Economy

Nigerian Banking Sector: Undaunted By Challenges, Staying Afloat, Keeping Fate

By Investdata Research

One dominant theme that characterized and therefore, the year 2020 will be remembered for across the globe is the Coronavirus (Covid-19) pandemic, especially given the way it changed the entire narrative for the year, making nonsense of the entire outlook and permutations and pushing many economies into recession owing to the consequent lockdown imposed to check the spread of a killer that the world knew next to nothing about. To counter the effects of the pandemic, many central banks, governments and multilateral agencies hurriedly put together a cocktail of solutions to save their various economies and their health sectors from total collapse caused by a virus that altered the course of many nations, leaving a trail of woe and death.

On its part, the Central Bank of Nigeria came up with timely precautionary steps, rolling out stimulus packages to fight the effect of the pandemic on key sectors of the economy, even as it led operators in the banking sector and individual businessmen to contribute under the aegis of private sector Coalition Alliance Against COVID-19 (CACOVID). This was in addition to personal donations of food, kits, and ambulances to various state governments, especially by Abdul Samad Rabiu’s BUA Group.

File photo: Godwin Emefiele (2nd right), CBN Governor addressing the media on the activities of CACOVID in Abuja on November 26, 2020. With him are Aliko Dangote (2nd right) and Tony Elumelu (right).

More importantly, amongst its interventionist approach, the CBN adjusted interest rate on all of it new and existing intervention facilities amounting to N3.5tr, from an all-inclusive 9% to 5%, thereby making funds available at cheaper cost to operators in key sectors of the economy like health, manufacturing and agriculture. Recognising the impact of the lockdown, among others, the CBN also gave beneficiaries of its various packages a 12-month moratorium, following which servicing and repayment of the loans would only commence after the first year of accessing it. Banks were also encouraged to do likewise and even reprice their existing loans to enable and encourage repayment by obligors.

Meanwhile, as the nation’s financial system, among others, work towards suppressing the effects of the pandemic, most operators are now adopting the Holdco status, which, in our opinion would allow the banks take advantage of other viable business ventures. In this way, they would garner more revenue, and in the process, better profit, which would help the economy come out faster from recession by improving the contribution from other sectors to national income.

Despite the challenging moments, figures released by various Nigerian banks were good in the first quarter of the year, considering the fact that the pandemic only became pronounced in the twilight of the period. It improved slightly in the following quarter, even as the various effects of the lockdown began to reflect in their numbers by the third quarter, even as it came better than expected.

For example, according to the figures released by the National Bureau of Statistics (NBS), Total Operating Income of all Nigerian banks was estimated at N657.285bn in the first quarter. It rose to N727.493bn in the following quarter, but fell to N663.891bn by the third quarter of 2020.

Meanwhile, General Administrative Expenses in the industry grew through the periods, from N26.505bn in the first quarter, to N29.648bn by the second quarter, and N31.496bn in the third quarter.

Profit reported at the end of first quarter by all banks in the country summed up to N195.441bn, increasing in the second quarter to N216.739bn, before sliding to N190.032bn by the third quarter of the year.

Non-Performing Loans for the year

As expected, the abrupt change in the operations of most borrowers had it effects on the loan books of all banks, and it would not be out of place to have imagined that Non-Performing Loan (NPL) would bloat during the period. However, in response to this, most commercial banks were seen defaulting in the regulatory 65% Loan to Deposits Ratio (LDR) threshold, despite the CBN regulation on the line item. Although there were a few like Fidelity Bank that maintained a high LDR through the period.

Source: NBS

Gross Loans for the third quarter of the year climbed to N19.46tr, as against N16.62tr in the corresponding quarter of 2019. Specific Provisions for the Loans stood at N1.442tr, compared to N1.399tr in the similar period of 2019, following which Non-Performing Loans in the third quarter of 2020 was estimated at N1.169tr, from N1.108 trillion in the comparable quarter of 2019.

Meanwhile, Gross Loans improved by a marginal 2.88% between the second and third quarter of the year to N19.46tr, from N18.9tr at half-year, as a result of which Specific Provision stood at N1.442tr in the third quarter, compared to N1.454tr at the end of half-year. Non-Performing Loans was, therefore, valued at N1.169tr, same as 3.62% above the N1.212tr in the second quarter of 2020. 

The Oil & Gas sector of the economy was the biggest defaulter, after accounting for NPL of N268.79bn at the end of half-year, before reducing by 11.36% in the third quarter of 2020 to N238.26bn. The Construction sector followed with N171.41bn, as against N167.86bn in the second quarter of the year; ahead of the  N149.6bn worth of NPLs reported by operators in the General Commerce sector; which dropped from N171.55bn in the second quarter.

Below are numbers Bd ratios from some commercial banks:

Access Bank

Source: NSE, Company data

Access Bank grew its Gross Earnings in the first three quarters of 2020 from N211.123bn at the beginning, to N396.757bn in the following quarter, and N495.956bn at the end of the third quarter.

Considering the various acquisition ventures in the bank, we expect the management to, at least, build its full year Gross Earnings by 26.89% or more at the end of the expected fourth quarter.

Meanwhile, as shown in the above table, the current earnings per share of Access bank is N2.88. It is important to note that this is already above the N2.74 EPS achieved at the end of the 2019 full-year.

Our quarterly adjusted PE/Ratio for the third quarter is 1.01x, as against 0.93x in the second quarter, even as its Book Value is currently estimated at N19.12 per Share.

Fidelity Bank

Source: NSE, Company data

As of the end of the first nine months of 2020, the management of Fidelity Bank reported nine-month Gross Earnings of N155.03bn. The figure had reason from N51.159bn in the first quarter and N105.75bn at the end of Q2.

As shown in the above table, the bank’s Earnings per Share (EPS) is currently estimated at N0.70 at the end of Q3, lower than the full-year 2019 EPS. Nevertheless, we project a N1.00 EPS for Fidelity Bank at the end of the 2020 financial year. Currently, each unit of Fidelity share is valued at N9.05 in its book, far above its market price of N2.74 each.

FBN Holdings

Source: NSE, Company data

This is another bank which despite challenges during the year, and its long battle with toxic loans, has successfully grown its numbers through the year. For example, Quarter-on-Date Gross Earnings improved from N159.68bn in the first quarter to N296.28bn in the following quarter; before posting N439.29bn in the third quarter. Profit after Tax stood at N68.156 billion at the end of the first nine months of 2020, as against N23.140 billion in the first quarter and N35.644 billion half year profit.

Judging by the N1.90 EPS at the end of the third quarter, it is almost achieving its 2019 full year EPS, on the strength of which, we project a N2.10 EPS for FBNH at the end of the 2020 financial year. Our quarterly adjusted PE/Ratio remains attractive at 1.34x at the end of the third quarter, while the estimated Book Value per share is equally attractive at N19.84.

FCMB Holdings

Source: NSE, Company data

As can be seen from the above table, Gross Earnings of the bank grew from N49.195bn in the first quarter of 2020, first to N98.179bn in the second quarter, and thereafter, N146.42bn at the end of the third quarter. Profit for the period jumped to N13.903bn from N4.722bn and N9.7bn in the first and second quarter respectively.

Observe that the management of this bank still has 18 kobo to attain its full-year EPS. We are of the opinion that it will, at least, achieve its previous year’s EPS at the end of the 2020 full-year. We have estimated FCMB Holdings’ Book Value at N10.85, as against N3.22 on the Nigerian Stock Exchange (NSE).

Guaranty Trust Bank

Source: NSE, Company data

Guaranty Trust Bank was also seen building its figures above each preceding quarter through the year. While Gross Earnings stood at N112.86bn in the first quarter of the year, it climbed to N225.13bn by the half-year, and finally reported N435.3bn for the period ended September 30, 2020. Following the same trend, Profit for the period grew from N50.06bn posted in the first quarter, before rising to N94.27bn by Q2; and N142.28bn in the following quarter.

At the end of Q3, EPS is estimated at N4.83, lower than the N6.69 achieved at the end of the 2019 full-year. We have estimated the Book Value of GTBank’s at N25.67 per share, far below its current N33.78 per share price on the NSE as at the time this report is gathered.

Stanbic IBTC Holdings

Source: NSE, Company data

This is another bank that enjoys positive investor sentiments and has enjoyed the benefit of low shares in issue. At the end of the 2020 third quarter, Gross Earnings grew to N183.28by in the first nine months, from N61.41bn in the first quarter ad N126.57bn in the second quarter. Half-year PAT stood at N42.2bn, from N20.6bn in the first quarter and N66.16bn at the end of the third quarter. EPS improved from N1.96 in first quarter to N4.30 in second quarter, before soaring to N5.96 each. Book Value stood at N28.77, as against its N44.00 per share on the the exchange.

Zenith Bank

Source: NSE, Company data

The Gross Earnings of Zenith Bank valued at N508.97bn at the end of the 2020Q3, an improvement first from the N166.81bn in the first quarter and N346.08bn in the second quarter. Profit after Tax moved from N50.52bn in the first quarter to N103.08bn in the second quarter of the year and N159.31by end of third quarter. Current EPS is estimated at N5.07, lower than the N6.65 reported at the end of the 2019 full-year. At the end of the 2020Q3, the Book Value of Zenith Bank was estimated at N32.94 per share.

Other banking briefs are as in the tables below:

United Bank for Africa Plc

Source: NSE, Company data

As at the end of the 2020Q3, the Gross Earnings of UBA stood at N453.67bn, from N147.16bn in the Q1 and N300.25bn at the end of the half-year. Similarly, Profit after Tax grew from N30.1bn in Q1, first to N44.43bn at the end of half-year; and thereafter, N77.13bn at the end of Q3.

The cumulative earning on each unit of UBA shares is currently N2.26, as against N0.88 in the first three month of the year and N1.30 in the second quarter. Our quarterly adjusted PE/Ratio is currently estimated at 1.25x as shown in the above table. The Book Value is estimated at N19.16, far above the market price on the exchange.

See data from other banks in the period under review on the tables below:

Source: NSE, Company data

Conclusion

Despite the increasing headwinds facing the Nigerian banking industry, ranging from overregulation, unfavorable operating environment, weak macros, socio-political concerns and others, it has remained resilient and profitable, supporting the economy, while ensuring numbers strong enough to drive share prices, as seen during the ongoing pandemic and recession. We expect a wave of economic recovery this year, helped by resumption of major economic activities that would offer some respite for earnings in the sector.

The anticipated yield improvement in the fixed income space is also likely to support bottom-lines of banks in 2021, after the decline in interest income in 2020 financial year due to the low interest rates regime.

Also, we see lower maturities of OMO and NTBs in 2021 compared to 2020, will support growth in yields this year, given the drive by banks to boost their earnings power and flexibility. Already, there are banks that have begun to restructure their operations in the light of the new normal and reality, while staying competitive.

However, more holding companies are expected in the financial services space, especially banks. Recall that Guaranty Trust Bank and Access Bank have are already making moves to transform into HoldCos, akin to the days of universal banking, only that this time, there is better understanding of how each unit is to operate at arm’s length, by complimenting one another.

Also noteworthy, is the fact that Nigerian banks have continued to make inroads into other African economies, as part of efforts to broaden their revenue and profit base, even as the African Continental Free Trade Area (AfCFTA) becomes fully operational in the coming months.

Investdata believes this is a good start towards seeking better ways to enhance performance, drive profit and returns on investment for the good of all stakeholders. 

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