Banks post N61bn extra profit despite recession in 2016

Despite the economic headwinds that slowed down growth in country, banks quoted in the Nigerian Stock Exchange posted a cumulative N504bn profits in 2016, an increase of N61.3bn ( equivalent to 13.8 per cent) over the N443bn recorded in 2015.

Daily Trust analysis of financial statements of 16 banks with the exception of Skye Bank Plc, whose full year 2016 financial statement is still being expected at the NSE, shows that the cumulative gross earning (revenue) of the banks grew from N3.6tr to N3.7tr. The banks recorded an increase in earnings of N88.3bn, representing a 2.4 per cent growth.

From the records, only Ecobank failed to record profit within the year under review. The bank posted a loss of -N52.6bn, a reversal of the N21.3bn PAT recorded in 2015. The result represents a 347.5 per cent loss.

The overall results revealed an interesting trend, giving that the Nigerian banking market was said to have faced serious headwinds from slow GDP growth, falling FX reserves/ availability and regulatory pressures, slower deposit growth fuelled by lack of economic growth and public sector developments such as the Treasury Single Account ( TSA).

However, despite the gains, the records showed a general slowdown in lending within the period, with liquidity constraints and deteriorating macro environment, inflation and growing risk premium, which drives interest rates.

The Central Bank Governor, Mr. Godwin Emefiele, had described the shape of the country’s economy as ‘Stagflation,’ a more serious economic problem. “In reality, Nigeria’s economy is currently facing a classic case of ‘stagflation’. This situation largely occurs when a country’s Gross Domestic Product (GDP) is falling or stagnant, while unemployment and inflation are rising, all simultaneously,” he said at the 2016 annual bankers’ dinner held in Lagos.

It was in 2016 that Nigeria battled its highest rate of inflation in 11 years. Inflation which started the year out at 9.6 per cent, witnessed a consistent rise on a monthly basis, standing at 18.48 per cent in November according to figures released by the National Bureau of Statistics. It had crossed from single digit and doubled over the period of 11 months affecting government’s capacity to raise funds from the debt market as investors asked for higher yields.

From the records, Guarantee Trust, Zenith, UBA, Access, Stanbic IBTC, First Bank, Union and FCMB led the profitability pack with double digit income lines, with Zenith and GTB posting in excess of N100bn respectively.

On the PAT chart, GTB with N132bn, Zenith with N129bn, UBA with N72bn and Access bank with N71bn, account for N404bn of the total N504bn grossed cumulatively by all the banks, representing 80.2 per cent. The other 12 banks grossed N100bn, accounting for only 19.8 per cent.

Year 2016 was also a spectacular one for FCMB whose PAT shot to N14bn from N4bn in 2015. Stanbic IBTC equally saw a growth in PAT from N18.8bn in 2015 to N28.5bn in 2016.

Only five banks saw a drop in profitability, namely: Ecobank from N21bn PAT in 2015 to a loss of -N52bn. Sterling Bank dropped from N10bn PAT in 2015 to N5bn in 2016. Fidelity Bank from N13bn 2015 PAT to N9bn in 2016. Diamond Bank saw a decrease from N5.6bn in 2015 to N3.4bn. Unity Bank from N4.6bn in 2015 PAT to N2.1bn in 2016. And Jaiz bank from N910m in 2015 to N311m in 2016.

For Diamond Bank, whilst interest and operating expense both came in contained y/y at N42.3 billion and N97.1 billion respectively, loan loss provision remained the major pressure point for earnings, up 7% y/y to 59.0 billion.

For Fidelity, despite the growth in operational income by 4.0%, PBT declined by 21.1% due to a N4.8bn increase in gratuity and retirement costs in the 2016FY as the bank discontinued its legacy Gratuity and Retirement scheme. Excluding this oneoff charge, PBT for the year would have been N15.8bn.

Though its “nonperforming loans (NPL) ratio increased to 6.6% largely due to a combination of naira devaluation and our conservative approach in appraising our risk assets portfolios, our other regulatory ratios (Liquidity Ratio / CAR) remained well above the set regulatory thresholds,” the bank said.

Unity Bank attributed its lower bottom-line partly to high impairment charge of N35bn in 2016, compared with N27bn charged in December 2015.

However, all the banks examined saw growth in their gross earnings (revenue) except Diamond Bank which witnessed a drop from N217bn in 2015 to N212bn in 2016.

Though Ecobank recorded a loss on its balance sheet, its gross earnings grew from N542bn in 2015 to N665bn in 2016.

It explained that its end of year bottom line performance was impacted by its voluntary adoption of a full impairment charge regarding its legacy loan portfolio, for which a resolution vehicle was set up; the first private sector funded resolution vehicle of its kind in Nigeria, with the sole objective of ring-fencing the legacy loans from Nigeria’s core bank.

The bank saw a Loss Before Tax of $131m (2015: profit before tax $205m) mainly attributable to higher loan impairment charges taken in 4Q 2016. The full impairment losses on financial assets of $864m absorbed, predominantly from specific client names related to a legacy portfolio experiencing deterioration in quality.

A proposed $400m convertible bond issue is expected in 2Q 2017; $300m already supported by existing shareholders. The issue will be available to all others on the same terms.

Despite these cumulative impressive performance, 2016 saw major retrenchment by some banks under various guesses. Skye Bank Plc, sent 175 of its employees into the labour market; Unity Bank and Diamond Bank sacked over 200 respectively.

The biggest sack was shared between Zenith Bank and Ecobank. Both banks were reported in the media to have sacked over 1000 of their employees.

The banks have often executed their action as been in line with strategic plans to drive shareholders’ value, renewed drive for optimal performance, realignment and repositioning in certain roles and improved efficiency as reasons necessitating these sack, whom they mostly claim were adequately compensated.