- Post impressive performance
By JULIUS ALAGBE
With stronger than expected first half 2020 profitability records, Nigeria’s bulge bracket balance sheet deposit money banks earnings performance defied COVID-19 to show strengths. Tier-1 lender’s namely the FBNH, ACCESS, UBA, Zenith and GTBank jolted Broad Street as their combined profits records hit N353 billion, a 4% upsurge from N338.05 billion reported in the comparable period in 2019.
With the results, analysts said the big lenders bucked emerging market trend combining improved earnings capability with cleaner risk assets. It would be recalled that amidst the outbreak of the COVID-19 pandemic, a slew of equity analysts from leading investment banking firms had projected a blurry earnings season for lenders.
Analysts’ bearish outlook had hinged on lower global oil prices, devaluation of the local currency amidst foreign exchange scarcity and the need for loans restructuring. Zenith Bank Plc maintained the lead as the lender raised profit for the year by about 17% to N103.8 billion at the end of the first half of 2020 despite the fact of the economic lockdown. Meanwhile, in the virus-free first half of 2019, the lender’s profit after tax came at N88.99 billion.
GTBank, the industry profitability challenger came close but its’ after-tax profit actually declined in absolute term. The lender’s profit after tax printed at N94.231 billion in the first half of 2020, representing a 5% year on year decline when compared with N98.916 billion reported in the comparable virus-free earnings season in 2019.
Access Bank Plc size of profit came third in the ranking, though it dropped year on year amidst lower economic activities. The lender recorded a profit after tax of N61.034 billion, representing a marginal decline of 1.4% when compared with N61.874 billion in the first half of 2019.
FBNH, after its successful balance sheet repair, gained momentum as it delivered a mouth-watering earnings performance that excites slew of equity analysts. The centenarian lender raised profitability strongly above its peers in the sector despite a virus-infected economic environment. Its profit after came at N49.46 billion, which translated to a 56.32% uptrend when compared with N31.64 billion reported in the comparable period.
Due to its footprint across the African soil, the United Bank for Africa reported worst year on year decline in profitability in the first half of 2020. UBA profit declined 21.6% year on year to N44.431 billion in the first half of 2020 as against N56.739 billion reported in the comparable year in 2019.
With the earnings scorecard, a slew of analysts raised earnings expectations for the second half of 2020. Meristem Securities Limited rated FBNH BUY as analyst upgrade expected earnings per share (EPS) to N2.43 from N2.00, following the completion of the divestment.
Analysts maintained target price-earnings of 2.87x, which yields a December 2020 target price of N6.97, thus indicates an upside potential of 38.10%.
Meristem noted that FBNH sustained its earnings momentum from the first quarter, albeit as expected growth was at a much slower pace. This was off the back of a weak second-quarter scorecard, which portrayed the impact of the pandemic on its business.
Specifically, gross earnings growth slowed to 5.82% year on year from 14.50% in the first quarter. This was fueled largely by a 37.28% quarter on quarter decline in non-interest income and more weakness in interest income.
Analysts said the 2.28% dip in interest income is not surprising given the current yield backdrop, triggering further depression in the company’s asset yield to 10.80% from 11.40% in H1:2019.
In the first half, GTBank pretax and profit after declined by 5.1% and 4.7% to N109.7 billion and N94.3 billion respectively. Analysts at ARM Securities Limited explained that drivers for the performance were moderation in non-interest revenue and expansion in loan loss provision and operating expense.
Analysts at ARM Securities said they left most of their estimates unchanged save for the potential impact of the revised savings deposit rate on interest expense.
“We now expect GTB to record a slight expansion in PAT of 5.3% to N207.4 billion over 2020”, the firm said in its equity note. ARM Securities also rate GTB stock a buy, upgrade fair value to N38.85/share from N37.0/share
“We continue to favour GTB and Zenith among the banks given their adequate buffers to withstand the prevailing pressures”, analysts explained.
GTBank bolstered gross earnings by 3% year on year to ₦228.3 billion. The bank’s net interest income grew 10% to ₦127.6 billion thanks to a 20% moderation in interest expense. Meanwhile, the bank’s non-interest income grew by a modest 2% to ₦74.6 billion, caused by a 30% decline in fees and commissions income to ₦24.7 billion, which offset an impressive 723% growth in foreign exchange gains, a result of the local currency devaluation.
Zenith Bank reported a 4% year on year growth in gross earnings to ₦346.1 billion, which was stronger than Vetiva Capital estimate of ₦336.240 billion. Analysts said this was mainly driven by a 10% growth in non-interest income to ₦129.3 billion – though Vetiva forecasted ₦114.8 billion – the result of a 240% jump in currency revaluation gains to ₦22.0 billion.
Meanwhile, interest income improved by only 1% to ₦216.9 billion, although interest expense moderated 17% to ₦59.5 billion, thanks specifically to a 50% decline in interest paid on borrowed funds.
“We had anticipated improvement in non-interest income to offset the likely decline in interest income in Q2. As expected, income from investments, specifically currency revaluation gains of 180% quarter on quarter drove a 46% quarter on quarter growth in non-Interest income.
“Going forward, whilst we do not anticipate further devaluation of the local currency, we foresee more support from this line item in H2, driving our improved forecast of ₦258.5 billion to offset the decline in Interest Income”, Vetiva Capital explained.
In the period, Zenith’s net interest income printed at N157.409 billion as against N142.515 billion in the comparable period in 2019. Amidst the industry challenges in financial assets pricing, the lender was hard hit due to the decline in fair value of its portfolio assets.
A whooping sum of N23.923 billion was charged against income statement as impairment on financial assets class, more than 74% over N13.735 billion that was booked in the comparable period. Meanwhile, about 40% year on year decline in net fee and commission income drag the lender’s operating income in the first half.
However, there was a significant uptick in net trading and other income lines, thus compensated for drag in fee and commission income. Net trading income expanded 30.5% year on year from N45.101 billion to N58.83 billion at the end of the first half of 2020. Similarly, other income line came stronger at 174% year on year increase from N8.81 billion to N24.151 billion.
For Access Bank, the struggle to becoming the gateway to the world trade centre has begun. In the first half of the year, the largest bank by assets leveraged on size to build earnings capability as top-line grossed N396.767 billion, representing a 22.3% year on year growth. Lender’s net interest income however dropped by 18.7% to N126.207 billion from N155.146 billion in the comparable period in 2019.
Surprisingly, the lender’s non-interest income rose massively by 194.5% year on year to N138.852 billion as against N47.150 billion in HI:2019. Having expanded by more than 31%, operating income printed at N265.039 billion in the first half of 2020, from N202.296 billion.
Its pre-tax profit records show a marginal uptick as it berthed at N74.306 billion from N72.965 billion in the first half.