The delay in the release of the financial results of most banks has kept stakeholders on edge 

By HELEN ENI

With the ongoing reforms in the banking sector, stakeholders have been apprehensive as they await the financial results of the 24 banks in the country. There have been concerns, especially in recent months, about the health of the banking institutions believed to have been eroded by their exposure to the capital market and the effect of the global financial crisis.

In compliance with the December 31, common financial yearend introduced by the Central Bank of Nigeria, CBN, the banks had up till March 31, this year, to submit their results. This present exercise is significant in that it will be the first to be released in a uniform year. Before now banks had different accounting year, with the exception of Guaranty Trust Bank, GTB, which complied with the directive when it was first introduced in 2008 by Chukwuma Soludo, then CBN governor. Even when the policy, initially slated to take effect from December 31, 2008, was suspended, the bank did not revert to its former financial yearend. Tayo Aderinokun, the bank’s chief executive officer, had commended the policy, stressing that it would boost the banking industry. 

According to the Nigerian Stock Exchange, NSE, rules governing dealing members, “Members are required to submit to the Exchange their financial statements within 90 days of the end of the fiscal year.” However, as at last week, only three banks declared their financial results. Zenith Bank plc led the pack, followed by United Bank for Africa, UBA, and GTB. Their modest performance notwithstanding, shareholders, investors and other stakeholders still express concern that the results when fully released may have grave implications for businesses and investments.

The suspension of the policy in 2008 was as a result of complaints by operators of the banking sector. They expressed fear that implementing the policy would lead to delay in the submission of annual returns to the Nigerian Stock Exchange, NSE. They stressed that the number of quoted companies with financial year ending in December would increase, and the audit firms would not be able to cope with the deluge of work. This fear was, however, dismissed by the audit firms.

The lifting of the suspension in March last year was thus a signal that the policy has come to stay. This development sent banks on aggressive drive to mobilise deposits to shore up their capital base. Industry analysts, who voted for the policy, say it would help to curb the distortions in financial statements. Some irregularities had become endemic in the banking sector with banks borrowing from one another to dress up their balance sheets prior to their financial yearend. This gives a flawed reflection of the true state of the banks, a situation that could mislead investors or prospective investors. It is thus expected that the adoption of a common yearend would put an end to these unwholesome practices. As all banks are required to have December 31 as their financial yearend, none of them would go to the other to borrow funds to tidy up its books. The CBN had stated that the introduction of the common yearend would help to restore confidence in the banking sector and reflect the true status of the banks. 

However, more than half of the banks are said to have submitted their results to the apex bank for approval. Until the approval is given, the result cannot be released. But many people are already apprehensive about what the financial reports of the banks would be, knowing their impact on the capital market that is gradually coming out of its bearish state. As investors await the results to guide their investment decisions, shareholders are worried that unimpressive results would impact their finances. With the huge losses reflected in the quarterly results of most banks last year, the prospect for good dividends does not look bright. The central bank’s new policy on full disclosure has forced banks to make provisions for margin and energy sector loans and this will whittle down their profit.

However, against widespread fears, the three results released as at press time offered some hope, as they declared some dividends. Guaranty Trust Bank gave the highest dividend of 75k per share and a bonus of one for four shares. Zenith Bank gave 45k per share and a bonus of one-for-four, while UBA would pay a dividend of 10k per sahre and a bonus of one-for-five. To Boniface Okezie, national president, Progressive Shareholders Association, this is an encouraging signal. “Hitherto, the shareholders were not expecting anything, so the little dividend they are going to pay is good news. You can see that they are also going to give shareholders generous bonus,” he told the magazine.

Besides the three banks whose results have been released, Okezie says expectations are high concerning some other banks like Diamond Bank plc, Skye Bank plc and, perhaps, First City Monument Bank, FCMB. He says IBTC Stanbic has not been in the good books of shareholders because the bank has not been paying good dividends. Okezie, however, called on the regulator and the banks to ensure the release of the remaining results without further delay so as not to derail investment plans.

In the results released so far, Zenith Bank recorded gross revenue of N277.3 billion, an increase of 31 per cent over the N211.6 billion it achieved in the preceding year.  But its profit before tax, PBT, dropped from N56 billion to N35 billion, which is much lower that the previous year. The bank, however, recorded a net profit of N19.6 billion, which is 60 per cent lower than the N51 billion recorded in the preceding year. Some analysts consider the bank’s capital adequacy ratio, CAR, which stands at about 30 per cent, far higher than the 10 per cent regulatory limit, as impressive. CAR is a ratio of a bank’s capital to its risk and regulators use it to determine the health of banks.  The bank also posted a liquidity ratio of 60 per cent, which is also far higher than the 25 per cent industry average. Liquidity ratio is used to determine a company’s ability to meet its short-term financial obligations. So for Zenith Bank, there is no threat to its solvency. 

Likewise for UBA, its gross earnings rose by 46 per cent from 169 billion in the previous year to N246.7 billion, while its pre-tax profit dropped to N13.66 billion from N56.8 billion. The bank also declared a post-tax profit of N2.4 billion, 94 per cent lower than the N40.8 billion in the previous financial year. Tony Elumelu, group managing director, UBA, expressed satisfaction at the result posted given the difficult operating environment, adding that “the result reflects the bank’s solid foundation, strong capital base (risk weighted capital adequacy ratio of 16.3 per cent) and focus on risk management and corporate governance.” Its liquidity ratio is 47 per cent.

The bank expects to continue with its continental expansion strategy as a source of future growth. The bank, which commenced operations in eight new African countries during the year, increased its African presence to 16 countries. “The disciplined approach to growth is already providing the group with diversification as revenues from African operations grew by 330 per cent during the period and now represents 7.2 per cent of the group’s gross earnings,” the bank’s statement says.

Guaranty Trust Bank, which posted the highest dividend of N75k per share, like the other two banks, posted a high turnover but low profit. The bank’s audited financial statement shows gross earnings of N162.55 billion, a 16.35 per cent increase from the N100.6 billion recorded in the preceding year. However, its PBT declined by 20.85 per cent, from N35.32 billion in 2008 to N27.96 billion, while its PAT also declined from N28 billion in 2008 to N23.68 billion, a decrease of 16.4 per cent. 

Even then, many shareholders that had feared zero dividend say the performance of the three banks has rekindled their hope that the sector is on a recovery path. Last year, many banks could not pay dividends. The global financial crisis and the meltdown in the capital market affected their operations. The banks were also made to comply with the CBN directive that they should make full provision for their non-performing loans and this eroded their profits. Consequently, only five banks were able to pay dividends. First Bank plc paid the highest dividend per share of N135k per share. UBA, Access Bank, Skye Bank and Diamond Bank paid N75k, 70k, 60k and 9k, respectively. 

Even though some shareholders are not pleased with the dividends, the marginal increase in the price of the bank stocks could trigger hope for better results. It is believed that if the banks put everything in order, their rate of recovery would be faster. Bismarck Rewane, chief executive officer, Financial Derivatives, says full recovery is not an immediate thing as it could last for about two years or more. Although efforts are being made to sanitise the sector, analysts warn that if the crisis in the sector is not handled with care, the much-needed confidence will be hard to attain.