Investors cautious as banking stocks remain weak

By OKEY ONYENWEAKU

As market volatility continues to be more pronounced, investors have become increasingly torn between putting their hard earned money in the money market, capital market and other sectors which might offer superior returns.

Market analysts become jittery over the slow paced growth of the economy (1.95 percent), high non-performing bank loans (average currently stands at 13 percent) and reduced consumer spending.

Indeed the softening of the banking sectors earnings growth and staggering credit defaults has meant most banks listed on the Nigerian bourse presently trade at severe historical discounts as their price earnings ratios (a measure of investors earnings expectation) have taken hard knocks.

Analysts note that looking critically at the sectors performance in the last one year, the banking sector index increased by 3.30 per cent to 490.95 from 475.26 on January 2, 2018 year to date. Whereas the sector remains under pressure, it has performed better than some other sectors on the bourse.

However, the insurance sector has inched up by 2.65 per cent, Oil and Gas appreciated by 6.1 per cent. At the close of business in March 2018, the Industry sector performed best gaining 99.8 per cent while the Consumer goods sector turned up negative -7.2 per cent.

The individual banks are not excluded from the sharp decline, for instance Zenith Bank appreciated 1.8 per cent from N25.93 on January 2, 2018 to N26.40 on June 14, 2018, FBN Holdings also gained 20.02 per cent from N8.79 per share to N10.79 , Access Bank was flat from N10.60 to N10.60, Diamond Bank inched up 0.6 per cent from N1.57 to N1.58, ETI appreciated 22.9 per cent from N16.27 to 20.00 per share.

Others are Fidelity Bank which dropped 0.38 per cent from N2.58 to N2.27 , investors in G T Bank gained 2.34 per cent  from N40.55 to 41.50 per share, Skye Bank surged by 46.15 per cent from N0.52 to N0.76, Sterling Bank also leaped 25.6 per cent from N1.13 to N1.42, Union Bank retreated by -17.4 per cent from N7.51 to N6.20 per share, UBA gained 5.56 per cent from N10.41 to N11.00 per share, Unity Bank shares soared by 60% from N0.55 to N 0.88 per share, Wema Bank also took the upward trend and garnered 50 per cent from N0.50 to N 0.75 per share, FCMB Group appreciated by 45.5 per cent fromN1.58 to N2.30 per share and Stanbic IBTC gained 21.26 per cent from N40.90 to N49.00 pershare.’’

GTBank

GTBank is Nigeria’s most capitalized bank. Its profit after tax (PAT) was up 7.7 per cent to N44.7 billion in Q1 2018 against N41.5 billion in the corresponding period last year, far lower than 62 per cent post-tax profit growth it had in the first three months of 2017.

The bank’s gross revenue rose 5 per cent to N108. 97 billion on the back of improved non-interest income, which surged 40.8 per cent underpinned on 11.3 per cent growth in fee and commission income and growth in other Income comprising Advisory, Discounts, rebate Commissions & revaluation gains.

But lower earnings from loans and advances, which dropped -7.7 per cent and 300 basis point decline in yield of fixed income securities dragged interest income, down -4 per cent to N80.8 billion. The bank’s risk asset dipped -7.8 per cent to N1.526 trillion in Q1 2018 from

N1.645 trillion in March 2017. The management of the lender attributed the decline to “drop in FCY components of the Loan book as a result of pay-down of pent up obligations owing to improved FX liquidity in the market following the introduction of the investors’ and exporters’

window in April 2017.”

Its total assets appreciated 5 per cent to N3.51 trillion in March 2018 instead of N3.35 trillion in 31 December 2017 propelled by 33 per cent rise in financial assets held for trading and N103.84 billion investment securities held at amortised cost, which was not in its books in the same period last year. While the bank’s net loans and advances were down -7. per cent to N1.35 trillion due to lower term loan, deposits from customers increased 7 per cent of N2.21 trillion

(31 December 2017: N2.06 trillion).

The bank improved risk management, which consequently lowered its NPL ratio to 6.2 per cent against 7.7 per cent at end of 2017. However, GTBank capital adequacy ratio dropped to 24.6 per cent from 25.7 per cent in December last year and loan-deposit ratio plunged to 58.6 per cent from 67.5 per cent in FY 2017, while liquidity ratio was up to 55.9 per cent instead of 47.6 per cent at the end of last year.

ZENITH BANK

Zenith Bank, the country’s biggest bank in terms of assets, had 25.5 per cent year-on-year appreciation in its PAT to N47.08 billion, but this was way below 41.1 per cent profitability growth it posted in Q1 2017.

Zenith Bank grew its gross revenue 15 per cent N169.19 billion in Q1 2018 as interest income up picked 21 per cent. But the growth in the bank’s earnings was way below 48.6 per cent rise recorded in March 2017, due to contraction in non-interest income, which fell -10 per cent in Q1 2018 instead of the 94 per cent rise posted last year on the back of -26 per cent decline in income from financial guarantee contracts issued and massive -71 per cent drop in corporate finance fees. Foreign exchange trading income, which was down whopping -86 per cent also, had adverse impact the growth of Zenith Bank revenue in the first three months of 2018.

The challenge of rising NPL, forced Zenith Bank to scale down its loans and advances -10 per cent to N2.03 trillion from N2.25 trillion in Q1 2017. And subsequently, its impairment for loan loss dropped significantly by -42 per cent to N4.57 billion in March 2018. Deposits from customers also followed the same trajectory, dropping -1.2 per cent to N3.4 trillion compared to N3.44 trillion in the preceding year. Meanwhile, significant 237 per cent leap in derivative assets and 95 per cent rise in dues from other banks managed to mitigate to the drop in the bank’s risk asset as total assets were up marginally 1.2 per cent to N5.68 trillion.

UBA

UBA’s profit after tax rose 6 per cent to N23.74 billion as at this March this year, compared to 32 per cent profit-after-tax growth it had in the first three months of 2017.

The PAN African bank improved its gross earnings 18 per cent to N119.37 billion in Q1 2018 underpinned on 79 per cent rise in cash and bank balances, which helped pushed interest income up 18 per cent to N90.33 billion.  And 859 per cent increase in other operating income and fee and commission income, which was up 15 per cent, lifted non-interest earnings 14 per cent to N24 billion, in spite of -13 per cent drop in net trading and foreign exchange due to improved dollar liquidity in the Nigerian economy.

Although the lender was able to prune down its impairment charges on loan loss by 53 per cent to N1.45 billion instead of N3.1 billion in Q1 2017, its income expenses almost doubled, rising 46 per cent to N36.78 billion as a result of cost deposits from customers and borrowings, which climbed 55 per cent and 87 per cent respectively in the first three months of this year. Credit-related fees and commissions cost which was up 48 per cent and money spent to rake in trade transactions income, which increased 46 per cent also caused fee and commission expenses to rise 21 per cent to N20.03 billion. 

FBN Holdings Plc

FBN Holdings Plc. (“FBNH” or “FBNHoldings” or the “Group”) achieved for the three months ended 31 March 2018, Gross earnings of N138.9 billion, which dropped by 1.6% from N141.0 billion in 2017.

Net-interest income also dipped by 5.7 per cent to N75.7 billion from N80.3 billion in 2017 while the banks Non-interest income rose by 2.5 per cent to N24.8 billion from N24.2 billion in 2017.

Also, the operating income also dropped by 3.8 per cent to N100.5 billion to N104.5 billion in 2017. At the close of business in March 31, 2018 the banks impairment charge for credit losses also declined by 12.1 per cent to N25.3 billion from N28.8 billion in 2017.

While operating expenses of N56.4 billion rose by 1.2% from N55.7 billion in 2017, Profit before tax stood also slipped to N18.8 billion from N20.0 billion.

Similarly, Profit after tax went by 8.6 per cent to N14.8 billion from N16.1billion during the review period.

 Access Bank Plc

Access Bank first quarter (Q1) ended March 31, 2018 showed an increase of 19 percent in gross earnings to N137.5 billion from N116 billion in the corresponding period of March 2017, with interest income and non-interest income contributing 70 percent and 30 percent respectively.

The Bank posted a Profit before Tax (PBT) of N27.4 billion while Profit after Tax stood at N22.1 billion from N22.4 billion in Q1 2017. Access Bank’s Balance Sheet remained strong with a 7 percent growth in Total Assets as the Bank closed the quarter ended March 2018 with Total Assets of ₦4.38 trillion from ₦4.10 trillion in December 2017.

The Group‘s Capital and Liquidity Ratios (CAR) of 19.3 percent and 41.3 percent respectively, remained in excess of the minimum regulatory requirement and would support the business adequately.

 Fidelity Bank Plc

Fidelity Bank Plc profit before tax for the first quarter (Q1) ended March8 31, 2017 increased 2.7 percent to N4.98 billion from N4.84 billion posted a year ago.

Post-tax profit of the Bank rose 7.2 percent to N4.62 billion from N4.31 billion reported the same period of 2017.

Gross earnings of Fidelity Bank surged from N40.84 billion in the Q1 period of 2017 to N43.68 billion declared the review period of 2018; indicating a rise of 6.9 percent.

Analysts believe that the general weakness of the economy in Nigeria is not favourable to any sector. Especially the banking sector which has suffered serious setback ranging from the implementation of the Treasury Single Account, which removed a huge chunk of public sector

money from the financial system, High Non-performing loans, harsh macro-economic environment and stiffer regulation by the CBN.

Also, apart from the apprehension in the market, foreign investors have also pulled out a substantial part of their funds from the market for fear of deeper losses. Many observers think there is huge uncertainty in the air given the coming 2019 election. Whereas the Nigerian currency ‘the Naira’ is weakening against other currencies of the globe, Broad street analysts blame the crunch in the economy as the major challenge in the market. The recent raising of rates by the United States of America (USA) Federal Reserve to 1.75 per cent could prompt more Portfolio Investors to leave Nigeria and for others to channel their investments offshore for better, higher and risk free returns.

The development may have put pressure on the market which has further been weakened by investor apathy and lack of confidence. Managing Director of Crane Securities & Investment limited, Mr. Mike Ezeh, reckons that low demand for stocks generally, induced by lack of money

is also affecting banks Marketing shares. He explained that with limited funds investors would prefer to invest in other segment of the economy with higher returns.

David Adonri of Lambeth Trust & Investment Limited believes that though the banking sector was still one of the best sectors to deploy idle resources, the general economic outlook called for caution.