Home Business How six banks dominate forex market

How six banks dominate forex market

446
0
  • GTB, Zenith Plc account for 44% of the banking sector profit
  • Seven small size banks combine profit pitched at N144.19 billion
  • FCMB, Union, Fidelity other account for less than 20% of the industry profit

By JULIUS ALAGBE

The Nigerian banking industry seems to be the play-ground for the big tier-One banks which continue to dominate and crowd out the others. In share price, market share, profitability and dividend payments, they remain the banks of choice and reinforce their stranglehold on the industry.

Investigations by the newspaper revealed that tier 1 banks have continued to hold out significant amount of total transactions to the disadvantage of the smaller-size banks, as six of them pooled more than 75% of the market share in 2018. The audited statement of the banks in the financial services sector showed that five banks and Eco Transnational international Plc raked N3.434 trillion gross earnings from total of N4.430 trillion in the industry.

A financial expert who prefers not to be mentioned said that high ticket deals and clients with strong credits records don’t go to smaller banks. The reason is simple: the frequency of their deals and volume of cash they trade with are overwhelming and above what smaller banks can handle.

Also, the cost of funds for small banks is often high. Industries blue-chip companies prefer the big banks because they always want to access loans at negotiated rate which only them can offer at a discount, which could raise some risks for the smaller banks.

Analysts said; “the structure of Nigerian banks is more of size driven, than efficiency. If you look at the results, you would observe that smaller banks earned more for shareholders compare with the big balance sheets”.

Tier 1 capital banks took significant chunk of high tickets businesses due to their individual sizes, analysts said. Average gross earnings in the tier 1 class closed the year at N572 billion, while average profit after tax was about N119 billion.

There is limit to businesses or deals that smaller banks can finance. This pattern would likely continue in the foreseeable future, BusinessHallmark conclusion is based on the back of historical performance in the sector which showed similar trend.

Mr. Jide Famodun, a Financial Consultant with MarketForces Africa said; “the CRR rate is technically putting pressure on all banks. However, smaller banks with limited financial capability are feeling the heat more. Then, time for additional recapitalization may be coming given that Naira value has reduced in dollar term if you look at it critically. The last recapitalization strengthened banks in line with economic size then. There may be need for recapitalization as some banks have really shed weight”. The current CRR (Cash Reserve Ratio) is 22.5. It is the total of banks’ deposits held by the CBN.

Without Ecobank in the picture, Zenith Bank Plc hold largest share of the market, followed by FBNH Plc and then Access Bank Plc. These are followed by United Bank for Africa Plc, then GTB Plc. However, the equation will definitely change with the new combined Access bank, which is already the clear leader in asset base and market share.

Access bank gross earning closed the year at N519.10 billion but the bank was able to deliver N95 billion as profit free from any encumbrances or other obligations. In the year, more than 80% of its earnings didn’t make it down the line.

Similarly, UBA recorded gross earnings of N494 billion but its profit after tax rested at N78.6 billion in 2018. It means that the bank incurred more than 84% in financing its sources of funds, booked impairment charges, taxes and operating expenses.

GTB has lowest market share in the Tier 1 class but remains most efficient and the cost leader in the banking sector, the results showed. The bank gross earnings was N434.7 billion, 42.47% of which was converted into free cash flow for the bank shareholders as it declared N184.6 billion profit after tax.

In the year, size advantage didn’t translate to improve earnings for the shareholders. Stanbic IBTC, Unity, Wema Bank Plc achieved a lot more in terms of earnings per share. However, Unity, Wema and Sterling bank were hit with very steep cost in 2018.

A significant part of their earnings were expended down the line. Sterling bank Plc record showed a gross income of N152.2 billion, while a profit after tax of N9.2 billion was achieved which made the earnings conversion rate at 6.04%.

Wema bank fell behind Sterling as it was only able to convert just 4.65% of the total gross earnings of N71.53 billion into unencumbered profit of N3.33 billion. Unity Bank Plc gross earnings berthed at N37.33 billion and profit after tax closed the year at N1.27 billion which meant that the bank could only convert just 3.40% of its sales into profit.

The analysis of the results however revealed that small banks have very low conversion rate in 2018. This was borne out of the challenges that are facing banks in terms of financing mix. Retail banks often show that the big banks have low cost of funds and reasonable cost to income ratio.

From their individual gross earnings, Zenith Bank Plc was able to convert 30.68% of its gross earnings into profit available to shareholders. GTB led the pack as the bank converted more than 42% of its gross earnings into free cash flow for the shareholders.

Though, a smaller bank by all standards, Stanbic IBTC outperformed Zenith in ability to manage cost as the bank was able to convert more than 33% of its gross earnings into profit for shareholders.

FBNH ranked as worst performer in the tier 1 class by its inability to convert more than 10.23% of its total earnings into shareholders wealth. Low conversion rate is an indication that the affected bank struggle with funding cost and burdened by high operating expenses.

The thirteen listed banks profit after taxes rested at N857.65 billion at the end of financial year 2018. Zenith and GTB Plc made 44% of the industry’s aggregate profit for the year 2018.

Both GTB and Zenith bank Plc achieved combine profit after tax of N378 billion while seven smaller banks like Union, FCMB, Sterling, Wema, Stanbic, Unity and Fidelity bank closed the year with combine profit after tax at N144.19 billion.

 

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.