Banks face Tough Margins as Yields dip
Posted: 25/Jun/2018

About two-thirds of banks witnessed a contraction in their profitability in the first quarter (Q1) of this year,  struggling between relatively steady income lines and declining yields on transactions.

The Nation’s Market Intelligence showed that increase in actual earnings in Q1 ended March 31, 2018 masked varied declines in underlying profitability. The report underlined the ability of top-tier banks to withstand shocks compared with less-capitalised banks, most of which showed considerable vulnerability.

Average profit-making ability of the banking industry declined by 48 basis points to 19.19 per cent in first quarter of the year compared with 19.67 per cent recorded in corresponding period of last year.
 
Pre-tax profit margin-which measures the underlying profitability of a corporate’s transaction and a global standard for measuring profitability while the analysis covered all quoted commercial banks that have so far submitted their first quarter report was used.

Quoted banks account for more than 90 per cent of the industry and the surveyed banks account for more than 95 per cent of earnings by quoted banks.

There are 16 banks listed on the Nigerian Stock Exchange (NSE) including Diamond Bank, Ecobank Transnational Incorporated, Fidelity Bank, Guaranty Trust Bank, Jaiz Bank, Sterling Bank, Union Bank of Nigeria, Wema Bank, Stanbic IBTC Holdings, Access Bank, United Bank for Africa, Zenith Bank, FBN Holdings, Skye Bank, Unity Bank and FCMB Group. Only Skye Bank, Unity Bank and FCMB Group have not submitted the three-month Q1 results. The results of the three banks are regarded as fractional figures and will not change the overall outlook of the industry.

Guaranty Trust Bank-Nigeria’s most capitalised bank still retained the highest profit-making capability in the industry, although pre-tax profit margin slipped marginally from 48.39 per cent in first quarter 2017 to 48.29 per cent in first quarter 2018. In actual, Zenith Bank took the lead with the largest pre-tax profit of N54 billion in the period under review. Diamond Bank had the least profit-making capacity during the period with pre-tax profit margin of 2.58 per cent, a major contraction from 10.21 per cent recorded by the bank in first quarter 2017.

Altogether, the surveyed banks recorded total profit before tax of N255.86 billion as against N229.01 billion recorded in Q1, 2017. Gross earnings for the three-month period ended March 2018 stood at N1.12 trillion as against N1.056 trillion recorded in corresponding period of 2017. After taxes, net profit also increased from N191.85 billion in 2017 to N217.85 billion in 2018.

Many analysts and bank executives still regarded banks’ performance during the period under review as a positive outlook, expressing optimism that the banks would ramp up performance in the next quarters.
 
“GTB’s Q1 2018 results are tracking slightly ahead of consensus 2018 estimated profit before tax forecast of N203 billion. Consequently, we expect to see modest upward revisions to consensus 2018 estimated profit before tax forecasts and a positive reaction from the market,” analysts at FBN Quest stated.

Group Managing Director, United Bank for Africa (UBA) Plc, Mr. Kennedy Uzoka, said the group’s first quarter was impressive given the intensifying competition and moderation in yield environment in Nigeria and Ghana.

According to him, the result is a good start to the year and a reflection of the bank’s capacity to sustainably grow earnings over the medium to long term.

“We recorded 18 per cent growth in gross earnings, as both interest and non-interest income grew 18 per cent and 19 per cent respectively. Notwithstanding the moderation in sovereign yield in Nigeria and Ghana, we achieved a 60 basis points improvement in net interest margin to 7.6 per cent, as we extract efficiency gains from balance sheet management,” Uzoka said.

He expressed optimism on the steady recovery of the economy and improving fundamentals of most African countries, where the bank operates.

“We are committed to exceeding our 2018 deposit growth target in the year, with strategic focus on retail, low cost savings and current accounts, which is critical to sustaining our net interest margin uptrend,” Uzoka said.

Managing Director, Sterling Bank Plc, Mr. Abubakar Suleiman, said the bank’s performance in first quarter 2018 was a promising start to the year.

“We are pleased to be starting 2018 on a good note, by sustaining the strong performance delivered in 2017 with growth across key financial indices. This demonstrates strength and is indicative of our outlook for the financial year,” Suleiman said.

He said the bank has continued to experience a significant improvement in asset quality as cost of risk declined by 140 basis points to 0.8 per cent by first quarter 2018 from 2.2 per cent in 2017 while the 65 per cent growth in net profit has improved Return on Average Equity by 410 basis points to 12.8 per cent.

By: Taofik Salako
The Nation News

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