Tier 1 lenders efficiency has improved as the banks were able to tame operating expenses amid rising impairment charges on financial assets.
The analysis of the five banks (FBNH, UBA, Access, Guaranty Trust and Zenith Bank), is based on their third quarter financial results as posted on the Nigerian Stock Exchange (NSE).
First Bank’s cost to income ratio (CIR) of 48.48 percent, was 21.29 percent lower than the figure recorded last year, and is the lowest among its peers.
The figure makes bank the most efficient in terms of using the latest technology at its disposal to reduce costs.
Its net interest margins (NIM) however fell by 2.60 percent to 7.50 percent as a result of increase in costs of funding.
An industry expert told BMI that there might be a silver lining for First Bank since lenders may soon overcome the end of the negative credit cycle.
This means loan loss expense may reduce with its attendant positive effects on non performing Loans (NPLs), invariably culminating in increased profits.
Zenith Bank’s CIR dropped 2.40 percent to 55.10 percent in the current period despite a 10 percent increase in total operating expenses.
The increase in operating expenses was driven by consistent rise in inflation, Asset Management Corporation of Nigeria (AMCON) charge, Nigeria Deposit Insurance Corporation (NDIC) premium and foreign currency expenses due to naira devaluation.
Zenith Bank’s NIMs were down 3.80 percent while the return on average equity (ROAE) increased by 5.10 percent to 20.70 percent as at September 2016. This signals the deployment of shareholder’s resources to generate higher profit.
Access Bank’s CIR fell by 1.90 percent to 57.7 percent in the period under review while operating expenses were down 6 percent, largely as a result of improved net interest margin to 6.50 percent in September 2016 from 6.0 percent in the previous year.
United Bank for Africa (UBA) isn’t left out on the list of efficient lenders as CIR remained flattish at 65 percent as inflationary and exchange rate pressures masked the efficiency gains from ongoing cost management initiatives.
Guaranty Trust Bank on its part saw its CIR dip to 36.79 percent in the period under review from 44.52 percent, the previous year.
Banks in Africa’s most populous nation are grappling with bad assets quality caused by a sudden drop in oil prices since mid 2014.
Moody’s Investors Service said recently that Nigeria’s five biggest banks share common credit challenges related to the economic slowdown.
Moody’s expects non-performing loans to increase to about 12 percent over the next 12 months.
The ratio of non-performing loans to total credit rose to 11.7 percent at the end of June from 5.3 percent at the end of 2015, according to the Central Bank of Nigeria (CBN).
BALA AUGIE
