Bad loans, naira volatility and other economic headwinds have made Ecobank International Incorporated, Union Bank Plc, First City Monument Bank Limited, Wema Bank Plc and Fidelity Bank Plc to post a combined 80 per cent decline in their annual profits.
The annual financial statements of the banks posted on the website of the Nigerian Stock Exchange have revealed. The 2015 financial results of the five banks released in March this year showed that the profit before tax tumbled by 69 per cent to N77.65bn from N131.19bn in 2014.
Similarly, the combined profit after tax of the five banks fell from N107.279bn in 2014 to N59.73bn in 2015, indicating a decline of 79.59 per cent.
The N53.54bn fall in profit was attributed by many of the banks’ chief executive officers to high impairment charges on bad loans, foreign exchange volatility and other challenges facing the economy following the significant drop in the nation’s oil revenue due to the sharp fall in oil prices.
The economic crisis facing the country has affected the banking industry significantly. Out of the 15 banks quoted on the Nigerian Stock Exchange, 10 have released their 2015 annual financial statements as of the March 31, 2016 regulatory deadline set by the Central Bank of Nigeria for the submission of the statements.
Of the 10 banks that released their results, five posted sharp decline in profits, a major departure from the consistent rise in profits posted by almost all the banks in the country after the 2010 banking crisis.
The reports on the NSE website showed that Ecobank posted a PBT of N40bn in the 2015 financial year; Union Bank, N18.1bn; FCMB, N2.5bn; Fidelity Bank, N14bn; and Wema Bank, N3.046bn.
However, the five other banks that released their 2015 annual reports in March this year outperformed the market, posting increases in both their profit before tax and profit after tax.
This is despite the huge provisions for bad loans that most of them made in the 2015 financial year.
These are Guaranty Trust Bank Plc, United Bank for Africa Plc, Access Bank Plc, Sterling Bank Plc, and Zenith Bank Plc.
Sterling Bank’s PBT rose from N10.7bn in the previous year to N11bn in 2015, while its PAT rose from N9bn to N10.3bn; UBA’s PBT rose from N42.4bn to N50.8bn, while its PAT rose from N40bn to N47.6bn; and Zenith Bank’s PBT rose from N107bn to N115bn, while the PAT increased from N92.5bn to N98bn.
GTBank’s PBT rose from N120.7bn to N116.4bn, while its PAT moved up from N94.4bn to N99.4bn; and Access Bank’s PBT rose from N46.1bn to N65.2bn, while its PAT increased from N39.9bn to N58.9bn.
The five remaining banks out of the 15 listed on the NSE, which have yet to file their 2015 financial reports are; First Bank of Nigeria Limited, Skye Bank Plc, Diamond Bank Plc, Stanbic IBTC Holdings Plc and Unity Bank Plc.
They have filed notices of delay in filing their 2015 annual reports, stating various reasons. They are expected to release the results before May ending.
Already, Skye Bank Plc and First Bank of Nigeria Limited have issued profit warnings ahead of the release of their results. They said high impairment charges due to non-performing loans would lead to major decline in their profits.
“The management of Skye Bank Plc wishes to intimate its shareholders and investor community of anticipated material decline in its profits for the full year ended December 31, 2015 compared with that of 2014. The expected decline in performance is attributable to management’s decision to recognise increased impairment on loans to sectors severely affected by the prevailing economic headwinds, which are yet to abate, especially the lull in the oil and gas and real estate sectors,” Skye Bank said in a profit warning issued on March 22.
Similarly, First Bank, in its profit warning to investors on February 23, said, “Earnings for the 2015 financial year will be materially below that of the prior year. This is as a result of the recognition of impairment charges on some specific accounts resulting from a reassessment of the loan portfolio within our commercial banking business.”
The notice, signed by the Company Secretary, Mr. Tijjani Borodo, added, “This reassessment was driven by the challenging macro-economic environment, coupled with fiscal and monetary headwinds, which have resulted in marked reduction in domestic output.”
High provisions for bad loans, often referred to as impairment charges, were a major part of the financial results of the 22 banks in the country due to the challenges facing the economy.
For instance, Ecobank’s impairment losses on financial assets rose by 137 per cent from N44.4bn in 2014 to N105bn in 2015, while FCMB moved from a nil impairment loss in 2014 to N690m in the last financial year. The FCMB Group’s net impairment losses equally rose from N10.6bn to N15bn.
Sterling Bank’s impairment losses rose from N7.4bn in 2014 to N8.2bn in 2015. Furthermore, GTBank had its net impairments moving from N7.1bn in 2014 to N12.4bn in 2015. Access Bank also had its impairment increased from N10.6bn to N13.3bn in the same period.
Commenting on the 2015 financial result, the Managing Director, Fidelity Bank Plc, Mr. Nnamdi Okonkwo, said, “The PBT declined by 9.6 per cent largely due to two critical factors: the 17.1 per cent increase in total expenses due to strategic investments and cost incurred in 2015 to position the business for further growth in line with our aspirations.
“The increase in impairments, due to a more prudent approach adopted with respect to a special regulatory provision, which was charged directly to the profit and loss, was responsible for the decline in profit.”
Economic analyst and Chief Executive Officer, HighCap Securities, Mr. David Adonri, said the decline in profits was traceable to ineffective risk management practice in some of the banks and low activities in 2015 due to the political transition, among other variables.
He said, “When a major sector of the economy like the banking industry is having a major decline in profit, it has major impact on the economy. The banks are exposed to so many sectors of the economy with many of them being overexposed to the oil and gas sector; most of them have had their fingers burnt and have had to make major provisions for bad loans.
“This tells on their risk management activities, differentiating between those who posted increase and decrease in profits.”
The bad loans in the banking industry rose sharply by 78.8 per cent to N649.63bn in 2015, indicating severe deterioration in the quality of the loan portfolio of the 22 banks, a CBN staff report presented to the Monetary Policy Committee revealed.
The report revealed general increase in bad/non-performing loans among the 22 Deposit Money Banks in the country. This was despite the 30 per cent decline in new loans granted by banks in 2015 to N5.78tn.
According to the report, 18 out the 22 banks recorded increase in bad loans. Furthermore, the number of banks that exceeded the regulatory limit of five per cent for the ratio of bad loans to total loans rose from three in 2014 to eight in 2015, with three banks exceeding 10 per cent.
The report revealed that the ratio of bad loans for the industry relative to total loans rose to 4.88 per cent, which is 0.22 per cent less than the regulatory limit of five per cent.
The sharp increase in bad loans, according to the report, was due to a host of external and internal factors. These include low and volatile oil prices; uncertainty about severe fiscal imbalance at the sub-national level of government; weak output growth; and eroding investor confidence-PUNCH