Experts call for caution as banks reap bountifully from charges

Okey Onyenweaku

Deposit Money Banks (DMBs) in Nigeria have defied the challenging macroeconomic environment to deliver impressive figures across key performance indicators for the second quarter ended June 30, 2021, BH reports.

With the performance reaffirming the banks’ ability to navigate the current global economic headwinds occasioned by the impact of insecurity, financial analysts say it is a reflection of the optimal management of the financial institutions.

With a profit before tax of $261.3million (N109.0billion 28% up) in half year ended June 30, 2022 representing 24% over $210.073million (N85.323billion) Ecobank Transnational Incorporated recorded in 2021, the owners of the Pan -African Bank may be nursing the hope of reaping a good yield at the end of the business year 2022. The bank’s gross earnings rose 12% to $1,216.0million (up 15% to N503.6billion).

The bank’s revenue was up 10% to $909.8million (N397.3billion up 13%) from $824.5million (N334.8billion) it achieved in 2022.

However, Total assets were down 2% to $27.1 billion (down 2% to NGN 11,414.0 billion) – Loans and advances to customers down 2% to $9.3 billion (down 3% to NGN 3,939.0 billion) – Deposits from customers stable at $19.7 billion (down 1% to NGN 8,318.5 billion) – Total equity down 10% to $2.0 billion (down 10% to NGN 823.2 billion)

The bank had declared a profit of N146.33 billion in full year 2021, a 334% increase year-on-year.

The bank also reported earnings per share of N1.49, a 47% decline from the N2.80 reported a year earlier in 2020. Ecobank Plc has been able to double its profits in 4 years since hitting N69 billion in 2017 with the profit now touching roughly N146 billion.

The statement from the financial institution revealed that in FY 2021, Net interest income grew by 12% from N346.61 billion to N386.71 billion in the current period. The Bank’s profit performance for FY 2021 was on the back of all margin growth as income from interest, investment and fees and commission income all appreciated year on year.

A further look at the results show that the lender earned N603.37 billion from its lending business as Interest income grew by 14% from N531.22 billion.

Despite a 2.76% spike in loan losses, operating profit after impairments still appreciated by 35.57% to stand at N206.51 billion.

The bank however grew its income from commission and fees rising 26.25% to N204.79 billion year on year and also generating a total of N121.04 billion in net trading income on securities representing a 9.00% decrease year on year.

Net gains from instrument securities grew by 19.73% to be recorded as N7.60 billion. Net Trading income, however, declined by 8.50% to N121.04 billion.

The bank’s credit-related fees and commission raked in N59.13 billion, representing a 21.77% spike from N48.56 billion in 2020. This suggests that the bank has improved in its utilization of its credit application channels and the overall delivery of financial services to its customers.

In addition, the group also grew its deposits from customers by a whopping 14.14% to N8.36 trillion while its total assets are now N11.69 trillion, almost twice the bank’s total assets in 2017. Net assets rose by 13.08% to N917.90 billion.

Ecobank Plc last traded at N9.30 per share and its market capitalization stood at N181.2 billion as at Friday July 29, 2022.

Union Bank of Nigeria Plc Group

Union Bank announced its unaudited financial statements for the quarter ended 30th June, 2022 with Profit before Tax of N12.3billion. This represents a 6.7% increase from N11.5billion it achieved in 2021. While gross earnings rose 12.5 per cent from N77.7billion in H1 2022 to N87.4billion in 2021, Non-interest income plunged by 24.1% from N27.7billion in 2021 to N21.1billion in the corresponding period of 2022 due to foreign exchange revaluation.

Operations expenses rose marginally to N37.3billion in 2022 from N36.8billion in 2021; Customers deposits grew 7% to N1.5trillion; Gross loans slipped by 0.4% down to N895.3billion. In fact, the bank’s non-performing loans flattened at 4.4% at the close of business in H1, 2022.

Commenting on the results, Mudassir Amray, CEO said:

“Following the successful acquisition of majority shares of the Bank by Titan Trust Bank, we are now focused on strengthening the core business and improving operational efficiencies across board. In parallel, we are going full throttle on integrating the two banks to form a ‘stronger Union’ positioned to deliver value to all stakeholders, leveraging technology and digital innovation. The integration is expected to be completed by the end of the third quarter.

 

In H1 2022, compared to H1 2021, the Bank’s Gross Earnings, Net Interest Income and Profit Before Tax grew by 12.5%, 41%, and 6.7% respectively.

Since taking the reins as Chief Executive Officer as at June 2nd, 2022, I am confident that the Bank has all the necessary ingredients to be a tier 1 bank.

As we drive towards a seamless integration in the second half of the year, we remain committed to achieving our business objectives. We are excited about exploiting the synergies from the newly expanded franchise post integration.”

Speaking on the H1 2022 numbers, Chief Financial Officer, Joe Mbulu said: “We have continued to deliver improved efficiency, enabling growth in PBT, which grew by 6.7% to ₦12.3bn. Net Interest Income increased by 41% during the period, driven by interest income which grew from N47.7bn to N64.3bn during H1 2022. The rise in interest income was underpinned by growth in loans/advances which rose by 24%. Despite inflationary pressures, our strong cost management model continues to yield dividends. Operating expenses grew slightly by only 1.3% to N37.3bn from N36.3bn.

Deposits increased by 7% to N1.5 trillion while our risk assets dropped slightly by 0.4% to ₦889.1bn from N895.3bn as at year-end 2021.

Our capital and liquidity positions remained above regulatory levels, with CAR at 16.4% and liquidity ratio of 39.2% further demonstrating the capacity of our strong balance sheet. Our non-performing loan ratio ended at 4.4%. Furthermore, our coverage ratio remains robust at 140.7%.”

UNITY BANK

Unity Bank Plc posted gross earnings of N27.6 billion for its 2022 half-year results, representing a growth of 17% year-on-year.

In its unaudited half-year financials submitted to the Nigeria Exchange Group Limited, the Bank also made significant improvements across key performance indicators.

The Bank grew Profit Before Tax (PBT) by 23% which rose to N1.8 billion from N1.5 billion in the corresponding period of 2021. Profit After Tax (PAT) for the period equally increased by 23% to close at N1.6 billion from N1.382 billion in H1’21.

The key highlights of the financial statements showed growth in interest and similar income, which rose 18% to N23.938 billion from N20.273 billion in the corresponding period of 2021, an indication of sustained growth in the loan book as well as improved earnings from the lender’s robust digital channels, arising from sustained investment in its digital payment infrastructure.

Similarly, the lender posted sustained asset growth as total assets moved up by 7% to N574.3 billion from N538.9 billion in 2021.

Other key highlights of the financial statement include a 12% growth in deposits, which rose to N359.5 billion from N322.3 billion in December 2021, a clear indication of the positive trend of the Bank’s innovative retail products targeting several segments of the retail market as well as enhanced customer acquisition strategies for emerging products rolled out to the market during the period under review.

In the same vain, the lender recorded an increase on its loan books to N303.632 billion from N269.270 billion in 2021, representing a 13% growth.

Commenting on the financial statements, the Managing Director/CEO of Unity Bank Plc, Mrs. Tomi Somefun welcomed the H1’22 results. She noted that while the key performance indicators continue on an upward trajectory; PBT (23% YoY), Total Assets (7% YoY) and gross earnings (17% YoY); the outlook for our financial position has now moderated significantly looking at other fees and income lines which performance was hitherto characterised by volatilities in the operating environment.

“As the Bank aims to further grow all indices to double-digit regions in the coming years, one reassuring take from the financial position lies in the market confidence, as well as steadily growing retail and SME franchise arising from the development of products that resonate with different markets segments, which will enable the Bank to continue to operate and successfully navigate the tough operating environment, amid rising economic headwinds,” Mrs Somefun stated.

The Unity Bank boss also stated that having invested massively in technology to drive a major revamp in our digital Banking products and channels including the Unifi Mobile App, our USSD, *7799#, internet banking, etc., the major focus is to drive increased optimisation which will enable the Bank to provide electronic convenience in the way we support our teaming customers and market segments and more often change the way they transact business.

In the view of analysts, the key performance indicators showed that the market sentiments are responding positively to the strategies of the lender’s management to accelerate the growth momentum designed for the Bank.

FBNH: A tale of resilience

FBN Holdings Plc has announced its unaudited results for the half year ended June 30, 2022 with gross earnings of N359.2 billion.

In a statement, the company explained that the gross earnings indicated an increase of 22.4 per cent when compared with N293.4 billion recorded in the preceding period of 2021.

It also recorded a profit before tax of N65.7 billion from N45.2 billion achieved in the corresponding period of 2021, an increase of 45.3 per cent.

The company’s profit for the period stood at N56.5 billion against N38.1 billion posted in the comparative period of 2021, representing an increase of 48 per cent.

Commenting on the result, the Group Managing Director, Mr Nnamdi Okonkwo, said that the company demonstrated resilient performance despite the challenging operating environment.

“FBNHoldings continues to demonstrate resilient performance despite the challenging operating environment with an impressive improvement in revenue and profitability.

“For the half year 2022, gross earnings and profit before tax grew by 22 per cent y-o-y and 45 per cent y-o-y to N359.2 billion and N65.7 billion respectively.

“Furthermore, we continue to see good progress across our performance metrics, which remain in line with our focus on driving sustainable growth.

“The Group remains committed in its transformation drive, which has resulted in stronger balance sheet and better asset quality with non-performing loans closing at 5.4 per cent at H1 2022.

“Similarly, risk management capability remains robust across the Group supporting the drive for enhanced earnings for sustainable capital accretion,” Okonkwo said.

He added that the company would continue to deliver sustainable value to its stakeholders.

“Our strategic intent remains unchanged in optimising opportunities that drive growth in revenue, profitability, capital accretion and overall operational efficiency that delivers sustainable value to our stakeholders,” Okonkwo said.

Also speaking, Dr Adesola Adeduntan, the Chief Executive Officer of First Bank of Nigeria Ltd., said that the commercial banking group remained focus on executing key initiatives to position the Group for improved profitability in FY2022, amidst a challenging operating and dynamic regulatory environment in H1 2022.

“Our half-year results further reinforced our drive toward our ‘Quantum Profitability Leap’ agenda. Our gross earnings are up 22.6 per cent y-o-y to N338.5 billion and net interest income up 49.3 per cent y-o-y to N152.9 billion, respectively.

“On the back of the impressive growth recorded in our top line, our profit before tax recorded a strong growth of 40 per cent y-o-y to N60 billion.

“Profit after tax also grew by 42.3 per cent y-o-y to N53.3 billion as the bank continues to reap the dividends of the successful restructuring of its balance sheet and revamping of our risk management architecture.

“We continue to record progress in driving down our non-performing loan ratio which now stands at 5.4 per cent at the end of H1 and we are on target to bring it within regulatory limit of five per cent by end of FY 2022,’’ he said.

Adeduntan expressed the confidence that the current momentum of generating impressive returns from the quality risk assets portfolio already created would be sustained.

“We will continue to strengthen our dominant digital banking capabilities in providing best-in-class services to all segments of our customers across all our footprints in sub-Sahara Africa and beyond.”

“If nothing is done about these policies which levy 0.5% of banks’ total assets for Asset Management Corporation of Nigeria (AMCON) and the Cash Reserve Ratio (CRR) at 27.5% which remove huge money from the banks, their profit margin will continue to decline’’, said Egbunike.

‘’This will continue to incapacitate banks’’, he added. The financial industry has barely recovered from the 2007/2008 global financial meltdown, also called subprime mortgage crisis, severe contraction of liquidity in global financial markets that originated in the United States as a result of the collapse of the U.S. housing market. This was even to be worsened by the disruptions from Covid-19.

From early 2020, when the Covid -19 pandemic was detected and the attendant lockdowns and disruptions in supply chains among other challenges became rife, the Deposit money banks have like many other sectors been struggling.

This is besides the high inflation rate which has however tapered from above 18.6 per cent and above; high unemployment at more than 33 per cent; underemployment above 22 per cent; and high insecurity caused by the Boko Haram sect, insurgents, kidnappers and bandits. At the same time, Diaspora remittances inflow fell 27 per cent year on year (YoY) to $17.2billion in 2020 from $23.55billion.

Also notable is the country’s heavy debt burden at almost N43 trillion and expected to hit higher and above at the end of 2022 and still growing. Of the budget of N17trillion for 2022, the budget deficit stood at N6trillion as over 100 per cent of revenues are now used to service debts.

More worrisome is that the country has set a new borrowing limit, up from 25 per cent of GDP to 40 per cent of the GDP. This was contained in the Medium Term Debt Strategy and continues to leave many analysts scratching their heads given that the major revenue earner for the country, crude oil price, which has hit $100 pbd and above presently still fluctuates.

At the same time, insecurity has not only hobbled agriculture, many parts of Northern Nigeria have been taken over by bandits such that not much business activities can subsist. The World Bank just noted that Nigeria’s revenue to GDP ratio hovered between five and six per cent and remains the lowest in the world. These days almost everybody is aware that Nigeria is the poverty capital of the world, since over taking India with over 100 million people living in poverty. The Naira which exchanged at N220/$ by June 15, 2015 has depreciated by about 300 per cent to N710/$ this July 2022.

Despite these challenges, the banks appear to have shown resilience and posted profits. But fears are beginning to creep in that it may not be all roses for the DMBs at the end of the business year 2022. And shareholders and investors are advised to lower their expectations in the short term and focus more on the long haul.

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