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12 banks earn N1.4tn in six months (Punch, Sep. 8, 2014)

12 banks earn N1.4tn in six months (Punch, Sep. 8, 2014)

Nigerian banks recorded an increase in earnings for the first half of this year, but their profits were affected by a variety of factors, OYETUNJI ABIOYE writes

Twelve banks recorded gross earnings of N1.4tn during the first six months of this year, according to information obtained from the Nigerian Stock Exchange and the banks’ websites.

The banks include Access Bank Plc, Guaranty Trust Bank Plc, Ecobank Transnational Incorporated, Diamond Bank Plc, First Bank of Nigeria Limited and Skye Bank Plc.

Others are United Bank for Africa Plc, Union Bank Plc, Fidelity Bank Plc, Zenith Bank Plc, Sterling Bank Plc and Stanbic IBTC Bank.

The amount is N106bn or eight per cent higher than the approximately N1.3tn the 12 banks made during the first six months of 2013.

According to the 2014 half-year results of the banks, ETI made the highest gross earnings, with N226.2bn, followed by Zenith Bank, First Bank, UBA and GTB, which recorded N184bn, N173.3bn, N138.3bn and N132.9bn, respectively.

Others are Access Bank, N118bn; Diamond Bank, N98bn; Skye Bank, N63.8bn; Fidelity Bank, N63.2bn; Stanbic IBTC Bank, N61.5bn; Union Bank, N49.6bn; and Sterling Bank, N48.6bn.

The results also showed that the 12 banks made a combined profit before tax of N274.4bn. This is, however, N43.9bn lower than the N318.3bn they made during the first half of last year.

The dip in profit resulted from the fact that larger chunk of the gross earnings made this year went into investments and interest, loan loss, personal and other operating expenses.

According to industry analysts, the lower PBT in the first half of this year means the banks spent a greater portion of their gross earnings on investments and operating expenses than what they spent within the same period of last year.

Calculations showed that out of the N1.4tn gross earnings made by the banks in the period under review, a combined sum of N1.09tn was spent on investments and operating expenses; whereas, from the approximately N1.3tn made last year, about N937bn was spent on the same items.

The reports showed that the 12 banks made N223bn as profit after tax in the half-year period. This is 14.98 per cent or N38.9bn lower than the N262bn they made last year.

Due to the higher PBT of N318.3bn recorded by the 12 banks last year compared to the N274.4bn recorded this year, N51bn tax expenses were recorded in 2014 as against N56.06bn in 2013.

Nigerian banks have been recording bumper gross earnings on yearly basis after a Central Bank of Nigeria bailout in the wake of the 2009 banking sector crisis returned virtually all of them to profitability.

The bumper profits have made some of them to increase investments in technology and expansion in order to align themselves with modern trends in form of digital, Internet and electronic banking.

The Chairman, Chartered Institute of Bankers of Nigeria, Lagos branch, Mr. Abolade Agbola, recently argued that banks needed to make more profits because they had been making huge investments.

He said, “The return on investment of banks is what we are looking at, not whether it’s in two, three or four billions. I think that is the challenge we don’t face. Yes, when you see banks declaring billions in profits, you need to look at the assets employed and the people engaged, among other things, to generate this income.

“I don’t think the banks are doing fantastically too good. In fact, they need to do better because a lot of people invested in the banks and they are expecting returns.”

Frontline economist and Chief Executive Officer, Financial Derivatives Limited, a research business advisory firm, Mr. Bismarck Rewane, noted that banks’ profits had gone down between last year and the first half of 2014.

While linking the development to a number of regulatory headwinds and the state of the economy, Rewane predicted that the lower profit margin trend might also continue for the banks in the third quarter of this year and probably beyond.

Rewane said, “Industry wide, the banks suffered from shrinking profit margins in the 2013 financial year and early 2014. This was because in the second quarter of 2013, the Central Bank of Nigeria directed the banks to lower their fees and commissions to mitigate the bank-customer conflict (charges to the customers for current-account transactions) and consequently reduce customers’ burden.

“The direction was the first step in the gradual phase-out of Nigerian banks’ Commission-on-Turnover. This gradual phase-out will conclude in 2016, when customers’ accounts will no longer be debited for transactions on current accounts. In the first quarter of 2014, the CBN increased the Cash Reserve Ratio on public sector funds from 50 per cent to 75 per cent.”

The economist listed two major regulatory headwinds that might further affect the banks’ results in the coming years if the lenders failed to pass the cost to customers.

These are increase in banks’ capital base from 15 to 16 per cent for those with international operations; and increase in their liquid assets holding from 30 to 35 per cent.

Rewane, however, posited that the future was very bright for the banks, because of a number of prospects

He said, “The banking sector has the potential to benefit from Nigeria’s strong economic growth (forecasted GDP growth for 2014 is 7.27 per cent). The non-oil sectors are now one of the main drivers of the country’s GDP growth. Nigeria, with a population of 170 million, has already come under the focus of global investors owing to its growing sectors, including power, infrastructure, agriculture, solid mineral, retailing and services.

“The investments will add to the economic growth and lead to a significant demand for banking services. Investments flowing into sectors such as road, rail and aviation infrastructure have already triggered a huge demand in the banking sector.

“Consequently, the banks have started funding more private sector investments in the power sector and other infrastructure projects are to benefit from such opportunities.”

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