Zenith Bank Nigeria Plc, the second largest lender by market value, started the year with a double digit growth in earnings, thanks to interest income from short-term government securities
For the first three months through March 2018, Zenith Bank’s net income spiked by 25.52 percent to N47.07 billion from N37.50 billion the previous year.
The growth in profit was largely driven by increase in interest income in the period under review.
Interest and similar income grew by 20.70 percent to N142.61 billion in March 2017 as against N118.09 billion the previous year; largely driven by a N50.85 billion income from treasury bills (T-bills).
In short there was an 88.88 percent surge in interest income from T-bills compared to the corresponding period.
However, interest income from loans and advances dipped by 2.19 percent to N77.08 billion in March 2018, which means Zenith is less aggressive about lending.
Nigerian banks have turned off the tap on lending as they swooped on short term government securities when yields were around 18 percent and 22 percent for between April and September last year.
Guaranty Trust Bank Plc, the largest lender by Market value, made N22.06 billion from interest income for T-bills in the first quarter of the year albeit netted off by a N22.49 billion available for sale figure for 2017. It recorded a 3.95 percent drop in interest income to N80.77 billion in the period under review from N84.10 billion the previous year.
Figures coming in from Tier lenders that have released first quarter results show their loan books are shrinking.
Zenith Bank’s loans and advances to customers dipped 25.53 percent to N1.75 trillion in March 2018 from N2.35 trillion the previous year.
Similarly, GTBank’s loans and advances to customers fell by 6.25 percent to N1.35 trillion in March 2018 2017 from N1.44 trillio as at March 2017.
Analysts say a drop in those yields from record highs in August means that 2018 will be more challenging for lenders, despite the positive macro backdrop.
“We can see that the banks are not lending as much as they used to do and that explains the shrinking interest income on loans and advances,” said Ayodeji Ebo managing director and CEO of Afrinvest Securities Limited
“Interest income from government securities will also moderate as a result of reduction in yields and we expect that to continue to the next quarter. In summary, it is the combination of declining income from lending and reducing investment securities,” said Ebo.
Yields on net Treasury Bills (NTB) is around 11 and 12 percent in 2018 as Fitch, a global ratings agency cavert that this year could be challenging for lender as government slowed down issuances and opted for foreign borrowing through Eurobond issuances.
“We expect falling T-bill yields and lower issuance to put pressure on Nigerian banks’ profitability in 2018. The CBN’s latest issuance schedule shows N1.1 trillion (USD3.6 billion) of rollovers in the first quarter of 2018 against N1.3 trillion of maturing bills.”
“We may have to work hard to grow volumes,” said Segun Agbaje the Managing Director of Guaranty Trust Bank plc during the bank’s full year financial statement presentation.
Zenith Bank’s shares have gained 5.72 percent, underperforming the NSE ASI of 6.72 percent.