Uncertainties in the Nigerian
economy have had a telling effect on many sectors, with five of the 22
banks in the country losing N54bn from their previous year’s profits in
the 2015 financial year, OYETUNJI ABIOYE writes
Bad loans, naira volatility and other
economic headwinds have made Ecobank International Incorporated, Union
Bank Plc, First City Monument Bank Limited, Wema Bank Plc and Fidelity
Bank Plc to post a combined 80 per cent decline in their annual profits.
The annual financial statements of the banks posted on the website of the Nigerian Stock Exchange have revealed.
The 2015 financial results of the five
banks released in March this year showed that the profit before tax
tumbled by 69 per cent to N77.65bn from N131.19bn in 2014.
Similarly, the combined profit after tax
of the five banks fell from N107.279bn in 2014 to N59.73bn in 2015,
indicating a decline of 79.59 per cent.
The N53.54bn fall in profit was
attributed by many of the banks’ chief executive officers to high
impairment charges on bad loans, foreign exchange volatility and other
challenges facing the economy following the significant drop in the
nation’s oil revenue due to the sharp fall in oil prices.
The economic crisis facing the country
has affected the banking industry significantly. Out of the 15 banks
quoted on the Nigerian Stock Exchange, 10 have released their 2015
annual financial statements as of the March 31, 2016 regulatory deadline
set by the Central Bank of Nigeria for the submission of the
statements.
Of the 10 banks that released their
results, five posted sharp decline in profits, a major departure from
the consistent rise in profits posted by almost all the banks in the
country after the 2010 banking crisis.
The reports on the NSE website showed
that Ecobank posted a PBT of N40bn in the 2015 financial year; Union
Bank, N18.1bn; FCMB, N2.5bn; Fidelity Bank, N14bn; and Wema Bank,
N3.046bn.
However, the five other banks that
released their 2015 annual reports in March this year outperformed the
market, posting increases in both their profit before tax and profit
after tax.
This is despite the huge provisions for bad loans that most of them made in the 2015 financial year.
These are Guaranty Trust Bank Plc, United Bank for Africa Plc, Access Bank Plc, Sterling Bank Plc, and Zenith Bank Plc.
Sterling Bank’s PBT rose from N10.7bn in
the previous year to N11bn in 2015, while its PAT rose from N9bn to
N10.3bn; UBA’s PBT rose from N42.4bn to N50.8bn, while its PAT rose from
N40bn to N47.6bn; and Zenith Bank’s PBT rose from N107bn to N115bn,
while the PAT increased from N92.5bn to N98bn.
GTBank’s PBT rose from N120.7bn to
N116.4bn, while its PAT moved up from N94.4bn to N99.4bn; and Access
Bank’s PBT rose from N46.1bn to N65.2bn, while its PAT increased from
N39.9bn to N58.9bn.
The five remaining banks out of the 15
listed on the NSE, which have yet to file their 2015 financial reports
are; First Bank of Nigeria Limited, Skye Bank Plc, Diamond Bank Plc,
Stanbic IBTC Holdings Plc and Unity Bank Plc.
They have filed notices of delay in
filing their 2015 annual reports, stating various reasons. They are
expected to release the results before May ending.
Already, Skye Bank Plc and First Bank of
Nigeria Limited have issued profit warnings ahead of the release of
their results. They said high impairment charges due to non-performing
loans would lead to major decline in their profits.
“The management of Skye Bank Plc wishes
to intimate its shareholders and investor community of anticipated
material decline in its profits for the full year ended December 31,
2015 compared with that of 2014. The expected decline in performance is
attributable to management’s decision to recognise increased impairment
on loans to sectors severely affected by the prevailing economic
headwinds, which are yet to abate, especially the lull in the oil and
gas and real estate sectors,” Skye Bank said in a profit warning issued
on March 22.
Similarly, First Bank, in its profit
warning to investors on February 23, said, “Earnings for the 2015
financial year will be materially below that of the prior year. This is
as a result of the recognition of impairment charges on some specific
accounts resulting from a reassessment of the loan portfolio within our
commercial banking business.”
The notice, signed by the Company
Secretary, Mr. Tijjani Borodo, added, “This reassessment was driven by
the challenging macro-economic environment, coupled with fiscal and
monetary headwinds, which have resulted in marked reduction in domestic
output.”
High provisions for bad loans, often
referred to as impairment charges, were a major part of the financial
results of the 22 banks in the country due to the challenges facing the
economy.
For instance, Ecobank’s impairment
losses on financial assets rose by 137 per cent from N44.4bn in 2014 to
N105bn in 2015, while FCMB moved from a nil impairment loss in 2014 to
N690m in the last financial year. The FCMB Group’s net impairment losses
equally rose from N10.6bn to N15bn.
Sterling Bank’s impairment losses rose
from N7.4bn in 2014 to N8.2bn in 2015. Furthermore, GTBank had its net
impairments moving from N7.1bn in 2014 to N12.4bn in 2015. Access Bank
also had its impairment increased from N10.6bn to N13.3bn in the same
period.
Commenting on the 2015 financial result,
the Managing Director, Fidelity Bank Plc, Mr. Nnamdi Okonkwo, said,
“The PBT declined by 9.6 per cent largely due to two critical factors:
the 17.1 per cent increase in total expenses due to strategic
investments and cost incurred in 2015 to position the business for
further growth in line with our aspirations.
“The increase in impairments, due to a
more prudent approach adopted with respect to a special regulatory
provision, which was charged directly to the profit and loss, was
responsible for the decline in profit.”
Economic analyst and Chief Executive
Officer, HighCap Securities, Mr. David Adonri, said the decline in
profits was traceable to ineffective risk management practice in some of
the banks and low activities in 2015 due to the political transition,
among other variables.
He said, “When a major sector of the
economy like the banking industry is having a major decline in profit,
it has major impact on the economy. The banks are exposed to so many
sectors of the economy with many of them being overexposed to the oil
and gas sector; most of them have had their fingers burnt and have had
to make major provisions for bad loans.
“This tells on their risk management activities, differentiating between those who posted increase and decrease in profits.”
The bad loans in the banking industry
rose sharply by 78.8 per cent to N649.63bn in 2015, indicating severe
deterioration in the quality of the loan portfolio of the 22 banks, a
CBN staff report presented to the Monetary Policy Committee revealed.
The report revealed general increase in
bad/non-performing loans among the 22 Deposit Money Banks in the
country. This was despite the 30 per cent decline in new loans granted
by banks in 2015 to N5.78tn.
According to the report, 18 out the 22
banks recorded increase in bad loans. Furthermore, the number of banks
that exceeded the regulatory limit of five per cent for the ratio of bad
loans to total loans rose from three in 2014 to eight in 2015, with
three banks exceeding 10 per cent.
The report revealed that the ratio of
bad loans for the industry relative to total loans rose to 4.88 per
cent, which is 0.22 per cent less than the regulatory limit of five per
cent.
The sharp increase in bad loans,
according to the report, was due to a host of external and internal
factors. These include low and volatile oil prices; uncertainty about
severe fiscal imbalance at the sub-national level of government; weak
output growth; and eroding investor confidence.
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