Rising bad loans due to the slow growth in the
economy will drag a good number of Nigerian banks to record low profits when
their financial results for the second quarter are released any time from now,
findings have shown.
As a result,
13 out of the 15 banks whose shares
are quoted on the Nigerian Stock Exchange may post a combine decline of 15 per
cent in their second quarter financial reports, according to top bank
executives familiar with the situation.
In the first quarter of 2016, 13 out of the 15
banks whose shares are quoted on the NSE posted a combined PBT of N135.36bn,
compared to N148bn in the corresponding period of last year.
This represents eight per cent decline.
Similarly, the 13 banks
posted profits after tax of N116.6bn in the first quarter of 2016, compared to
N126.4bn in the first quarter of 2015.
The banks are: Access
Bank Plc, Guaranty Trust Bank Plc, Zenith Bank Plc, United Bank for Africa Plc,
Diamond Bank Plc, Ecobank Transnational Incorporated Plc, Fidelity
Bank Plc, First City Monument Bank Limited, First Bank of Nigeria Limited,
Union Bank of Nigeria Plc and Sterling Bank Plc.
The DMBs will start
releasing their second quarter financial results at the Nigerian Stock Exchange
this week. Some, however, may delay theirs for some time.
Top bank executives told
our correspondent on Sunday that many of the nation’s lenders would post record
low profits in their second quarter financial results due to higher amounts of
bad loans in their books.
A director in one of the
tier-1 banks privy to the development, who spoke under the condition of
anonymity, said, “The slowdown in the economy has made more companies to
default in the repayment of their loans; this has increased the amount of
non-performing loans in banks’ books.
“The CBN regulation
requires that provisions be made for these loans. The provisions have cause
huge decline in banks’ profits in the second quarter financial results.”
According to other bank
executives, while many lenders will post record low profits, at least one or
two would post losses in the second quarter.
“Many banks still
recorded high NPLs due to record number of defaults from their clients in the
manufacturing, consumer goods, real estate, and oil and gas sectors. These
dragged down their second quarter profits following the mandatory provision for
bad loans,” a risk manager in a tier-2 bank told our correspondent under
condition of anonymity.
The economic slowdown in
the country made four banks to lose about N17bn in profits in the first quarter
of this year, their financial results posted on the NSE website showed.
The banks are Ecobank
Transnational Incorporated, Guaranty Trust Bank Plc, Unity Bank Plc and Diamond
Bank Plc.
They recorded a combined
decline of N17bn in their profits before tax for the three months ended March
31, 2016, when compared with the corresponding period of 2015.
According to the 2016
first quarter unaudited financial results filed with the NSE, Ecobank, GTB,
Unity Bank and Diamond Bank recorded profits before tax of N20.63bn, N30.68bn,
N1.05bn and N6.04bn, respectively.
When compared with
N30.52bn, N32.65bn, N4.26bn and N7.94bn recorded by the banks in the first
quarter of 2015, the combined profit before tax of the four banks dropped by
N17bn from N75.4bn in the first quarter of last year to N58.4bn in the same
period in 2016.
In terms of their profits
after tax, the four banks recorded a decline of N14bn.
Nigerian banks had posted
record high profits between 2011 and 2014. This followed the establishment of
the Asset Management of Corporation of Nigeria in 2010 following the banking
sector crisis of the year before, which absorbed the NPLs of the lenders.
Owing to the lenders’
high exposure to the oil and gas sector, the global drop in crude oil prices in
2014 caused their profits to start declining by the end of 2015.
Majority of the 15 banks
listed on the NSE recorded decline in their full-year profits in the 2015
financial year. However, few ones such as Access Bank Plc, Zenith Bank Plc,
United Bank for Africa Plc and GTBank outperformed the market despite sizeable
volume of bad loans.
Economic and financial
analysts, who are predicting lower profits in the second quarter of this year,
linked the development to lower national imports due to foreign exchange
challenges, lull in economic activities and slow implementation of the 2016
budget, among others.
The Chief Executive
Officer, Cowry Assets Management Limited, Mr. Johnson Chukwu, said banks would
make higher provisions for bad loans in their second quarter results due to the
lull in economy, slow implementation of the budget and reduction in their
income lines and profits.
He said, “Banks’ income
lines have reduced due to the foreign exchange challenges in the country.
Many
banks cannot engage in trade finance as they should have done due to scarcity
of forex.
“Also, lending that
should go to the Federal Government contractors could not happen due to the
late passage and implementation of the budget. And more importantly, they will
experience higher provisions for bad loans due to the lull in economic
activities.”
An analyst at Afrinvest,
a Nigeria-based research and investment advisory firm, Mr. Robert Omotunde,
said the banks’ performance in the second quarter would be lower than that of a
similar period in 2015 due to high impairment charges on the part of the DMBs.
He said, “It appears that
banks (because of their resilient nature) will still manage to post profit in
their H1 financial results but not as high as that of H1 2015 due to high
amount of risks in the system.
“Banks are recording high
impairments in recent times. This can also be traced to the high exposure of
Nigerian banks to the oil and gas sector. On the average, the exposure rate is
currently at 24.5 per cent for all the banks. This is quite high.”
The President, Institute
of Chartered Accountants of Nigeria, Mr. Titus Soetan, said banks were in for a
tougher year due to the economic downturn.
He said, “I see the
banking sector still facing further challenges. The chanllenges in the economy
will make more loans to still go bad. Again, the banks provide infrastructure
for their operations because of the poor state of infrastructure in Nigeria.
All these still affect their overheads and they need to look at how to cut
costs in other areas now.”
He advised them to be
more innovative so as to generate other sources of income.
Bad loans, naira
volatility and other economic headwinds had made Ecobank, Union Bank, First
City Monument Bank Limited, Wema Bank and Fidelity Bank to post a combined
profit decline of N53.54bn in the 2015 financial year.
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 had revealed.
The report indicated a
general increase in the 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 the lenders 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 last year, with three
exceeding 10 per cent.
...Punch
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