed challenge to rethink its operational strategy. There has also been the old bogeyman of regulation ripping into the delicate fabric of the bank’s assets. Slowing down of deposit liabilities has hobbled the bank’s ability to grow short term assets by way of increasing loans and advances.
GTBank Plc equally ponied up on Zenith bank’s growth in financial assets and earnings. GT’s total assets rose by 17% to N2.36 trillion from N2.01 trillion in 2013. Access Bank on the other hand achieved a 14.65% balance sheet size expansion to N2.10 trillion from N1.84 trillion in the corresponding year.
Ogochukwu Ndubuisi, a consultant in Lagos said that the first half result of these banks signal what we should be expecting at the end of the year. Most of the cutbacks will affect top and bottom line growth even as some banks are seeking capital injection from rights issues. They noted that the treasury single accounts have started to impact their cost, which will further pressure their ability to grow their earnings. To cut costs, banks will be forced to lay off staff in the next quarter.

 
Dr. Boniface Chizea, Managing Director, BIC Consultancy Services Limited, said the analysis of banks’ financial balance sheet show that most of the revenues come from fees’ income. He also added that banks make money from investments on bonds and treasury bills, noting that they now need to scale down their recurrent expenditures to reflect the shortfall in their revenue as well as shed assets in order to cut costs.
Mr. Emma Nwosu, former Managing Director, defunct ACB International Limited, advised banks to improve on service delivery, which will bring about customer satisfaction and in turn increase their deposit base.

 

© 2015, Hallmarknews. All rights reserved. Reference and link to this site is required if you wish to reuse any article.

Reactions from Facebook

comments and opinions

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Most Shared

Recent posts

  • China offshore oil coy to invest $3bn in Nigeria

    The China National Offshore Oil Corporation (CNOOC) is to invest an additional three billion dollars in its existing stakes in offshore oil and gas operations in Nigeria. Mr Ndu Ughamadu, the Nigeria National Petroleum Corporation (NNPC) spokesman said this in a statement on Sunday in Abuja. Ughamadu said Mr Yuan Guangyu, the Chief Executive Officer […]

  • Ecobank risk assets deteriorate as Kie bows out

    By FELIX OLOYEDE The exit of Ecobank Nigeria’s erstwhile Managing Director, Charles Kie, has raised a groundswell of speculation in the financial community as sector analysts believe that his exit was abrupt, untimely and suspicious. Over a period of two years, Kie had succeeded in reversing the banks bedraggled balance sheet and profit and loss […]

  • Blood, blood everywhere: Herdsmen, rustlers on the rampage

    –  Violence, a well-articulated plot to grab land – Expert  By AYOOLA OLAOLUWA Nigeria is gradually descending into a Hobbesian state with the growing killings in the Middle Belt, in addition to the destruction of lives and properties in the North West and Boko Haram insurgency in the North East. Defenseless citizens are being killed like […]

  • 2018 budget in jeopardy

    . Delay alone has reduced performance by 13% – Experts By UCHE CHRIS In all likelihood the 2018 budget will end like the three previous budgets of the President Buhari administration: a failure. Having been passed seven months after its presentation and half year gone; and with all the controversies surrounding its passage by the […]

  • MTN to miss market listing target

    By OKEY ONYENWEAKU A weak domestic economy in Nigeria may force telecommunications giant MTN to shift its earlier proposed August 2018 date for a local listing on the Nigerian Stock Exchange (NSE). Analysts believe that the date shift will allow the parties to the Offer plan a more successful listing arrangement that would guaranty full […]

  • APC crises widen: Amaechi battles for relevance, Modu-Sheriff is new strongman

    By OBINNA EZUGWU Key actors in the ruling All Progressives Congress (APC) managed to keep up appearance to allow for a smooth transition at the party’s recently held national convention. Except for the exchange of blows among Imo and Delta States delegates, the convention was largely a success. But beneath the facade of orderliness, tensions […]

  • INEC declares Fayemi governor-elect in Ekiti

    The Independent National Electoral Commission (INEC) has declared Kayode Fayemi of the All Progressive Congress (APC) winner of the Ekiti Governorship Election held on Saturday. INEC’s Chief Returning Officer for the election, Professor Idowu Olayinka declared the result on Sunday. According to the Returning Officer, Kayode got 197,459 votes to defeat the Deputy Governor of […]

  • President Muhammadu Buhari said on Wednesday that Nigeria will soon sign up to a $3 trillion African free-trade agreement. Nigeria is one of Africa’s two largest economies, the other being South Africa. Buhari’s government had refused to join a continental free-trade zone established in March, on the grounds that it wishes to defend its own […]

  • PDP meets Obasanjo for advice on how to beat Buhari in 2019 polls

    The National Working Committee (NWC) of the Peoples Democratic Party(PDP) will meet with former President Olusegun Obasanjo in Abeokuta on Saturday to seek advice on how to achieve victory in the 2019 polls and beat incumbent Muhammadu Buhari. The National Chairman of PDP, Uche Secondus, made this known in Abeokuta while addressing journalists after a […]

  • GTBank Launches Social Impact Challenge, Aims to Fund Community Development Projects Nationwide

    Following more than two decades of consistent investment in community development, Guaranty Trust Bank plc is taking its Corporate Social Responsibility (CSR) another step further by launching a Social Impact Challenge that will fund dozens of innovative ideas designed and executed by members of the general public. Tagged #SimpleChangeBigImpact, the Social Impact Challenge invites individuals […]

  • Akpobome gives indigent girls educational lifeline

    Akpobome gives indigent girl The hope of indigent girls who have been struggling with their education has been rekindled as Mrs. Mary Akpobome, former executive director, Heritage Bank and her husband,  Mr. Atunyota Akpobome, fondly called Alli-Baba have jointly floated The Purple Girl Foundation with the purpose  of helping them live their dreams. Giving reasons […]

  • Buhari’s NLNG signature project back on track

    President Muhammadu Buhari has congratulated the board, management, staff and shareholders of the Nigerian Liquefied Natural Gas company (NLNG), the NNPC and other Joint Venture partners, Shell, Total and AGIP on the signing of the contracts for the Front End Engineering Design (FFED) of Train 7 of the Nigeria Liquefied Natural Gas Project. The President […]

  • Buhari creates unit to snoop on illegal money transfers

    President Muhammadu Buhari has signed the Nigerian Financial Intelligence Unit bill (NFIU) 2018 into law, creating a body that will henceforth monitor illegal money transfers and money laundering. The Senior Special Assistant to the President on National Assembly Matters (Senate), Sen. Ita Enang, confirmed this development while briefing State House correspondents in Abuja on Wednesday. […]

  • NCC wades into MTN’s labour issues

    The Nigerian Communications Commission (NCC) on Monday said the organisation has opened talks with critical stakeholders on MTN’s labour issues. Mr Tony Ojobo, NCC’s Director of Public Affairs, made this known in a statement by in Abuja. “NCC under the leadership of Prof. Umar Danbatta has opened talks with other critical stakeholders  through the office of […]

  • Weak purchasing power responsible for slowing inflation rate, says Chukwu

    FELIX OLOYEDE The continuous decelerating inflation rate in the country was largely due to weak purchasing power amongst Nigerians, said Johnson Chukwu, Managing Director, Cowry Asset Management Ltd. Speaking on the theme: “Economy: H1 2018 review and prospect for year end” at the second edition of the Bloomberg Media Initiative Africa (BMIA) Cohort 4 quarterly […]

  • Global outrage grows over incessant herdsmen killings

    …there is anarchy in the land – Utomi   By OBINNA EZUGWU The incessant killings in Nigeria by Fulani herdsmen seem to attracting more global attention as U.S. and U.K. have taken the government to task to stop it. During his recent visit to the U.S. by President Buhari, American President Donald had expressed concern […]