Amidst report that Nigeria’s economy was growing at 3.11 percent in the first quarter of 2022, Q1’22, leading banks in the country have reported a 24.7 percent and 18.6 percent growth in revenue and profits respectively within the same period.
The banks include First Bank (FBN Holdings Plc), Zenith Bank Plc, United Bank for Africa (UBA) Plc, Guaranty Trust Holdings (GTCO) Plc, Stanbic IBTC Holdings Plc, Access Holdings Plc, Fidelity Bank Plc, Union Bank of Nigeria (UBN) Plc, Wema Bank Plc, Jaiz Bank Plc, Sterling Bank Plc, FCMB Group Plc and Ecobank Transnational Incorporated (ETI) Unity Bank Plc.
Financial Vanguard’s findings from the financial statements rendered to the Nigerian Exchange Limited by the banks indicated combined revenue of N1.55 trillion, a 24.7 per cent increase compared to N1.24 trillion recorded in the corresponding period in 2021.
The banks recorded N371.9 billion in pre-tax profit, an 18.6 per cent increase over N313.5 billion posted in Q1, 2021.
The banks’ revenue and pre-tax profit also beat the current inflationary trend which rose steadily over the past three months to hit 16.82 percent last month.
A peep into the financials showed that the banks’ profitability was, however, undermined by the 8.8 per cent decline in Union Bank of Nigeria’s pre-tax profit as well as the weak performance by three of the tier-1 banks (UBA,GTCO and Access Holdings), which recorded single digit increases in their pre-tax profit positions.
Meanwhile, investment experts are projecting a brighter outlook for the banks in the full year to December 2022, owing to the increased spending by the political players ahead of the 2023 general election and higher earnings from debt investment on the back of the hike in interest rate to 13.0 per cent by the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) last week.
They, however, said that competition from two telecommunication giants – MTN Nigeria Communication Plc and Airtel Africa Plc – that recently secured approval from the CBN for mobile banking operation might impact their performance further down the year.
Revenue drivers
A quest into the banks’ revenue performance showed that growth was driven by the tier-2 banks in percentage terms, though the tier-1 banks remained the leaders in value terms.
Wema Bank led the pack with a 57.3 per cent revenue growth to N30.63 billion from N19.47 billion in Q1’21, followed by Stanbic IBTC Holdings Plc with a 47.70 per cent increase to N67.23 billion from N45.52 billion in the same period in 2021.
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Others are FCMB Group which grew revenue by 33.90 per cent each to N58.31 billion from N43.54 billion; Access Holdings Plc with 33.14 per cent increase to N295.7 billion from N222.1 billion and FBN Holdings Plc which revenue advanced by 32.10 per cent to N180.48 billion from N136.58 billion in Q1’22.
Wema, FBN Holdings boost profitability
Further analysis showed that with the exception of UBN Plc which recorded decline in profitability, the remaining 13 banks achieved different degrees of growth in profitability. Wema Bank Plc led the pack, appreciating by 175 per cent to N3.3 billion from N1.15 billion in Q1’22. FBN Holdings followed with a 93.13 per cent increase to 36.52 billion from N18.91 billion in Q1’21. Stanbic IBTC Holdings Plc advanced by a 61.9 per cent increase to N19.6 billion from N12.1 billion in Q1’22; FCMB Group Plc ranked fourth with 43.2 per cent increase to N6.02 billion from N4.23 billion, while ETI recorded a 29 per cent increase to N53.07 billion from N40.34 billion.
Analysts’ positions
In his reaction, Mr. David Adonri, Vice Chairman, Highcap Securities, said the increase in economic activities in Q1 2022 was a propellant for the banks’ growth.
He said that the banks benefited from increased trade during the period being the main providers of trade finance in the economy.
“Their trading and investment income from the financial markets may have also increased in line with the stability of debt, depreciation of the Naira and appreciation of equities. Continued recovery of the economy may have also enhanced their performing loans.
“However, the lower growth of their PBT when compared to revenue growth indicates that operational expenses increased disproportionately possibly due to increase in their cost of doing business,” he said.
Also speaking, Ronak Gadhia, CFA and Director, Sub-Saharan African Banks Research, EFG Hermes, described the continued strong growth in revenue and PBT by the banks as impressive given the difficult operating environment, “especially the low asset yields and high CRR requirements imposed by the CBN.”
He attributed the performance to loan growth, partially driven by the CBN’s intervention schemes, strong fee income growth driven by banks digitisation initiatives, the increase in revenue and profit contribution from non-Nigerian operations, and exceptional trading revenue at some of the banks.
Outlook
According to Adonri, the outlook for the banks going into the second half of the year remained bright.
He noted that increasing monetization of the economy arising from political spending and interest rate hike with the attendant increase in debt investment returns, might strengthen their income.
He said: “Their trade finance and forex income are expected to continue with undiminished intensity. However, the impact of competition from telecom giants, MTN and Airtel, which have just commenced some form of banking services, will become apparent in the second half of the year (H2 2022). Also, the impact of interest rate hike on demand for credit in H2 2022 may water down income on their risk assets.”
On the outlook, Gadhia of EFG Hermes said the bank’s earnings are expected to continue increasing on a Y-o-Y basis driven by continued growth in assets and fee income as well as potential expansion of margins on the back of the recent rate hike by the CBN.
“However the momentum of earnings growth should moderate due to impact of inflation on costs and potential normalisation of trading income at some of the banks,” he added.