Will Banks profits slow as end of free money nears?

A glimpse at the books of banks reveals profit are growing at a slower pace compared to a high of two years ago.
The reason for the above may be because of a precipitous drop in short term government securities that squeezed major revenue at the top line otherwise known as interest income.
For the first three months through March 2018, after tax profits for the 12 lenders that have reported results increased by 11.11 percent to N192.61 billion from N173.25 billion the previous year. (2017).
This compares with the 30.17 year on year growth in profit recorded in the 2017 compaared to the 2016 period when higher yields on treasury bills and the devaluation of the currency that resulted in foreign exchange gains underpinned lenders’ performance.
The banks are Zenith Bank Plc, Access Bank Plc, Fidelity Bank Plc, First City Monument Bank (FCMB) Plc, Guaranty Trust Bank (GTBank) Plc, Stanbic IBTC Holdings Plc, First Bank Nigeria Holdings Plc, Sterling Bank plc, Wema Bank Plc, United Bank for Africa (UBA) Plc, Diamond Bank Plc, and Diamond Bank Nigeria Plc.
Analysts are of the view that firms have the capacity in terms of robust customer base and improved efficiency could maintain growth momentum.
This means if lenders are to see margins expand, they will have to generate higher revenue from non-interest income such as credit related fees, current account maintenance fees, and foreign currency transaction fees while taming costs to fend off risks associated foreign exchange gains and the 2019 elections.
Drilling down the numbers shows Zenith Bank Plc, the largest lender by asset, saw first quarter profit increase by 25.54 percent to N47.07 billion from N37.50 billion the previous year.
This compares with 41.11 percent growth it recorded in the 2017 period.
GTBank Plc’s net income increased by 8 percent to N44.67 billion in March 2018 from N41.77 billion the previous year. This compares with the 61.93 percent increase in net income between 2017 and 2016.
Access Bank Plc’s net income dipped by 1.29 percent in to N22.11 percent in the period under review, this compares with the a 33.98 percent increase in net income recorded in the 2017 and 2016 periods.
United Bank for Africa (UBA) Plc’s net income increased by 6.20 percent to N23.73 billion in March 2018 from N22.35 billion the previous year. This compares to a 31.57 percent increase in net income in the 2017 and 2016 periods.
Stanbic IBTC Holdings Plc’s net income rose by 43.48 percent to N23.06 billion in March 2018 from N16.07 billion the previous year. This however is in start contract to the 106.31 surge in net income witnessed in the 2017 and 2016 periods.
Fidelity Bank Plc’s net income increased by 7.20 percent to N4.62 billion as at March 2018 from N4.31 billion the previous year, this compares with a 20.45 percent increase in profit in the periods 2017 and 2016.
However, some lenders bucked the trend as their profits grew at a faster pace in 2018.
Sterling Bank Plc’s net income increased by 65.24 percent to N3.210 in March 2018 from N1.87 billion the previous year. This compares to a 26.17 drop in the profit between 2017 and 2016 period.
First Bank Holdings Nigeria Plc’s net income fell by 8.07 percent to N14.80 billion in the period under review from N16.10 billion the previous year. This compares a 23.34 billion drop in profit in the 2017 and 2016 periods.
There is a silver lining for lenders as experts are upbeat that a rebound in crude oil price and favorable foreign exchange regime will underpin earnings.
The economy of Africa’s biggest oil producer expanded 1.95 percent in the three months through March, 2018 from a year earlier, after contracting in 2016. It is forecast to grow 2.1 percent this year by the International Monetary Fund.
However, analysts at Fitch a global ratings agency in a recent report said they expect Banks’ profit to take a hit in 2018 on the back of the decision of federal government to cut back on the issuance of treasury bills in 2018.
“We expect falling T-bill yields and lower issuance to put pressure on Nigerian banks’ profitability in 2018. The CBN’s latest issuance schedule shows N1.1 trillion (USD3.6 billion) of rollovers in the first quarter of 2018 against N1.3 trillion of maturing bills,” said Fitch.
 
BALA AUGIE
The post Will Banks profits slow as end of free money nears? appeared first on BusinessDay : News you can trust .
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