Banks first quarter results signpost gloom

Banks first quarter results signpost gloom

It is becoming obvious that not only the small banks are struggling in the sector. In fact, the big banks which the Central Bank of Nigeria (CBN) designated as ‘Too Big to Fail’ are also deeply perturbed given their less impressive outing recently.

Not even the seemingly very strong ones are certain to perform better than 2015 this year.

These banks, the apex bank said in 2013 that their failure could pose a systemic risk to the banking industry and the larger economy.

‘ Too big to fail’ banks in Nigeria according to the CBN include: First Bank of Nigeria Limited, Guaranty Trust Bank Plc (GTBank), Zenith Bank Plc, United Bank for Africa Plc (UBA), Access Bank Plc, Skye Bank Plc, Ecobank Nigeria and Diamond Bank Plc

The eight banks alone account for 75 per cent of the banking sector in terms of earnings, profitability assets, customer deposits and branch networks. Hence the apex bank adopted a more robust regulatory regime to monitor and scrutinise them, in order to ensure that they are healthy, they were asked to increase their capital base in order to give them a buffer against internal and exogenous shocks.

However, these banks which were considered to be systematically important to the banking system are beginning to betray signs of weakness.

Although some of them performed fairly well in the past year, there were indications that the honey moon may soon be over and the first quarter results have provided a validation.

A convincing picture that these banks are gradually losing vigour in terms of strong performance is evident in their Q1 scorecards. Challenges facing the sector since the new regime took in May 2015 include the TSA policy which withdrew public sector funds from the banking system, wrangling and delay in passing the 2016 budget and the forex control policy.

Earlier, and in recognition of the impact of these factors on the sector, Mr. Segun Agbaje, MD/CEO of GTB warned that 2016 will be particularly challenging period for banks.

”2015 was an extremely difficult year for the banks and 2016 will even be a more difficult year”, said Group Managing Director of G T Bank, Mr. Agbaje.

Zenith Bank

Zenith Bank Plc profit after tax (PAT) of N26.573 billion for the first quarter ended March 31, 2016, showed a decline of about four per cent compared to N27.680 billion recorded in the corresponding period of 2015.

The bank ended the period with gross earnings of N84.177 billion, up from N81.421 billion, while net interest income stood at N58.157 billion as against N42.631 billion in 2015.

It recorded impairment charges of N2.557 billion, up from N2.1 billion in 2015.

Analysts said the lenders PAT declined more than PBT because Zenith Bank booked a significant positive result in other comprehensive income (OCI, N1.1billion) in Q1 2015.

Diamond bank

Diamond Bank Plc reported a fall of 88 per cent in profit after tax for the year ended December 31.2015. Although the bank recorded a growth of 4.3 per cent in gross earning its profit before and after tax fell significantly.

Diamond Bank ended the year with gross earnings of N217 billion, up from N208 billion in 2015. But profit before tax fell from N28.1 billion in 2015 to N7.1 billion, while profit after tax stood at N5.6 billion, down from N25.6 billion.

The lower bottom line was affected by high net impairment loss on financial assets, which jumped by 109 per cent from N26.3 billion to N55.2 billion.

UBA

United Bank for Africa Plc results for the first quarter ended March 31, 2016 revealed gross earnings of N54.941 billion, showing a decline from N58.669 billion in the corresponding period of 2015. Net interest income rose from N30.783 billion to N34.421 billion. Profit before tax stood at N18.083 billion, showing a decline from N18.389 billion in 2015, while profit after tax increased from N16.956 billion to N16.986 billion.

Experts said the performance is a reflection of the economic headwinds and lull that characterised Q1 and this is expected to extend into the next quarter

However, reacting to the results, analysts at Cordros Capital Limited said the bank’s annualised  earnings per share(EPS)) of N1.96, outperformed both their estimate of N1.40 and consensus’ N1.48.

“Return on average equity (ROAE) remained at the 20 (recorded in FY’15), outperforming our forecast of 14.8 per cent.

The outperformance may be attributed to positive surprises on the banks cost’s lines: interest expense (-26.4 per cent), operating expense (-1.5 per cent) and loan loss charges (57.2 per cent),” they said.

The analysts noted that net interest income increased by 11.8 per cent from the previous year and was roughly in line with their estimate.

First bank

FBN Holdings Plc reported a dip of 82 per cent in profit after tax (PAT) for the year ended December 31, 2015, falling to N15.1 billion, from N84 billion in 2014. The bank was among those that had sent profit warnings to the stock market community, saying its earnings would be materially below 2015 levels as a result of the recognition of impairment charges on some specific accounts resulting from a reassessment of the loan portfolio within our commercial banking business.

According to its audited results released yesterday, FBN Holdings recorded impairment charges of N119.3 billion, up from N25.9 billion in 2014. Consequently, its PAT dipped to N15.1 billion, although it recorded gross earnings of N505.2 billion, up from N481.8 billion in 2014.

In its unaudited results for the first quarter ended March 31, 2016, FBN Holdings posted gross earnings of N107.5 billion, compared with N126.8 billion in 2015. PAT stood at N20.7 billion, as against N22.6 billion in the corresponding previous of 2015.

Commenting on the results, the Group Managing Director of FBN Holdings, UK Eke, said:

“This has been a very difficult time in the history of our institution. Despite the tough macroeconomic and regulatory backdrop during the year, our underlying business remains strong as reflected in the gross earnings growth of 4.9 per cent to N505.2bn – clearly a leading position in the industry. Furthermore, the Holding company platform has provided support in mitigating the impact of credit losses and the vulnerabilities experienced by our Commercial Banking business.

ECOBank

Pan-African lender, Ecobank Transnational Incorporated (ETI) said its pretax profit for the first quarter (Q1) period ended March 31, 2016 went down 32.4 percent to N20.63 billion from N30.52 billion recorded a year earlier.

Similarly, profit after tax (PAT) declined 33.8 percent to N16.21 billion from N24.47 billion declared the same period of 2015.

Gross earnings of Bank dropped from N136.22 billion to N131.37 billion in the review period of 2016 showing a decline of 3.6 percent.

GTB

Guaranty Trust Bank, one of Nigeria’s largest banks recorded a 6 percent drop in pre-tax profit in the first quarter ended March 31, 2016.

GT Bank pre-tax profit fell to N30.68 billion in Q1 2016 compared with N32.65 billion profit the bank reported in Q1 2015. GT Bank’s net interest income rose 4.2 percent to 40.79 billion in Q1 2016 compared with N39.16 billion in Q1 2015. Net fees and commission income also rose 44.5 percent N16.72 billion in Q1 2016 compared with N11.57 billion in Q1 2015.

GT Bank said total assets rose 5.2 percent to N2.66 trillion in Q1 2016 compared with N2.52 trillion recorded in December 2015.

Access bank

Access Bank’s profit after tax for the three months through March rose to 11.63 billion naira from 9.30 billion naira a year earlier.

Earnings rose 9.4% to 57.27 billion naira, while net interest income climbed 8% to 36.64 billion naira, it said. Earnings per share rose to 51 kobo from 41 kobo, while EPS from continuing operations rose to 53 kobo from 42 kobo, the bank said.

Access bank shareholders approved a plan by the bank to raise $1 billion. The fund, which will be raised in tranches, will be used to beef up the lender’s operations.

Some industry experts have been quick to agree with the banks which appear to heap the seemingly weak performance on the poor economy and unpalatable macro-economic environment.

They also seem convinced that an operating environment in which public funds are removed from banks through Treasury Single Account (TSA), weak infrastructure which has ballooned operational cost, restriction of access to forex on 41 items, no charges of Commission on Turnover and unproductive mono economy with shrinking revenue cannot be a place for deposit money banks to thrive.

However, others argue that Nigerian banks cannot be said to have demonstrated adequate professionalism, done their financial intermediation with dexterity and depend less on government’s deposit pie to survive.

The implication of the development, they observed is that the era of bloated and high profit margins may be over, at least in the short term.

More disturbing is that some of the big operators have already expressed deep fear that whereas the 2015 operating year was tough for Nigerian banks 2016 may be even worse.

Cheap money has always been the norm in the Nigerian banking system. But that has suddenly and deliberately changed. The government has taken a disturbing decision to pull out public funds from deposit money banks and this has kept their vaults emptier than ever before with the introduction of TSA.

A FBNH official, who preferred anonymity, said that they recognise the changing times and have already adopted strategies to overcome them. ”Challenging times are the best period for organisations that have ideas can thrive; We have developed innovative policies and strategies to respond to the situation and these will be made public soon”.

”Things are beginning to fall apart as a result”, an expert who would not want to be mentioned in print said.

In fact, the soft underbelly of these big financial institutions have been exposed and their weakness obviously clear.

”Why should banks depend only on public sector funds to survive?” a retired senior banker queried.