The recovery of the Nigerian economy has continued on a positive trajectory as 12 quoted banks have declared N214.5 billion net profit for the first quarter ended March 31, 2018.
The banks are Zenith Bank, Guaranty Trust Bank, United Bank for Africa (UBA), Ecobank Transnational Incorporated (ETI), Access Bank, Stanbic IBTC, FBN Holdings, Fidelity Bank, FCMB Groups, Sterling Bank, Jaiz Bank and Wema Bank.
Coming from the two consecutive growths witnessed in the second-half of 2017 after the economy recovered from a protracted recession in second quarter of 2017, the Nigerian economy is on a track to post an improved growth for the remaining quarters of 2018.
As at May 4, 2018, the banking index which is a gauge that measures the performance of bank stocks, recorded year-to-date (YTD) growth of 10.54 per cent outperforming the Nigerian Stock Exchange (NSE) All Share Index (ASI) of 7.78 per cent YTD growth.
Specifically, the 12 banks that have released their first quarter, 2018 results recorded combined profit after tax of N214.5 billion, an increase of 16.77 per cent when compared to N183.72 billion recorded by the 12 banks in first quarter 2017.
A look at some of the banks result for the period showed that Zenith Bank led in terms of profitability, posting N47 billion profit after tax compared to N37.5 billion in Q1, 2017. This represents 25.55 percent increase. Guaranty Trust Bank followed with N44.65 billion net profit, representing 7.7 percent increase over N41.48 billion recorded in the corresponding period in 2017, while ETI placed third with N27.9 billion profit after tax, a 49 percent increase compared to N18.68 billion in Q1, 2017.
UBA declared a profit after tax of N23.7 billion, an increase of 6.2 per cent from N22.4 billion, Stanbic IBTC net profit went up by 43.5 per cent to N23.1 billion, while Access Bank posted N22.1 billion from N22.4 billion.
Also, on the revenue side, ETI led with N198 billion, representing 11 percent increase compared to N178.4 billion recorded in the same period in 2017. Zenith Bank followed with N169 billion, representing 14.5 percent growth compared to N147.74 billion in Q1, 2017, FBN Holdings ranked third with N138.9 billion revenue, representing 1.6 percent decline from N141 billion posted in the same period in 2017.
Access Bank Plc posted N137.5 billion revenue, which represents 19 percent increase over N116 billion posted in 2017, while UBA recorded N119.37 billion revenue against N101.25 billion in 2017, thus showing 17.9 percent increase.
Stock market analysts note that banking sector first quarter earnings reports were mixed as a result of the adoption of new International Financial Reporting Standard (IFRS 9). They however said that tier 1 banks reported impressive first quarter profits.
Chief operating officer of InvestData Limited, Ambrose Omordion said banking sector first quarter earnings reports were mixed as a result of the adoption of IFRS 9, that which mandates commercial banks to fully disclose their assets together with loan portfolio and ensure adequate provision for non-performing loan (NPL).
He explained that this will affect the banks in 2018, which has already reflected in the first quarter numbers of the banks, adding it will make the banks to seat up in risk management in other not to short change investors by using profit to make provision and investors will be waiting or given miserable dividend as some banks did in 2017.
He stated that bank stocks remain cheap with strong fundamentals that will drive their future price considering the role of banks in economic development and growth.
Managing director/CEO, Cowry Asset Management Limited, Mr. Johnson Chukwu, explained that “a lot of the profit the banks made in first quarter of last year was from investment in government securities when they were enjoying yield of close to 22 percent. If you compare that to this year, you will observe that rates have dropped drastically; we are looking at Treasury bill (364 days TB) at nine to 11 percent when at the same time last year it was about 18 percent.
“So, for the banks, they have lost a lot of revenue from investment income in federal government debt instruments and they have not been able to successfully switch their investment to loans and it will take some time to adjust their books to quality credits.” Reviewing the banking sector for 2018, United Capital Plc said relative to 2017, earnings are likely to come under renewed pressure in 2018.
It stated that in 2018 banks will have to weather a lower-rate environment, saying that “though the big tier one players remain defensive, given their scale advantage, we anticipate more earnings upside from tier two players whose biggest benefit would come from a sharp decline in cost of funds.
It also said that the expectation of improved system liquidity in 2018, on account of reduced government borrowing should be positive for credit growth, potentially helping to compensate for the loss in income from securities portfolios. It added that the proactive nature of the provisioning, as specified in IFRS 9, may increase cost of risks and reduce capital adequacy ratios across the sector.
It however said that notwithstanding, improving macro climate should continue to bode well for asset quality, saying that the need to shore up capital buffers, and lower interests will likely prompt more capital raising for banks in 2018.
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