Banks rally as Q1 profits up 28% to N196 bn
by PATRICK ATUANYA & BALA AUGIE
May 2, 2017 | 12:30 am| | | Start Conversation
Nigerian bank stocks are rallying as investors digest First Quarter (Q1) 2017 results which have come in largely better than expected.
Thirteen Nigerian banks have released Q1 2017 numbers. They are Access, GTB, Zenith, UBA, Ecobank Transnational Incorporated (ETI), Diamond, FBNH, Stanbic, Fidelity, Union, FCMB, Sterling and Wema Bank.
Net income for the 13 banks grew by 28.6 percent to N196 billion from N152.3 billion in the earlier Q1, 2016 period, while revenues rose by 33 percent to N1.05 trillion from N787.1 billion on a cumulative basis.
“After a subdued Q4 2016 (once one-off gains are stripped out), the Q1 2017 results are very encouraging, especially with both revenue lines contributing,” said analysts at FBNQuest.
Stanbic IBTC is leading the banking index higher with year to date gains of 75 percent, followed by UBA up 29 percent this year and Guaranty Trust Bank (GTB) up 7.8 percent.
The NSE Banking index is up 3.7 percent this year (April 28), compared to a negative 4.1 percent return for the broader NSE all share index.
A breakdown of the numbers show that 8 out of 13 banks grew profits in Q1, 2017 from a year earlier, while profits for 5 banks fell from the Q1, 2016 levels.
ETI earned the most revenues for the period at N178.4 billion, followed by Zenith (N147.7 billion), FBNH (N141 billion), Access (N115.9 billion) and GTB (N104 billion), to round up the top five.
When it comes to Profit After Tax or net income available to shareholders, the top five firms were GTB (N41.5 billion), Zenith (N37.5 billion), Access Bank (N26 billion), UBA (N22.4 billion) and ETI (N18.7 billion).
Looking at net margins (the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends (have been deducted from a company’s total revenue), GTB again led with the highest margins of 39.6 percent, followed by Stanbic (34.2%) Zenith (25.3%), Access (22.4%) and UBA (22.1%).
The combined loans and advances to customers of the 13 banks increased by 7.85 percent to N15.74 trillion as dollar denominated assets increased on the back of the adoption of a flexible exchange rate by the central bank in June last year that culminated in the naira losing 40 percent of its value against the U.S currency.
Further analysis of the first quarter financial statement of the 13 lenders showed cumulative deposits from customers were up 7.81 percent to N22 trillion. Interest income in the period under review moved by 25.84 percent to N713.48 billion, while interest expense increased by 51.95 percent to N267.86 billion.
The increase in interest expense is probably a reflection of the higher interest rate environment between both periods (Q1 2016 – Q1 2017) as rates rose in response to higher CBN Monetary Policy Rate (MPR).
“The current high yields in the fixed income securities and the fact that most banks have considerable investments in government securities are the major drivers of the interest income,” said Ayodele Akinwunmi, Head of Research at FSDH Merchant Bank Limited.
“The interest expenses also rose because of high interest rates in the market. But the banks with more liquidity benefits from the high yields and interest rates in the market,” said Akinwunmi.
The cumulative total assets of the banks under our coverage increased by 4.79 percent to N34.67 trillion ($113 billion/ $1 – N306), which is about 26 percent of the country’s GDP of N134 trillion.
Nigeria’s banking industry was in a full blown crisis last year, as an economic downturn hindered customers from paying back monies borrowed from banks.
The ratio of non-performing loans (NPLs) to total credit rose to 14 percent last year, according a central bank report.
This figure is higher than the 5 percent threshold set by the regulator.
Despite the rise in bad loans and impairments, Capital Adequacy Ratios (CAR) have held up for most of the nine Fitch-rated Nigerian banks that have released 2016 results, helped by strong retained earnings on substantial revaluation gains and foreign-exchange trading income following the naira devaluation.
“We believe all banks’ ability to maintain CARs above the regulatory minimum will depend to a large extent on asset quality, which continues to face significant downward pressure, given the highly volatile operating environment in Nigeria,” Fitch said in an April 27 update on the sector.
Heightened liquidity risk from limited access to foreign currency is a further contributor to pressure at almost all Nigerian banks.
However, a new circular from the Central Bank of Nigeria (CBN) that establishment a special “Investors’ & Exporters’ FX Window” which allows banks and other participants sell US Dollars to willing buyers at mutually agreed rates, could help bring back dollar liquidity.
Experts say that such a policy could woo foreign investor that had hitherto jettisoned naira assets.
“We see an improvement in the number of letters of credit, bills being settled and remittances being allowed,’’ said Segun Ajibola, president of the Chartered Institute of Bankers of Nigeria.
Meanwhile only 2 Nigerian lenders were valued at over $1 billion by the market, Guaranty Trust Bank (N783.7 billion/$2.56 bn) and Zenith Bank (N467.8 billion/$1.52 billion), meaning there could be more upside for the sector.
PATRICK ATUANYA & BALA AUGIE
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