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Big banks gear up for year 2020 challenges



Banks plot strategies to beat CBN's ban on Shareholders' Funds

Assessing the performance of the bulge balance sheet lenders in 2019 against the premises of given policy fundamentals, BH Review sees not too many things changing in 2020. JULIUS ALAGBE writes:

Clearly, the year 2019 has been a testy one for many a Deposit Money Bank, DMB in the country. Across several parameters that range from Capital Adequacy through Brand equity, Corporate Social Responsibility, CSR and related metrics, it has been one in which the banks have been on their toes all year long.

Zenith’s push to optimize funding costs

In 2019 for example, Zenith Bank’s focus has evidently been put largely on optimizing funding cost, along with a corresponding attention on managing overall cost exposure.

At the end of the 9-month 2019 result, Zenith Bank reported a topline growth of 4% as its numbers grew from N474.61 billion to N491.23 billion.

Within this mix, group interest income declined by 5% while non-interest revenue grew year on year by 22% during the period. Profit before tax (PBT), as well as profit after tax (PAT) increased by 5%, with EPS at N4.80k as against N4.58k previously recorded in the comparable period in 2018.

Analysts at WSTC Securities Limited stated that the lender’s loan book may have recovered but this is yet to reflect on its interest income position.

Zenith Bank’s scorecard for the period showed that interest income declined by 5% from N339.06 billion to N321.94 billion in 9M 2019 on the back of the decrease in interest on loans and advances to customers as well as interest on treasury bills.


Meanwhile, interest on loans and advances declined markedly by 18% and this was occasioned by the declining loan book of the Group in the first half of the year.

WSTC’s analysts revealed that following the CBN’s directive in July 2019 that all deposit money banks (DMBs) should maintain a minimum loan-to-deposit ratio (LDR) of 60% by September 30, 2019 – a measure meant to promote investment in the real sector and enhance economic growth – the Group turned constructive on its risky assets.

Specifically, loans and advances to customer grew by N252.80 billion in Q3 2019 alone and rose year on year by 7% from N2.07 trillion to N2.20 trillion in 9M 2019.

Despite this impressive surge, the bank still failed to meet the requirement and was slammed with an onerous cash reserve requirement of about N135.63billion.

However, this is not completely lost cash as the fund would be released as the Group ramps up its LDR to the minimum regulatory threshold which has been shifted now to 65% with December 31, 2019, as the new deadline, even as there are also plans to raise the bar again in 2020.

On the bright side, interest expense declined by 3% from N110.55billion to N107.31billion in 9M 2019 notwithstanding the robust growth of 20% in the Group’s customers deposit base from N3.28trillion to N3.95trillion as at 9M 2019.

Analysts remarked that though, interest on savings accounts surged by 42% from N12.79billion to N18.21billion in 9M 2019, the combined effect of the decline in interest on time deposit and borrowed funds by 5% and 13%, respectively, was enough to tame the impact.


As a result of a steeper decline of 5% in interest income compared with 3% decrease in interest expense, net interest income declined by 6% from N228.52billion to N214.63billion in 9M 2019, with net interest margin moderating by 91 basis points to 9%.

However, riding on the strength of an increased customers deposit base amid lower interest expense, cost of funds declined by 35ps to 3% in 9M 2019, consolidating on the Group’s drive towards funding cost optimization.

WSTC also says that the Group’s income diversification strategy continues to yield results. Non-interest revenue expanded by 22% from N128.73billion to N156.76billion in 9M 2019 as net income on fees and commissions, trading income, as well as other operating income grew by double-digit numbers: 19%, 26%, and 16%, respectively.

GTBank is costs leader

In the same departing year, GTBank demonstrate that it was yet the costs leader in the banking sector, having recorded lowest funding cost in 2019.

Despite pressure on yield, GTB continue to make decent earnings. In its financial statement for the nine months ending September 30, 2019, it reported a gross earnings decline of 3%. This was tantamount to a slide loss in market share because average industry earnings surged.

Interest Income declined by 6% year-on-year, while on the other hand, non-interest income grew by 2%. On the back of a lower interest expense, and despite a 59% increase in impairment charges during the period, operating income increased by 2%.

WSTC’s view is that effective cost management, evidenced by a 2% decline in operating expenses, boosted the bottom line, along with a corresponding profit before tax growth of 4% year-on-year. Arising from this, profit after tax grew by 3% while the loan book expanded, albeit at the expense of yields.

In line with the Central Bank of Nigeria’s directive to Deposit Money Banks to maintain a Loan to Deposit Ratio (LDR) of 60%, GTB’s loan book grew by 8% or N105.06billion from N1.27trillion as of the first half of 2019 to N1.38trillion as of end of third quarter.

Thus, it increased its LDR to 54% as at third quarter, from 53% in the first half.

Consequently, interest income on loans and advances grew by 8% quarter-on-quarter, from N43.68billion in second quarter 2019 to N47.05 billion in the third quarter of 2019.

However, on a year-on-year basis, interest income grew just by 1.47% in the third quarter, due to lower effective yields.

WSTC said: “We believe that the lower yields in the third quarter stemmed from the Group’s aggressive drive to improve loan book, to meet up with the CBN regulation although it failed to meet up with the minimum LDR and a sum of N25.15 was debited in the Group’s account domiciled with the CBN as an additional CRR”.

Due to the lower interest income earned in the prior quarters, interest income declined by 6% year-on-year, from N326.14billion in 9-months 2019; down from N337.22billion in the corresponding period in 2018.

Also, interest income on investment securities declined by 9% year-on-year, from N74.19billion in 9M’2018 to N67.76billion in 9M’2019.

While interest expense spiked by 20% on a quarter-on-quarter basis from N13.43billion in the second quarter of 2019 to N16.17billion in the third quarter; interest expense declined by 16% year-on-year from N19.36billion to N16.17 billion.


WSTC Securities attributes the increase in interest expense to a bid to maintain deposits amid rising competition in the industry, as deposits from customers declined by 1% in the third quarter.

Overall in the 9-months of 2019 result, interest expense decreased by 23% from N66.90billion in 9-months 2018 to N51.25billion a year after.

Significantly, the Group had redeemed its Eurobond liability in Q4’18; hence, it did not incur any interest expense on that line this time around.

A faster pace of decline in interest expense relative to interest income resulted in a marginal increase of 1% year-on-year in net interest income from N170.64billion in 9M’18 to N172.94bn in 9M’19, and thus underpinning the operating efficiency of the Group.

The bank’s capital adequacy ratio (CAR), adjusted for the full impact of IFRS 9, increased to 23.56% at the end of the 9-months period; and up from 23.39% in FY 2018.

Putting a lid on its performance outcomes, the Group’s CAR remains well above the regulatory requirement of 16%, asset quality improved, even as its Non-Performing Loans (NPL) ratio declined from 7.30% in 2018 to 5.61% in 9-months 2019.

ACCESS Bank: Performance boosted by merger

Access Bank Plc. gross earnings grew by 37% to N513.7 billion in the period compared to N375.2 billion in the corresponding period of 2018.

The earnings size comprised 79% of interest income and 21% of non-interest income. Meanwhile, the interest income was up by 48% to N405 billion.

The bank’s management said at its earnings conference that key contributors to this growth were 115% year-on-year increase in income from our investment securities, which was N140.4 billion in the period compared to N65.2 billion in the corresponding period of 2018.

This was in addition to a 75% year-on-year increase in interest on cash and cash equivalents to about N8.6 billion; and 25% increase in interest on loans and advances to N256 billion compared to N204 billion in the corresponding period of 2018.

This was owing mostly to the growth in the loan book as a result of the recent merger.

The group recorded increase in interest expense by as much as 29% or about N104.8 billion compared to N151 billion in the corresponding period of the previous year.

This was driven by the share side of the deposit base resulting from the merger and interest expense of the group’s structured funding in both local and foreign currencies.

Access Bank has been gradually winding down or re-pricing its book, and this has started to reflect in its cost of funds, which has continued to drop as evidenced by the 40 basis points decline to 5.2% in the current period compared with 5.6% in September 2018.

As a result of this, the net interest income improved by 71% to N210 billion in the 9-month period of 2019 compared to N122.9 billion in the corresponding period of 2018.


Operating income again showed a significant increase by 38% to N308 billion from NGN 223 billion in the corresponding period of last year, owing largely to the significant growth both in net interest income and other operating income.

The key drivers of its operating income are as follows. First of all, there was a 54% increase in commissions and fees to NGN 66.9 billion as of the 9-month 2019 from NGN 43.5 billion in 2018.

This came as a result largely of significant increase in retail and e-business fees. There is also further hope of its continuing to gain traction on those income lines as it extends its retail offerings.

The management stated at the earnings call that the group saw a significant increase from other operating income, comprising largely of income from financial services as well as a N22.4 billion recovery from resale of bad loans.

Access Bank said: “this is one of the key synergies of the merger. We have already surpassed the target that we set for ourselves, and we hope to do or achieve a lot more in the last quarter of the year”.

Broken down, it also recorded a decrease of 81% year-on-year in terms of net trading income to about N8.5 billion in this period ending 30th September from N45.5 billion in the corresponding period last year.

Explaining this, the management relates this to timing of income recognition as well as when it moved close to the maturity of the various instruments that were used which was an income recognition issue.

As regards costs, operating expenses have gone up year-on-year by 34% to N194 billion compared to N144 billion in the corresponding period last year.

The group said this was largely as a result of the expansion and the merger, the increase in cost from personnel, depreciation and other operating costs.

“Again, it is coming from the scale, and of course, the impact of inflation. However, we’ll continue to drive our cost reduction strategies to make sure that as we move on through time, our other initiatives, our other costs will basically come down in line with the synergies, which were set up during previous presentations”, the management said.

Then, expected credit loss charge rose by 10.6% from N8.4 billion in the period under review, compared with the corresponding period last year.

Access Bank’s loans and advances grew, again coming from the merger. It grew to about N2.9 trillion compared to N2.1 trillion in the corresponding period over the year.

The group’s asset quality was largely under control as NPL ratio stood at 6.3% in the period compared to 6.4% as of half year. The key factors responsible for this remain, of course, its oil and gas services, which was about 44.3% of the ratio; general commerce, 11.2%; and then oil and gas upstream, 10.6%.

Access bank group said management will continue to drive down the NPL ratio to the traditional levels, where it used to be prior to the merger. The group plans to achieve this through write-offs of sticky local recoveries.

Year to date, the management has written off a total of N59 billion, having made full provisions for them.

Customer deposits closed at N4.2 trillion, which is basically a 65% year-on-year growth from N2.6 trillion in the corresponding period of last year, and of course, jumping 1.3% quarter-on-quarter growth from June 2019.


Its capital adequacy ratio stood at about 20.3% on a full impact basis. However, when we factor in the regulatory transition arrangements; the capital adequacy ratio is sitting at about 23.9%.

In the period, liquidity ratio closed at 48.4% in excess of the regulatory minimum requirements.

On its retail strategy; Access Bank has continued to consolidate on the gains coming from its various strategic decisions which have ended up pushing its retail business in line with the next phase of its transformation agenda.

“We are extremely heavy on analytics to support the understanding of our customers’ behavior and preferences. We’re increasing the suite of products that we’re offering to the market to ensure that we basically continue to deepen the market as far as retail is concerned”, Hebert Wigwe, the Group Managing Director and Chief Executive Officer had stated at the earnings conference with analysts.


UBA: expanding frontiers with style

United Bank for Africa Plc’s gross earnings grew significantly in the first 9-months of the financial year 2019. The Pan-African oriented bank did 13.6% in earnings growth, from N357.1 billion in 9-months of 2018 to N405.5 billion.

The topline was grossly supported by increased revenue from interest earnings assets in the period. It was noted that interest income surged 10.8% year on year to N297.9 billion as against N268.9 billion achieved in the comparable period in 2018.

Following a similar trend, interest expenses also moved up 17.5% from N118.2 billion to N139 billion.

This left the group’s net interest income at N158.9 billion, up from N150.7 billion in the comparable period. The impact of this self balance outlook was a surge in net margin from 17.3% to 20.1% at the end of the period.

Again, non-interest related income grew 22% and closed the period at N107.6 billion compared to N88.2 billion a year earlier.

The analyses show that interest income accounted for some 73.5% of the group gross earnings.

In the period, the group’s operating income jumped by 11.6%, from N238.36 billion in 9 months 2018 to N265.99 billion in the same period of 2019.

In the period, operating expenses also expanded from N149.09bn in 9 months 2018 to N161.62 billion in 9 months of 2019, representing a rise of 8.4%.

The group’s profit before tax similarly jumped 32.3% year on year from N61.69 billion to N81.63 billion at the end of 9-months of financial year 2019.

The Group’s CIR saw a 178 basis points fall year on year from 62.55% in 9 months 2018 to 60.80% in 9 months 2019, even as analysts said the figure is still fairly high from a competitive point of view.


At the balance sheet level, the group expanded its size while maintaining control of assets quality.

Year to date, the group’s shareholders’ investments in the bank increased by 10.5% to close at N555.53 billion. UBA group’s total assets moved up marginally by 1.9% from N4.87 trillion at the beginning of the year to N4.96trn in 9 months 2019.

At the group level, risk assets went up 14.7% from N1.73 trillion in FY 2018 to N1.98 trillion in 9 months 2019, with the rise in risk assets improving the bank’s loan to deposit ratio (LDR) over the period

From the beginning of the year, customer’s deposits rose from N3.35 trillion to N3.37 trillion in 9 months 2019, representing a marginal growth of +0.9% which helped to steady the loan as proportion of deposit ratio at about 60%.

FBNH: still finding value for investors

FBNH has largely focused on efficient balance sheet outlook in 2019. The financial supermarket has however recorded some feats, offloaded legacy assets and followed up on debt recoveries.

In the process, its gross earnings nosedived marginally to N426.2 billion at the end of 9-months period in 2019. It had done N430.8 billion in the comparable period in 2018.

The holdings’ financial service operator’s interest earnings assets declined, which necessitated a decline in interest income in the period while interest expenses flattened year on year.

Income earned from interest yielding assets sliced down by 3% from about N338 billion at the end of 9-months period in 2018 to N327.5 billion. Meanwhile, interest paid to providers of funds remained N116 billion year on year.

With the resolve to carry clean and efficient balance sheet, base of guidance set by the group for 2019, FBNH has achieved great feat.

In the 9-months scorecard for 2019, impairment charges on credit losses based on International Financial Reporting Standard 9 was slashed by about 63% from N76.2 billion booked in 2018 to N28.5 billion at the end of 9-months period in 2019.

Speaking at third quarter earnings conference with analysts, the Group Managing Director, U.K Eke said: “We have been able to bring down the nonperforming loans to 12.6%.

Eke recalled that by December 2018, FBNH’s NPL was 25.9%.

He said: “We affirm that we will be below 10% by year-end. By December of 2018, we’re 25.9%. By June, we were 14.5% and in September, 12.6%. So we reaffirm our commitment to delivering the single-digit NPL ratio by year-end”.

The group’s loans and advances halted at N2.585 trillion from N2.547 trillion at the beginning of the year. This represents a marginal upsurge of 1.5% in nine months just as deposits base grew at 6.7% in the same period. FBNH said the group does not foresee pressure on its NPL.

FBNH has N5.734 trillion in total assets at the end of 9-month in financial year 2019. This was as a result of a 3% growth recorded in the period from N5.568 trillion at year end 2018.


Cost to income ratio remained steep up to the third quarter of financial year 2019. It settled at 71.5% as against 59.5% in the corresponding period. This means that the group was burning more cash than it could translate to shareholders wealth.

Majorly, this high cost structure was driven by maintenance cost, just as personnel cost accounted for a large chunk of operating expenses.

In the period however, the group recorded an improved net margin, which surged from 10.4% to 12.1%.

Significantly also, the shareholders showed a level of confidence in the group’s operations with an equity funds expansion of 14%.

At the beginning of the year, the group’s shareholders fund was valued at N530.6 billion but closed the 9-months period at N604.9 billion.


FIDELITY Bank bucks trend in risk assets creation

In the same period under review at Fidelity Bank, net interest margin improved within the bank’s guidance to 6% as the growth in yield on earning assets outpaced increase in funding costs.

At the earnings call with analysts, the management stated there has been an unstable yield environment, as fierce competition in the banking sector is affecting margins.

With the recent circulars that have been issued by the CBN, Fidelity Bank said it expects there to be a decline in funding costs coming from depth of investment outlets for some of the maturing investments.

“We expect there to be a reduction in the yields also on the T-Bills”, the management said.

In the first quarter, the bank did 5.4% then 5.8% in the second quarter of the year. This came as net interest income grew marginally by 0.1%; But Fidelity Bank said it still able to defend margins.

The management said for this year, its net interest margin is 6% to 6.5%. Return on equity was estimated for 2019 at 13%, but closed the period at 13.8%”.

On asset quality, non-performing loans ratio came down to 4.8% from 5.7% in 2018 financial year-end, due to loan growth and 4.9% decline in absolute NPLs in the third quarter.

Looking at the NPL trend, there was a decline from 5.7% to 4.8%. The management said a lot of this is coming from the increase in the loan book and then, on a quarter-on-quarter basis, a decline in Stage 3 loans in oil and gas, manufacturing, real estate and construction.

“Despite the lower yield environment, we’re still able to grow interest income by 12.2%, on the back of the 18% expansion in the earning assets base”, the management said.


Speaking on the result, Gbolahan, Executive Director and Chief Operation & Information Officer said coverage ratio for Stage 2 is 8.5% and for Stage 3 it’s now 51.2%.

Fidelity Bank anticipates the biggest movement to be in manufacturing, transport, real estate and education. Not much has changed in downstream, manufacturing and the transport segment and then general commerce for the bank.

Fidelity closed the third quarter earnings season with N23 billion pretax profit, which a double-digit growth of about 15% when compare to 9 months of same period in 2018.

This growth in PBT was attributed to a 12% growth in interest income and 43% growth in fee income, which translated to a 9.3% increase in operating income.

Meanwhile, the 12.2% growth in interest income in the period was driven by 18% growth in earning assets.

On account of 43% growth in fee income, credit-related fees grew 132%; digital banking income grew 43%; trade income increased by 32% while account maintenance fee increased by 18%.

Also, the bank recorded a one-off asset disposal gain of N2.4 billion from expanse of land previously acquired which then boosted result.

Fidelity said it grew loans from three key sectors: manufacturing, oil and gas and the transport sector and that they account for over 80% of its loan growth.

However, intervention funds contributed 22% of the total loans, and almost 50% of the growth in local currency loans in 2019 came from intervention funds.

The bank’s gross loans to funding ratio without applying the 150% weight assigned to retail and SME loans, stood at 68.4% when compared to 64.2% same period in 2018.

Expenses surged 14.5% on a year-on-year basis, on a quarter-on-quarter basis, expenses are actually down N1.8 billion, about 8% decline. Cost-to-income ratio remains sticky at about 71.7%.

Foreign currency deposits grew by about 46% on a year-to-date basis. Demand deposits up 10%; savings 9.2%; and time deposits, about 32%; other borrowings, about 68% and then on-lending facilities have expanded by another 24%.

Foreign currency deposits as at last year was N107 billion. Now it’s N263 billion. From contributing about 11% to total deposits, now contributes almost 24% of total deposits.

Retail assets have picked up gradually, and it’s about 4.2% of the loan book. The savings book is about N249 billion, getting close to the N250 billion thresholds.

The breakdown of the loans into Stage 1, Stage 2, and Stage 3 saw a slight increase in the Stage 2 loan book, especially coming from the government and real estate sector.

The management said some of the obligors had some payment delays in the third quarter, which has now been rectified in fourth quarter, and that’s one of the reasons for additional N600 million impairment charges.


Capital adequacy closed at 16.4%. It was 17% in the first half, the bank said the decline was due to growth in the risk-weighted assets, coming from the credit risk-weighted assets and the profits for Q3 have not been capitalized by the end of the financial year.

Its corporate book still has about 48% of the loan book and then contributes about 35% of profitability. That’s the corporate and investment banking, which includes treasury.

“We’re on track on all the indices, except the CIR numbers, which we will still work towards getting below 70% by the end of the financial year”, Nnamdi Okonkwo, the Managing Director and Chief Executive Officer said at earnings conference with analysts.

Fidelity bank said it has $400 million Eurobonds and its other borrowings are roughly about another $300 million.

In the third quarter, cost of risk settled at 1.25% is our worst case scenario, the bank stated. If you look at what happened in Q3, we have some loans that had delays in payments, and because of that, we had almost N60 billion bumping into the Stage 2 loan book.

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