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Nigerian Banks record uptick in profit amid low yield environment

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The Banking (-0.01%) index was the sole loser

WED, MAY 08 2019-theG&BJournal- Nigeria banks have recorded double growth in profit to start the year as drop in yield on short term government securities continues to undermine revenues.

The stellar performance means investors have been rewarded for sticking with their firms during turbulent period, even though they have not been rewarded in terms of share appreciation.

For the first three months through March 2019, 13 largest lenders quoted on the floor of the bourse saw combined net income increase by 17.30 percent to N208.18 billion from N177.48 billion the previous year.

The major drivers for most of profit were a reduction in impairment on loan loss expenses, lower interest expense and income from electronic transactions, but analysts fret that the growth momentum could be short-lived if revenue continues to wane.

But analysts from CSL Stock Broker argue that even at an interest rate of 10 percent, lenders will still make money.

A breakdown of profit figures shows Access Bank Nigeria Plc’s net income was up 86.15 percent to N41.14 billion in the period under review from N22.11 billion the previous year. It recorded the fastest profit expansion in the industry, as it emerged largest lender by asset after the acquisition of Diamond Bank.

United Bank for Africa (UBA)’s net income increased by 21.15 percent to N28.66 billion in the period under review as against N23.73 billion as at March 2018.

Zenith Bank’s net income was up 7.15 percent to N50.23 billion in the period under review as against N47.07 billion the previous year.

The small and midsized banks-beleaguered by poor asset quality brought on by a precipitous drop oil price that hindered valued customers from paying interest on money borrowed- recorded improvement in profit.

First City Momument Bank Plc’s net income spiked by 40.15 percent to N3.61 billion from N2.58 billion the previous year.

Wema Bank Nigeria Plc’s net income was up 50.25 percent to N1.14 billion in the period under review as against N764.70 billion, the best result in 5 years.

However, Stanbic IBTC Holdings Plc’s net income dipped by 17.05 percent to N19.15 billion in March 2019 from N23.06 billion the previous year.

While banks’ profit has been growing at a double digit, revenues have been growing at a slow pace, leaving them to rely on income from electronic transaction to help underpin profit.

Analysts at CSL Stock Brokers Ltd however argue that lender will still make money if Treasury bill (T-bill) yields were at 10 percent, but they also fret that the precipitous drop in yields could signal end of free money.

Banks have continued to underperform the broad market despite uptick in profit and steady dividend payment as President Muhammadu Buhari’s led government is yet to convince investors that his economic reforms will unlock the potentials in the Nigerian economy.

Zenith, Guaranty Trust Bank (GTBank), UBA, and First Bank Holdings Plc, had year to date of (-9.33 percent), (-4.21 percent), (-12.99 percent0, and (-6.92 percent), underperforming the NSE ASI Index of -7.11 percent.

However, Access Bank shares have been appreciating since the start of the year as its year to date of 2.21 percent outperformed the NSE ASI.

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