…as analysts lower profit estimates in Tier-11


If the outlook from first quarter performance of banks is anything to go by, it is an indication that some Tier II capital banks which opened the year with declining performance are more likely to miss equity analysts’ estimates for the second quarter, and year end results. A trend seems to be emerging where banks are making more money which they are finding increasingly difficult to covert to profits from their operations as a result of the high operating costs being experience across the industry.
A review of the analysts note on banks’ first quarter of year 2019 came with mixed performance across board but Tier I capital showed more resilience in general compare to their counterparts base on results analysed by BusinessHallmark. Some equity analysts downgraded mid-size banks estimates based on weak first quarter result as declining profit derived from interest earnings assets for some and inability to push a cover from non-interest earnings.
Banks like Stanbic IBTC, Sterling Bank had their shares of the adjustment on estimates due to weak performances. The pattern showed that lower yield will exert pressure on performance across the banking sector in the next quarter. BusinessHallmark identified a major trend that underscores the banking sector results in recent time to be reduced yield from securities investment and unfortunately some banks are still bearish on the economy.
As some analysts lowered estimates, earnings missing targets is very much likely in the second quarter of 2019, Jide Famodun, a financial analysts told BusinessHallmark. He said it takes strong conviction for any equity analysts to adjust estimates. It is about the numbers, and the fundamentals – how strong they are.
It would be recalled that in 2018, many banks nudged up performance with support from non-interest income driven by increased activities along their various technology channels. In the first quarter, many analysts said that earning releases by some midsize banks were grossly disappointing. The pattern showed that banks are yet to start booking loans therefore interest earnings assets were either declining or flattened for some banks as revealed in the results.
In its first quarter review, Meristem Securities equity research showed that Stanbic closed the first quarter of 2019 on a quiet note, having recorded a 16.98% decline in its bottom line to N19.15 billion. Gross earnings recorded marginal growth of 2.27% to N58.69 billion, owing to the lower yield environment, the slow growth of the bank’s loan portfolio, and the expected regulatory pension fee cut.
Although Stanbic recorded higher impairment charges, it was able to tighten its grip on operating expenses as personnel cost declined by 10.75%, leaving operating expenses largely unchanged at N25.07 billion.
“With the slow growth in its loan portfolio, the decline in financial instruments and lower yield environment, there is a dire need for the group to further sweat its interest-earning assets and maintain its tight-hold on operating expenses to boost its bottom line”, Meristem Securities said.
Also, Sterling Bank Plc started the year on a sour note with a poor gross earnings performance at the end of the first quarter in 2019. The bank’s gross earnings dipped by 8.24% from N39.77 billion in first quarter 2018 to N36.49 billion over similar period in 2019.
The decline was recorded across the interest income and non-interest income lines. Interest income fell 3.19% due to weaker income from loans and lower yield on investment in securities while non-interest income declined 28.41% as a result of dip in foreign exchange trading income.
“We revised our forecast for gross earnings in 2019 downward to 0.35% given our weak expectation for loans growth, though we expect slight recovery in the non-interest income line to support earnings”, Meristem said
Zenith Bank closed the first quarter of 2019 having recorded a 6.70% growth in its bottom line to N50.23 billion. It was observed that interest income recorded an up-tick, as an existing derivative loss pressured non-interest income further, dragging down gross earnings by 6.65%.
The review of its numbers showed that Zenith is bracing up for a lower yield outlook by carrying out an overhaul of its investment strategy, and shedding off its trading in investment securities and locking in longer-dated instruments at the long end of the curve to minimize its re-investment risk, while maximizing interest income on them.
Analysts at Meristem securities said they expect a reduction in trading activities of the bank going forward thus resulting in lower trading gains, as the bank positions itself to maximize interest income on its investment securities and other interest-earning assets.
FBNH Plc gross earnings grew by 4.99% to N145.78 billion, strengthened by an impressive 20.68% in non-interest income to N33.73 billion on back of the bank’s of electronic banking fees which was supported by increased of about 83% in transactional volume on its digital service offerings, and about 270% gains on investment securities.
The result showed that FBNH’s interest income remained weak, growing merely by +1.04% in the first quarter of 2019 to N112.04 billion, though the bank recorded a 13.1% increase in interest income from investment securities.
Access Bank Plc however commenced the year strong with improved gross earnings as investors finally got a glimpse of life after the merger. In line with IAS 3(International Accounting Standard), the first quarter of 2019 income statement was mostly a reflection of Access’ stand alone performance while the balance sheet was consolidated.
The bank’s numbers showed that gross earnings grew by 16.42% to N160.12 billion from N137.53 billion in the comparable period in 2018. The performance at the top-line was aided by decent growth in interest income which came at 15.88% to N110.78 billion and 17.66% increase in non-funded income to N49.35 billion.
Interest income line which surged 159.17%, higher income from the bank’s enlarged investment assets offset the 21.31% decline in income from loans while a return to profitability (+191.05%) from its foreign exchange trading line supported the growth in non-interest income.
Meristem projects a 38.73% growth in gross earnings for financial year 2019, 38.24% interest income and 40% non-interest income which hinges on the immediate revenue benefits gained due to the larger balance sheet and business line synergies.
On ETI review growth in non-interest income bolster gross earnings in the first quarter of 2019. However, analysis showed that the Group’s gross earnings continue to grow at a slow pace. By its first quarter result, gross earnings grew marginally by 0.42%, supported by the growth in non-interest income which came at 17.77%, thus offsetting the 7.81% decline in interest income. The Group’s Interest income was pressured by the lower yield on earning assets as well as the decrease in earning assets.
“In line with our expectation, the cost of the $200million syndicated loan it took in 2018 weighed heavily on interest expenses which increased by 7.11%. Hence, the net interest margin declined to 4.80% from 5.90% in FY2018; we hold the premise that the bank needs to improve its NIM which has been on a decline by increasing its earning asset base. Meristem Securities however noted that for 2019, it maintains projected growth of 10.94%, 11.05% and 10.72% for Interest income, non-interest income, and gross earnings respectively.
FCMB Group Plc Q1’19 results showed that gross earnings grew by 3.4% quarter on quarter to N43.9 billion, driven by a 24.2% growth in non-interest income. The growth in non-interest income, in addition to an 11.6% quarter on quarter decline in operating expenses, lifted earnings before tax by 14.8% to N4.3 billion.
However, earnings after tax declined by 1.5% on the back of an increase in effective tax rate to 15.8% in the first quarter compared to 1.5% in preceding quarter in 2018.
Analysts at Vetiva Capital in a note observed that interest income dipped 5.1% quarter on quarter to N34.4 billion, weighed down by the 12.2% decline in returns on loans & advances which masked the 15.8% growth in income from investment securities. The weakness in interest income is likely related to sustained depletion of the bank’s risk assets. Consequently, net interest income declined by 3.9% at the end of the first quarter in 2019.
Also, the group non-interest income rose by 24.2% quarter on quarter, bolstered by FX gains of N483 million and a 34.0% increase in trading income that was likely driven by the bank’s play in the T-bills market. Analysts think that gains on these fronts overshadowed the impact of a 19.4% quarter on quarter contraction in net fees & commission income on non-interest income.
Fidelity Bank Plc gross earnings weakened by 2.0% quarter on quarter to N48.4 billion weighed down by a 46.6% decrease in non-interest revenue. Notwithstanding, after tax earnings grew by 21.5% to N5.9 billion, supported by a 22.5% quarter on quarter decline in operating expenses. While the bank raised interest income, its non-interest income line slipped.
CardinalStone Partners equity analysts noted that United Bank for Africa Plc gross earnings grew by 10.3% year on year to N131.7 billion, in line with its forecast of N132.5 billion with a marginal deviation of -0.6%. Likewise, before tax earnings grew by 13.6% year on year to N30.2 billion, underperforming analysts’ first quarter estimate by 2.4%.
Interest income rose 9.1% YoY to N98.6 billion, driven by the 28.2% YoY growth in income from investment in securities (T-Bills and promissory notes), which offset the 5.2% YoY decline in interest income from loans and advances.
Non-interest income improved by 6.8% YoY, supported by 11.8% YoY and 20.4% YoY increases in net fee and commission income and other operating revenue. The growth in the former was propelled by increases in remittance fee, net funds transfer fees, and commissions on transactional services. Gains on these fronts were enough to limit the impact of a 12.7% YoY contraction in net e-banking inflow on net fees.

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