It’s a mix of good and bad for the seven Banks that have released second quarter (Q2), 2018 results so far.
A record drop in impairment on financial assets on the back of gradual improvement in the economy and gains on foreign exchange transactions boosted bank profit, while low interest rates environment undermined interest income.
With Access Bank, United Bank for Africa (UBA), Fidelity Bank, Stanbic IBTC Holdings set to report earnings this week, here is the trend so far.
Interest Income
Interest income is declining on lower assets yield,” said Gloria Fadipe, head of research at CSL Stock Brokers.
“Most haven’t grown loan books but they said they expect an uptick in loan book of between 2 to 5 percent in the second half,” said Fadipe.
Banks no longer enjoy free money as a drop in Treasury bill yields deal a blow on interest income, meaning they may be forced to start lending, cut costs, improve on foreign exchange trading to underpin future profit.
For instance, the cumulative interest income of seven lenders that have released half- year results fell by 2.87 percent to N880.02 billion from N906.07 billion the previous period.
The banks are: Zenith Bank Nigeria Plc, Guaranty Trust Bank Plc, First Bank Holdings Plc, First City Monument Bank (FCMB) Plc, Union Bank Nigeria Plc, Sterling Bank Plc, and Diamond Bank Plc.
Zenith Bank’s interest income was down 12.86 percent to N228.67 billion in the period under review.
A breakdown of the figure shows interest income on loans and advances reduced by 18.0 percent to N146.58 billion while interest income on treasury bills fell by 13.32 percent in the period under review.
GTBank’s interest income was down 2.40 percent to N161.88 billion as at June 2018, as against N165.88 billion the previous year; caused by a 6.68 percent decline in interest income on loans and advances to customers.
FBNH’s interest income declined by 3.0 percent to N225.40 billion in June 2018 from N232.37 billion the previous year. The drop was stoked by a 4.89 percent and 2.39 percent reduction in interest on loans and advances to customers and interest on investment to N135.37 billion and N81.59 billion the previous year.
Credit Quality
An improvement in impairment loss on financial assets on the back of gradual economic recovery and net gains on foreign exchange trading were a major driver of profit as there was increase in non-interest income.
The combined impairment charge on credit loss of the seven lenders declined by 58.31 percent to N86.75 billion, which helped lift profit by 11.34 percent to N236.68 billion in June 2018 from N212.56 billion the previous year.
Zenith Bank’s net income was up 8.52 percent to N81.73 billion in the period under review, thanks to a 77.07 percent reduction in loss expense to N9.72 billion in the period under review.
GTBank’s net income was up 14.22 percent to N95.58 billion in June 2018 from N83.67 billion the previous year; thanks to a 162.43 percent surge in foreign exchange trading gains to N9.50 billion and a 20.70 percent increase in foreign exchange revaluations gains.
BusinessDay analysis of the financial statement of banks under coverage shows there has been improvement in assets quality as they continue to intensify on their risk management strategy.
GTBank’s Non Performing Loans (NPLs) ratio fell to 5.80 percent in June 2018 from 7.70 percent the previous year while cost of risk eased to 0.10 percent in June 2018 from 0.80 percent the previous year.
Union Bank’s NPLs reduced to 10.80 percent in the period under review as against 19.80 percent as at June 2017.
Zenith Bank’s NPLs ratio came in at 4.90 percent in the period under review while cost of risk improved to 0.90 percent in June 2018 from 3.60 percent the previous year, June 2017.
Loans Book
Results released so far by banks reveals loans book remains weak as they’ve not been lending as they used to.
Analysts are of the view that de-risking the real sector will spur banks to start lending since a lot of them are avoiding a repeat of a bad loan crisis of 2016.
The cumulative total loans and advances of the seven banks was down 7.88 percent to N7.43 trillion in June 2018 from N8.07 trillion the previous year.
“Going into H2-18, we expect a slight uptick in the yield environment (compared to H1-18) to support interest income on government securities, especially for the tier-1 banks,” said Analysts at United Capital.
“We maintain our position that appetite for risk assets will be muted by events in the socio-political space as observed in H1-18,” summed analysts at United Capital.
BALA AUGIE
