Business
Leading banks post strong profits; Zenith, GTBank widen lead
Despite a weakening economy reflected in a drop in national gross domestic product (GDP) growth from 1.9 per cent in the first quarter of 2018, to 1.5 per cent in the second quarter, a number of local deposit money banks (DMBs) have shown resilience in shoring up their balance sheets.
GTBank Plc, United Bank for Africa (UBA) and Zenith Bank, three of the larger DMBs have proved their business models are strong enough to trump the harsh domestic economic environment.
Being the first to make their third quarter results public, the banks signify that their financial institutions showcase a fair quarter. Nevertheless, sector analysts have cautioned that the impressive performance of GT, UBA and Zenith should not be used as bellwether results for the industry.
In the midst of concerns about the forthcoming election, low quality of risk assets, insecurity especially in the Northern Nigeria, GTBank Plc, arguably one of the most successful financial institutions in Africa, posted a 13 per cent rise in profit on the back of lower impairment charges. The lenders results in the third quarter ended September 2018 also raked up a double digit rise in fee and commission income.
The bank’s PAT rose 13 per cent to N142.22 billion, buoyed by a 19.47 per cent increase in fee and commission income to N40.35 billion, driven by 75.49 per cent rise in commission on foreign exchange deals and transfer related charges, which was up 64.85 per cent.
Of equal Significance was the 80 per cent cut in its impairment charges to N1.74 billion in Q3 2018 from N8.36 billion in the same period last year. The improvement in loan quality was instrumental to the improved showing of the bank despite interest income dipping -4.32 per cent to N237.55 billion, dragged down by lower revenues from loans and advances which dropped -7 per cent.
The bank’s other operating expenses increased 11.16 per cent to N58.94 billion, while personnel cost climbed 14.18 per cent to N28.12 billion.
Higher cash and bank balances, which rose 28.86 per cent, propelled the bank’s total assets up 2.45 per cent to N3.43 trillion, in spite of a drop in its loans and advances and financial assets held for trading.
Similarly, United Bank of Africa Plc sustained a remarkable growth in profitability for the first nine months of the year with profit before tax of N79 billion.
The bank in its financials reported a profit of N61.7 billion in the three quarters ended September 2018 up from N60.9 billion in prior nine months of 2017.
Interest income rose by nearly 13 per cent to N268.9 billion from N238.09 reported in nine months of 2017 while interest expenses moved from N85.8 billion to N118 billion reported in nine months of 2018.
Operating income marginally gained 0.6 per cent to N238.36 billion in nine months ended September 30, 2018 from N236.9 billion reported in nine months of 2017.
From the group income statement, total operating expenses rose by 2.3 per cent to N149.1 billion from N145.7 billion.
Interestingly, the group’s total assets gained 10.8 per cent to N4.5 trillion as at September 2018 from N4.1 trillion reported in 2017, attributable to 16.24 per cent increase in Deposits from customers to N3.18 trillion as against N2.7 trillion reported in 2017.
While reacting on the group audited half year ended June 30, 2018 results, the GMD/CEO, Mr. Kennedy Uzoka, said “Our performance demonstrates the success of our digital banking initiatives and broader Customer-First strategies.
“We are integrating banking into our customers’ lifestyle, simplifying processes for routine transactions and driving financial inclusion by making banking services accessible and affordable.
“We are creating opportunities for wealth creation and economic progress, as we empower our customers, through innovative platforms and solutions that support their personal and business growth.
“Our commitment to delivering excellent service is paying-off, as we increasingly win a bigger share of customers’ wallet across our chosen markets.
“Our network provides earnings diversification and an increasing ability to benefit from group synergies, driving our capability to leverage the scale and scope economies – the rapid rollout of the Leo digital banker in eighteen markets, is just one example of how we can implement new products and services across Africa.
“We are re-engineering our global offices in New York, London and Paris, as the recent upgrade of our London presence brings significant new opportunities to serve global and African businesses.”
Also, Zenith Bank Plc recorded a Profit Before Tax (PBT) of N167 billion in nine months ended September 30, 2018, an increase of 9.7 per cent over N152.55 billion reported in nine months ended September 30, 2017.
The group unaudited result and accounts disclosed that profit after tax also rose by 11.6per cent to N144.2 billion in nine months ended September 30, 2018 from N129.24 billion reported in nine months ended September 30,2017.
Notably, the group gross earnings dropped by 10.7 per cent to N474.6 billion in nine months 2018 from N531.3 billion reported in prior nine months unaudited results.
Amidst a challenging operating environment, the Group optimised its bottom line through efficient treasury and liquidity management which resulted in a 31 per cent decline in interest expense to N110.5 billion in nine months of 2018 over the N160.3billion prior period.
Also, interest income dropped by 6.3 per cent to N339.06 billion from N361.8 billion reported in nine months of ended September 30, 2018.
Consequently, the group Net interest income rose by 13.4 per cent to N228.5 billion from N201.49 billion reported in nine months ended September 30, 2018.
The group enhanced asset quality as impairment charges fell significantly by 69.5 per cent to N14.3 billion from N47.05 billion in nine months of 2018.
During the nine months to September 2018, fees and commission income was N69.97billion compared to N71.02billion in September 2017, showing a 1.5 per cent decline.
However, the group total operating expenses rose by six per cent to N182.42 billion as against N171.36 billion reported in nine months of 2017, driven by 50 per cent and 41.4 per cent increase amortisation of intangible assets and Depreciation of property and equipment respectively.
Total deposits as at September 2018 was N5.6 trillion representing a marginally increase 0.4 per cent from December 2017 financial year figure of N5.59.
Loans and advances to customers dropped by 13.1 per cent to N1.8 trillion as at September 30, 2018 from N2.1 trillion reported in 2017 while Customers’ deposits dropped by 4.7 per cent to N3.28 trillion from N3.4 trillion reported in 2017.
The group in a statement had explained that, “As the operating environment continues to stabilise across the economic indices of inflation, a foreign exchange market, and healthy foreign reserves, management’s outlook is positive going into the second half of the year.
“The Group continues to deploy strategies aimed at increasing its retail segment markets share while consolidating on its leadership in the corporate segment.”
Given that the equities market in recent times has been weak at -14 per cent negative year to date and -6.68 per cent year on year, no magic is expected of the individual stocks even though GTBank and UBA stocks have been stoic.
However, due to the turbulence in the capital market given the pulling out of foreign investors as a result of 2019 electioneering concerns GTBank’s stock retreated 9.24 per cent from N40.55 per share in January 2, 2018 to close at N36.80 in September 19, 2018. With a market capitalization of N1.083 trillion, GTBank is seen as one of the most capitalized banks in Nigeria.
With a P.E ratio of 3.67, many industry analysts believe that UBA has huge growth potentials. Even though its share price has dropped 21 per cent year to date its market capitalization at N277.015billion is considered very high in the banking industry.Its share price closed on Friday September 19, 2018 at N8.41 per share.
Since the recession in 2016, the banking industry has faced hard times. This uncomplimentary period in the lives of financial institutions in Nigeria is indeed, reflected in their performance, especially in the high Non-performing Loans (NPLs) which had averaged 13 per cent in 2017.
Whereas the banks have been able to bring down the NPLs, thanks to the exiting of the recession by the Nigerian economy, the levels are not yet a comfort zone for the Deposit money Banks (DMB).
The recent liquidation of Skye Bank Plc by the Central Bank of Nigeria (CBN) has raised apprehensions about the safety of customer deposits in the various banks as a growing number of bank customers make a bid for the door, migrating from banks that appear high risk to those with larger asset bases and lower non-performing loans (NPLs).
Industry analysts have blamed the sad situation on the weak economy, insecurity and concerns of the coming election. ‘’An unproductive economy cannot augur well for businesses. Not even the banks can survive in an economy where you can’t create risk assets that can perform.’’, said a senior banker who does not want his name in print.
However, Managing Director of Crane Securities Limited, Mr. Mike Ezeh told Business Hallmark that information about the coming election has slowed down activities in the capital market. According to him, the hear say about the election not only created tension on Broad and Marina streets, but it also caused foreign investors to pull their investments while institutional investors are watching from the fence.
‘’In fact, investors are uncomfortable with the environment and are holding back ‘’, said Ezeh.