An improvement in impairment charge was the life line that salvaged banks from a disappointing result as a recovery in crude oil price paved the way for debtors to pay interest on money borrowed.
For the year ended December 2017, after tax profits for the 11 lenders that have reported full year results spiked by increased by 19.56 percent to N677.59 billion from N566.56 billion the previous year (2017).
Analysis by BusinessDay showed that the growth at the bottom line (profit) was largely driven by 71.66 percent decline in cumulative loan loss expense to N76.62 billion as at December 2018.
The stellar performances of these lenders mean they have surmounted the tough and unpredictable macroeconomic environment.
However, analysts are saying that future profit could shrink it companies do not invest in retail banking to grow non-interest income.
Ayodele Akinwunmi, Head, Research and Strategy at FSDH Merchant said such charge should not be in the books in the first place and that it is the quality of assets that drives earnings.
“In the Europe and United States, banks pay attention to net interest income, which is the difference between revenues generated by interest-bearing assets and the cost of servicing (interest-burdened) liabilities,” said Akinwunmi.
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Further analysis of the financial statement of the 11 banks in showed that in 2017 their profits increase by 24.27 percent, and there was uptick of 21.42 percent in 2016 while there was a 12.32 percent decline in profits in 2015 a period when the sudden drop in crude oil prices from above a $100 per barrel to near $40 forced banks with heavy exposure to the sector to write off loans that began to go bad.
“If lenders do not invest in retail banking then profit could be flat because loan loss expense may not be add impetus to bottom line in subsequent quarters,” said Ayodeji Ebo, managing director and CEO OF Afrinvest Securities Ltd.
Unity Bank of Nigeria Plc’s recorded a reduction in 65.94 percent reduction in interest income to N29.50 as at December 2018, but a 99.63 percent decline in impairment on financial assets to N161.17 million helped the lender post a profit of N1.29 billion in December 2018 from a loss of N14.19 billion the previous year.
Zenith Bank Nigeria Plc’s interest income dipped by 6.89 perccent to N440.05 billion as at December 2018, but the second largest lender by market capitalization recorded a 11.29 percent increase in net income to N193.44 billion, thanks to a 81.29 percent decline in loan loss expense to N18.37 billion.
Guaranty Trust Bank Plc’s interest income dipped by 5.96 percent to N306.96 billion as at December 2018, but a 59.96 percent reduction in impairment charge added impetus to bottom line as net income increased by 10 percent to N184.63 billion as at December 2018.
Non-Performing Loans NPLs of lenders in Africa’s largest economy have been improving since the central bank introduced the foreign exchange policy in 2017, a period that concomitant with a rebound in cruse price that helped the country exist its first recession in 25 years.
A Juicy yield on fixed income and short term securities have hindered lenders from turning on the tap on lending to the economy since the real sector is risky.
NPL ratio of the banking industry which was reported at 11.7 perent for fourth quarter of 2018 representing a 2.5 percent decline from third quarter 2018’s 14.2 percent but well above CBN’s threshold of 5.0 percent, according to a latest report by the NBS.
The 11.7 percent NPL ratio for the fourth quarter 2018 represents the lowest in 9 quarters dating back to Q2 2016 when Nigeria was said to be in a technical recession occasioned by the fall in oil prices.
“Even in the event of a moderation in yields on fixed income instruments, many banks believe that as long as yields remain above 10 percent, they still remain attractive considering that fixed income instruments have no Capital Adequacy Ratio (CAR) implications, are tax free and do not result in NPLs,|” said analysts at CSL Stock Brokers Ltd.
BALA AUGIE
