*Tier-1 banks drag down earnings growth rate
*Performance below expectations, OPEX to rise further — Analysts
By Peter Egwuatu
Against the backdrop of the positive growth reported for the Nigerian economy in the second quarter 2021, coming amidst the adverse effect of the COVID-19 pandemic, the banking sector has recorded mixed financial performance for the first half 2021, H1’21.
Financial Vanguard’s findings from the financial results of 14 leading banks listed on the Nigerian Exchange Limited, NGX, shows that the combined gross earnings grew marginally by 2.9 per cent to N2.463 trillion from N2.399 trillion recorded in the corresponding period of 2020, H1’20.
This gives a significant under-performance against the 5.0 percent recorded as the Gross Domestic Product, GDP, growth at 5.01 per cent.
However, the banks recorded positive performance in Profit Before Tax, PBT, which grew by 5.1 per cent to N573.7 billion in H1’21 from N545.7 billion in H1’20; but inflation at 17.75 per cent in HI’20 has put pressure of the profit growth rate.
The 14 banks include tier-1 and tier-2 banks. Tier- 1 banks are First Bank Nigeria Plc, Zenith Bank Plc, Access Bank Plc, Guaranty Trust Bank, GTCO Plc, and United Bank for Africa, UBA Plc while tier-2 banks are Union Bank Nigeria Plc, Sterling Bank Plc, Stanbic IBTC Plc, First City Monument Bank, FCMB Plc, Wema Bank Plc, Unity Bank Plc and Jaiz Bank Plc.
Meanwhile, analysts have stated that the mixed H1’21 performance was attributable a combination of factors such as Naira depreciation and rise in cost as they resume full on-site operations unlike last year when most of the staff worked from home.
They further noted that tier- 2 banks were relatively better in terms of profit, especially Wema Bank, Unity Bank and Jaiz Bank, an indication that tier- 2 banks are navigating the challenges of macroeconomic environment more efficiently.
Analysis of the banks’ performance for the period under review showed that Access Bank recorded the highest earnings in absolute term posting N450.6 billion, up 13.6 per cent from N396.8 billion in H1’20. Coming second was Zenith Bank with N345.6 billion which ironically shows a -0.15 per cent marginally decline from N346.1billion in the corresponding period of 2020.
UBA came third position in the gross earnings chart recording N316.0billion, an increase of 5.1 per cent over N300.6 billion in H1’20 while First Bank came fourth with N291.2 billion, which also show -1.75 per cent decline from N 296.4 billion in H1’20.
On profitability, Zenith Bank topped the chart in absolute term recording PBT of N117.1billion in H1’21. It was followed by Access Bank posting N97.5 billion while GTCO occupied the third position posting N93.1 billion. The fourth position was occupied by UBA which recorded N76.2 billion.
However, in terms of earnings growth rate Jaiz Bank, a tier-2 bank, led the banking chart as its gross earnings rose by 45.5 per cent to N11.7 billion from N8.0 billion in H1’20. It was followed by Access Bank with 13.56 per cent rise while Wema Bank came third, growing its earnings by 8.33 per cent to N41.330 billion from N38.151 billion in H1’20 and Unity Bank, another tier-2 bank, came fourth rising 3.27 per cent to N23.6 billion from N22.9 billion in H1’20.
In the rate of PBT growth, Wema Bank, a tier-2 bank, led other banks in a quantum leap by 148.7 per cent to N4.295 billion from N 1.727 billion in H1’20. It was followed by another tier-2 bank, Jaiz Bank which surged by 70.7 per cent to N 2.297 billion from N1.346 billion in H1’20 while Access Bank, a tier-1bank occupied the third position rising by 33.36 per cent to N 76.2 billion from N 57.1billion in H1’20. Unity Bank, a tier -2 bank came fourth position as it surged by 34.1 per cent to N 1.5 billion from N1.1 billion while UBA occupied fifth position rising by 33.3 per cent to N 76.2 billion from N 57.1billion in H1’20.
Performance of tier-1 banks
The tier-1 banks which dominated the performance chart by size, however, recorded mixed results with some show clear decline in both earnings and profitability.
Analysis of the tier-1 banks’ performance for the period under review showed that Access Bank topped the chart in absolute value recording N450.6 billion gross earnings, thus accounting for 27.9 percent of the combined tier-1 banks’ earnings. It was followed by Zenith Bank posting N345.6 billion representing 21.4 per cent of the combined tier-1 banks’ earnings while UBA occupied the third position recording N316.0 billion, accounting for 19.6 per cent of the combined tier-1 banks’ earnings.
In earnings growth rate, Access Bank also led with a 13.6 per cent growth. It was trailed from a long distance by UBA which grew by 5.1 per cent. The remaining tier-1 banks declined in gross earnings
However, Zenith Bank topped the chart in absolute PBT size at N117.1billion, representing 27.3 per cent of the combined PBT of the tier-1 banks. It was followed by Access Bank recording N97.5 billion accounting for 22.7 per cent of the combined tier-1 PBT while GTCO posted N93.1 billion which represents 21.7 per cent of the combined tier-1 banks’ PBT.
Meanwhile, in PBT growth rate UBA topped the tier-1 chart with 33.4 per cent growth, followed by Access Bank growing by 31.2 per cent while First Bank occupied the third position rising by 9.2 per cent to record N45.2 billion.
Reacting, Ayodeji Ebo, Head, Retail Investment, Chapel Hill Denham, said: “Financial performance of the banks in H1:2021 has been mixed with more positive outings by the Tier-1 banks that control over 70 per cent of business activities in the sector.
“We saw improvement in impairment charges attributed to pick up of business activities in the economy as well as rise in global crude oil prices. We expect the positive trend should be sustained.
“However, OPEX (Operating expenditure) is expected to rise due to higher cost of doing business. We expect adjustment in FX to be positive for most of the Tier-1 banks which is likely before the end of the year.”
In his own reaction, analyst and Managing Director, High Cap Securities Limited, David Adonri said: “Nigeria was virtually crippled in H1, 2020 due to Covid19 disruption. Reopening of the economy in H1 2021 ought to impact more on the financial performance of banks, when compared to last year H1. The difference is actually below expectation.
Apparently, tier-1 banks reduced their risk exposures in H1 2021 hence, reduction in gross earnings. They were able to increase profits through stern cost reduction measures.
“Their negative growth returns, in comparison to the hyperinflation bedeviling the economy, are fallout of the general weakness of the nation’s socioeconomic fundamentals and the low interest rate environment that emerged since Q3 2020.”
Commenting on tier-2 performance, Adonri said: “Tier 2 banks may have assumed more risks in deployment of their assets in H1 2021 thus, heightening the general cost of their administration.
“They grew during the period but at the expense of profitability. During the last lockdown of 2020, banks maintained their income profile by transferring operations to the virtual channels.
“That was not possible with industrials as they were grounded. As a result, banks performance in 2021 has not deviated much from 2020 but industrials are rising from near zero in 2020 to something in 2021 hence, their apparent spectacular performance”
Reacting as well, analyst and Head of Research and Investment at Fidelity Securities Limited, Victor Chiazor said: “Year on year “(YoY) performance of listed companies will always be mixed in the sense that all companies cannot continue to report impressive numbers as there will be periods where policies and the economic situation will be favourable to some and unfavourable to the others.
“For the banking sector, most of them reported significant gains from their trading income last year especially from bond trades given the drop in yields and rice in bond prices.
“Banks that were unable to repeat such gains from trading or other line items reported drop in profit for the period which we saw for most tier-2 bank while most of the tier-1 banks found ways to cushion the effect of the drop in trading income.”