Low yield securities, uncertainties depress banks’ earnings in 2018

Although the Nigerian economy began the recovery process from its worst recession in over 25 years since 2017, but the banking industry recorded marginal improvement in the 2018 financial year.  
    
In 2017, most banks were preoccupied with reducing loan assets and increasing the hold on treasury bills. This, helped improve the amount of liquid assets in 2018, and also improved their loan to deposit ratio, as most banks tried to clean up their balance sheet.But the current policy response to macro-economic dynamics has also forced banks to resort to replenishment strategies – locking into short-term maturity, especially risk-free instruments.  
   
This is largely reflected in their cash flow statements, showing a relatively improved pool of marketable asset; which reduces the chances of risk mismatch.However, most of their income was concentrated on public securities, which eventually were adversely affected by insecurity in many parts of the country.Also, lower yields in the fixed income space in 2018 compared to 2017, kept interest income from placements lower for banks.

By his assessment, Managing Director, Highcap Securities, Imafidon Adonri, said the aggregate earnings declined due to the uncertainties that trailed build up to the general elections.Besides, he said pervasive insecurity nationwide and poor business environment also affected banks’ top line adversely. “The banking sector performed well in 2018. The leaders – Zenith Bank and GTBank improved on their dividend payment. However, two weak banks, Diamond and Skye were rescued from outright failure.”

He continued: “Apart from these two failed banks and Union Bank of Nigeria, others paid dividend. Generally, the banking sector was healthy and contributed immensely to financial stability. “However, most of their income was concentrated on public securities. Insecurity in several parts of the country adversely affected them. As in the past, banks continued to dominate the economic landscape in 2018,” he added.
 
Similarly, cumulative pre-tax profit among the top five banks was N720 billion in 2018, higher than the N606.1 billion achieved in 2017. A further breakdown put Zenith Bank at the top with N231 billion, GTB N215 billion, UBA N106.7 billion, Access Bank N103 billion, and FBN Holdings with N65.2 billion followed respectively.
 
For post-tax, the top five banks posted a total of N610 billion for the 2018 financial year. Again, Zenith Bank led the pack with N193 billion; GTB with N184 billion; Access Bank N94.9 billion; UBA N78.6 billion, and FBN Holdings N59.7 billion. 

Given the overall scenario, a stockbroker with Delloit Securities Limited, Tunde Oyediran, said the performance of many banks was not that encouraging in 2018, which is a reflection of the state of the economy.
 
“This showed in their results. Their profit margin was not high as usual. The cheap Treasury Bills investment they engage in is no longer yielding high returns. They need to go back to their conventional business of lending and other ancillary businesses that can improve their bottom-line greatly. Shareholders are not interested in hearing stories, they need to perform and declare good dividend.”