For Banks, a Moment of Relief

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After weathering the challenges posed by the economic recession, banks appear to be experiencing relief, with improving foreign exchange system and positive macro-economic environment. Obinna Chima writes

After withstanding the challenges that came with the slump of Nigeria’s Gross Domestic Product into a negative territory last year, banks in the country appear to be opening up to a lot of possibilities in the period ahead. The latest report by Business Monitor International, a member of the Fitch Group, which reflected this, showed that the outlook for the Nigerian banking sector remained positive mid-way through 2017. The report brings an element of optimism and cheer into the banking system.

 

Optimism 

The report hinged its assessment of the industry on rising oil receipts and greater liquidity in the economy following the introduction of a new, tradable exchange rate in April. It stressed that the changes would continue to support the recovery of the banking sector.

Furthermore, it pointed out that systemically important top five banks, which together account for over half of the total banking sector’s assets, were financially sound and would remain so through the course of 2018.

But the report showed that greater concerns remained over smaller banks, where capital adequacy ratios (CARs) are being tested, especially when rising non-performing loans (NPLs) are taken into account. “Nevertheless, with rising oil prices and production, and diminishing liquidity constraints, we are confident the Nigerian banking sector will remain stable,” the report added.

The report anticipated that the new exchange rate policy being implemented by the Central Bank of Nigeria would see a general uptick in the Nigerian economy, which would drive profit growth for most banks.

According to BMI, “The greater liquidity in the economy will see increased activity in the banking sector. There is already an improvement in the number of letters of credit, bills being settled and remittances being allowed. With the new tradable window now active, this trend will increase.

“We are confident that the banking sector will remain resilient in 2017, and that a repeat of the 2009 crisis is off the cards. The CBN put in a series of measures regarding capital ratios, following the banking crisis, which makes the sector far more stable than it was previously.

“However, another shock to the oil sector in the form of further pipeline attacks or structurally lower prices would notably increase these risks.”

The International Monetary Fund recently affirmed that Nigeria would recover from economic recession this year, projecting that the country’s economy would grow by 0.8 per cent in 2017. Citing increased crude oil production due to security improvement, the IMF stated that Nigeria’s GDP would grow by 0.8 per cent in 2017 and 2.3 per cent in 2018.

 

 Customers Loans 

The audited results of 2016 for 14 banks quoted on the Nigerian Stock Exchange had shown a 22 per cent increase in total loans and advances to their customers, from N13.315 trillion in 2015, to N16.372 trillion in the year under review. The financial results of the banks reviewed by THISDAY showed deliberate efforts by the banks to support operators in the real sector of the economy.

Similarly, the total profit after tax (PAT) of the 14 banks rose marginally to N452 billion in 2016, up from the N442.451 billion recorded the previous year; just as their total gross earnings climbed to N4.007 trillion in the reviewed year, as against the N3.441 trillion recorded in 2015.

The banks’ results reviewed were those of Zenith Bank Plc, Access Bank, FBN Holdings, United Bank for Africa Plc, Guaranty Trust Bank Plc, First City Monument Bank, Unity Bank, Wema Bank, and Union Bank. Others included Fidelity Bank, Sterling Bank, Stanbic IBTC Holdings, Diamond Bank, and Ecobank Transnational Incorporated.

A breakdown of the figures showed that while FBN Holdings’ loans and advances increased to N2.084 trillion in the reviewed year, up from N1.817 trillion the previous year; Zenith Bank Plc’s financial statement also showed the bank gave out N2.289 trillion as loans and advances to its customers, compared with the N1.989 trillion recorded the previous year.

Similarly, while UBA loaned customers N1.505 trillion in 2016, up from N1.037 trillion the previous year, Access Bank recorded N1.809 trillion in 2016, from N1.368 trillion in 2015. GT Bank recorded N1.589 trillion in 2016, up from N1.372 trillion in 2015; ETI also posted N2.824 trillion in 2016, from N2.232 trillion in 2015. Diamond Bank Plc posted N995.334 billion as customer loans and advances in 2016, up from N763.635 billion the previous year, while Fidelity Bank posted customer loans and advances of N718 billion in 2016, higher than the N578 billion it gave out in the previous year.

 

Profit 

In terms of profit after tax, the breakdown showed that while GT Bank recorded N132.281 billion in 2016, higher than the N99.437 billion posted the previous year; Zenith Bank earned PAT of N129.652 billion in 2016, from N105.663 billion in the previous year; UBA’s PAT was N72.264 billion in 2016, from N59.654 billion the previous year; Access Bank’s PAT increased to N71.439 billion in 2016, from N65.869 billion; while FBN Holdings’ posted PAT of N17.141 billion, from N15.539 billion.

Group Managing Director/Chief Executive Officer, Access Bank Plc, Mr. Herbert Wigwe, had expressed optimism that developments in the macro economy would be positive. Also, Managing Director, FBN Holdings, Mr. U.K Eke, had described 2016 as a year characterised by significant uncertainty in the operating environment.

“We expect an improved economic environment through 2017 and are confident that the foundations we have put in place will drive improved financial performance and consequently enhance shareholders’ returns,” Eke said.

Chief Executive Officer, Diamond Bank, Mr. Uzoma Dozie, said in the months ahead, the bank would continue to deploy new technologies and digital applications to drive financial inclusion and convenient banking amid a decline in the pace of economic activities and weak economic fundamentals. The bank will also continue to deepen its retail strategy to mop up low cost funds, expand its credit creation structure, and increase market share in all market segments, Dozie added.

 

 Aggressive Deposit Mobilisation 

The full year 2016 audited results of 11 Nigerian banks had shown a significant shift towards savings deposit mobilisation by the financial institutions, reflecting the adjustment in their business strategies following the withdrawal of public sector deposits to the Treasury Single Account with the CBN. The results of the banks reviewed by THISDAY had showed that their savings account deposits increased by 31 per cent, to N2.164 trillion in 2016, compared to N1.649 trillion in 2015.

The banks included Zenith Bank, United Bank for Africa Plc, Guaranty Trust Bank, First City Monument Bank, Access Bank, Fidelity Bank, Unity Bank, Union Bank, Sterling Bank, Stanbic IBTC, and Wema Bank.

A breakdown of the amount reported by the banks had shown that UBA’s customers’ savings deposits rose to N524.751 billion in 2016, higher than N407.036 billion it recorded in 2015, GTBank’s savings deposits also increased to N454.436 billion in 2016, higher than N332.781 billion recorded in 2015, just as Zenith Bank’s savings deposits increased to N358.951 billion in 2016, higher than N246.113 billion it posted in the previous year.

Access Bank’s customers’ savings deposits similarly improved to N179.070 billion in 2016, from N137.963 billion in 2015, Union Bank also reported a growth in savings deposits from N146.433 billion in 2015 to N169.597 billion last year, while Fidelity Bank’s savings deposits climbed to N155.019 billion in 2016, from N119.140 billion recorded in the previous year. Also, FCMB’s savings deposits rose to N139.771 billion in 2016, from N112.728 billion in 2015, while Sterling Bank realised N52.357 billion through savings deposit mobilisation in 2016, up from N41.728 billion in 2015.

Other banks that reported growth in savings deposits included Unity Bank, N46 billion in 2016, from N41.962 billion in 2015; Wema Bank, N45.339 billion in 2016, from N35.580 billion in 2015; and Stanbic IBTC, N38.630 billion in 2016, from N27.301 billion in 2015.

The growth in savings deposit mobilisation was a reflection of the structural shift in the banks’ business model in Nigeria following the federal government’s enforcement of the TSA in 2015. This development was evident in the aggressive campaigns and reward schemes churned out by the industry since the withdrawal of public sector deposits.

Across the industry, banks in 2016 intensified strategies to remain dominant in the retail segment of the market. A lot of banks also refreshed their retail products to make them attractive to customers.

As part of their campaign drive, several banks offered rewards to customers willing to deposit more cash with them through promotions where prizes such as cash, cars, generators, refrigerators, and other electronic gadgets were won through electronic draws.

 

Factors

 Some of the factors responsible for the decision to continue to woo retail customers included the full implementation of the TSA, weak economic activities, the restrictive monetary policy stance in the country, as well as the drop in oil subsidy payments.

Afrinvest Securities Limited had pointed out in a report that with the increased focus on the retail segment, “the future of banking is set to take a dramatic turn”.

The firm added, “We believe banks will begin to specialise in specific areas of business to ensure they compete effectively in the new banking landscape.

“While most banks are hinged on product differentiation strategies using innovation to remain afloat, we keep a keen watch on the industry’s competitiveness as events unfold.”

Managing Director/Chief Executive, Fidelity Bank Plc, Mr. Nnamdi Okonkwo, recently said the next phase of growth in the banking industry would, among others, be driven by fierce competition in the retail banking segment. Okonkwo said his bank intended to remain steadfast by supporting Nigerian entrepreneurs through delivering special products and services.

“The need to respond to our growing customer base and deepen our operation in the growing retail market vis-à-vis our commitment to make financial services easy and accessible necessitated further expansion in our products and services distribution capabilities,” he added.

Similarly, Chief Executive, GTBank, Mr. Segun Agbaje, said recently that the bank would continue to drive its presence in the Nigerian market through retail focused products.

 

‘Safe and Sound’ 

The latest BMI report seems to be a confirmation of a recent statement by the CBN governor, Mr. Godwin Emefiele, that Nigerian banks were safe and sound. According to Emefiele, Nigerian banks are among the most regulated financial institutions globally. The governor who, while speaking with THISDAY recently, also disclosed that the central bank was still conducting stress tests on Nigerian lenders, allayed concerns about the health of the banks.

Emefiele explained, “First, it is important that we all know that there is no need to grandstand about stress-testing. 

The CBN under its current management does stress-tests under different scenarios using the balance sheets, non-performing loans (NPLs) and other performance indicators of the banks on a regular basis and based on that we are able to determine what advice to give and what action the bank can take.

“So stress-testing is like a normal thing in the CBN today. It is not something we want to grandstand about because the process of grandstanding may create unnecessary noise that might create problems for the banking system.

“But aside from that, it is important for us to know that in the entire world, when there are global shocks, external shocks, beyond the control of anybody, there would be incidents of NPLs rising and you can go and check data in any jurisdiction to ascertain that.

“But I think what is important is how well the banking sector is prepared to absorb those shocks. The Nigerian banking industry, I always say, is one of the most regulated in the world today.”

According to Emefiele, the standard practice in several jurisdictions is that the Capital Adequacy Ratio (CAR) requirement for banks should be eight per cent, minimum. But in Nigeria, the smallest bank is expected to maintain a CAR of 10 per cent, while the large Systemically Important Banks (SIBs) are expected to maintain 15 per cent as CAR.

The CBN governor said, “What we have done with this is to provide capital buffers for the banks to be able to withstand shocks. But, of course, there are internal guidance limits, when these rates go above your own internal guidance limits, people tend to make noise and say the institutions are weak.

“I think the important thing to remember is that a lot of shock absorbers have been built into the system to ensure that the banks are either relatively well capitalised or have proper levels of liquidity to be able to run their businesses so that depositors’ funds are not in jeopardy.”

Emefiele said the apex bank was also working hard to address the weak ratios in some of the banks.

“But for me, there is no cause for worry, there is no cause for concern and we would continue to work assiduously to see to it that we are able to manage the banks so that depositors’ funds are safe,” he said. “That is our primary mandate and that is why we are doing what we are doing.”