After a short spell of suppressed profits due to the banking reform introduced by Lamido Sanusi, governor of Central Bank of Nigeria, about three years ago, banks are now declaring jumbo profits, to the surprise of not a few stakeholders
Lamido Sanusi, governor, Central Bank of Nigeria, CBN, took Nigerians by surprise when, barely six months into his assumption of office, he declared that except urgent measures were taken, most Nigerian banks would fail. This was at a time Nigerians hitherto believed that the banking system was on a sound footing, especially after the 2006 consolidation in the banking sector. Sanusi’s response to the situation was a surgical reform of the system, which he hoped would bring stability and sanitise the sector. Three years into Sanusi’s reform, several banks have declared huge profits as at December 31, 2011 financial year.
For instance, Guaranty Trust Bank, GTBank, demonstrated that good times are here again for players in the nation’s financial industry with its 2011 scorecard as at December 2011. Its profit after tax, PAT, grew from N38.3 billion in 2010 to N49.8 billion in 2011, an increase of 37.3 per cent. While its profit before tax, PBT, increased by 35.3 per cent from N48.4 billion in 2010 to N65.6 billion in 2011, total assets grew from N1.1 trillion to N1.6 trillion during the review period. GTBank recorded an income of N90.4 billion from interest on loans and advances in 2011. To the delight of its shareholders, the bank approved payment of N1.10 dividend per share from N1 the previous year and an earning per share, EPS, of N1.69 in 2011.
Zenith International Bank also had a good outing in the 2011 financial year with its PAT rising from N33 billion in 2010 to N37 billion as at December 31, 2011. The bank’s asset similarly increased from N1.89 trillion in 2010 to N2.3 trillion in 2011. The results, which were released on the floor of the Nigerian Stock Exchange, NSE, recently showed that the bank’s gross earnings rose from N192 billion to N244 billion, indicating an increasing dominance in its market share. Aside from the increment witnessed in its profit and earnings, the financial institution was able to reduce its total non-performing credit facilities by four per cent as it fell from N44.2 billion to N36.8 billion.
To the shareholders of the bank, the result was something to cheer as the board of the bank approved payment of 95 kobo dividend per share, from 85 kobo the previous year. The EPS of the bank also grew from N1.14 in 2010 to N1.40 the previous year. Similarly, the shareholders’ equity increased from N363.5 billion to N380.3 billion in 2010. Shareholders of First Bank of Nigeria, FBN, earned a dividend of 80 kobo per share. The bank gave the second-generation banks a run for their money growing its PAT from N29.1 in 2010 to N44.7 billion in 2011. Total deposit of the bank also witnessed a growth from N1.5 trillion to N1.9 trillion leading to a further reduction in total funding costs to 1.7 per cent from 3.1 per cent the previous year.
From a loss of N4.4 billion in 2009, Access Bank bounced back to profitability with its modest PAT of N11.1 billion in 2010, rising to N16.7 billion as at 2011. Stakeholders of Skye Bank and Fidelity Bank are also in a jubilant mood over the performance of their banks during the review period. In the last quarter of 2011, Fidelity Bank declared a PAT of N7.6 billion as against N8.65 billion in 2010 with a dividend of 5 kobo each for every share held. In the case of Skye Bank, the board also declared a PAT of N5.6 billion. Ecobank reported a PAT of N32 billion and a dividend of $0.04 dividend. Other banks that had fairly good outings during the review period are Diamond Bank with PAT of N1.3 billion; Stanbic IBTC N11.2 billion PBT and 10 kobo dividend.
While investors and other stakeholders of these banks are reaping from the jumbo profits and celebrating the performances of their banks, their counterparts in United Bank for Africa, UBA, were not so lucky. The bank recorded a loss of N9.6 billion as at December 31, 2011 but surpassed its N15.1 billion profit forecast in the first quarter of 2012, Similarly, First City Monument Bank, FCMB, declared a loss of N9.9 billion during the review period.
For the banks that posted jumbo profits, the question being asked is how they achieved the fit. Segun Agbaje, managing director, MD, GTBank, attributed the good outing of GTBank to concerted efforts to improve efficiency in an increasingly competitive operating environment, growth witnessed in customer base and increase in transaction fees. He added that the use of technology and innovation in servicing the bank’s expanding customer base has been another driving force of the bank. “We are well positioned to take advantage of business opportunities that may arise in the short to medium term,” he said. According to him, the bank made proceeds from its retail deposit base and other sources of low cost funding, a growth in its customer base which literarily resulted in an increase in the bank’s earnings from transaction fees. “We embarked on a deposit drive campaign to focus more on retail banking which made us to increase our branches from 107 to 177 with 17 e-branches,” he explained.
To Bisi Onasanya, group managing director, FBN, the bank’s results are reflective of the benefits being reaped from the implementation of its transformation agenda which has improved customer focus, acquisition, satisfaction, business generation and enhanced sustainability of its earning base. Still, the leading role of First Pension Custodian Nigeria Limited, FPCNL, its subsidiary, contributed significantly to its earnings. FPCNL controls 37 per cent of N2.1 trillion, total assets already transferred to pension custodians by the National Pension Commission, NPC. “During the year, FPCNL was appointed by AMCON to provide custodial services which paved our entry into the money market and fixed-income business. The firm pays a monthly programmed withdrawal of over N600 million in relations to retirement benefits, representing about 50 per cent of total monthly industry payout,” he explained. Other revenue streams of the bank were the new FBN’s representative office in the United Arab Emirates, UAE, and acquisition of the Banque Internationale de Credit of Democratic Republic of Congo, which is considered as one of the most profitable banks in the region. “We remain focused on enhancing shareholders returns by continuing to drive efficiencies and synergies to our current operations, leveraging opportunities across the group as well as assessing new avenues of growth,” Onasanya explained.
As for Godwin Emefiele, who took over the reigns of leadership of Zenith Bank barely two years ago, the bank’s achievement in the last financial year can be attributed to “the strength of our business model, the expanding value we bring to our customers, our resilience and determination to do all it takes to give our stakeholders good return on their trust in us.”
On his part, Aigboje Aig-Imoukhuede, Access Bank’s MD, attributes the profit to earnings from a refinancing facility for manufacturers and infrastructural projects. “We get proceeds from a N7 billion facility granted Golden Pasta Company, a subsidiary of Flour Mills, for the expansion of the Agbara factory few years back and a 7.8 megawatt tri-generating power plant for Nestle Nigeria,” Aig-Imoukhuede revealed. Other factors for the growth include profits from investment in the Dangote Cement Plant, Ibeshe, Ogun State and a 112.5-megawatt captive Siemens power plant, which is to power the plant and the surrounding community. The bank also extended its investment tentacles to telecommunications, food and beverages sectors of the economy.
However, while these banks have declared fantastic results, there are concerns that the profits are coming at a time the manufacturing sector and the economy generally are in turmoil. Questions are, therefore, being asked regarding the genuineness of the profits declared by the banks. Financial experts are of the view that businesses are yet to experience a substantial support by banks in terms of effective lending, thereby raising doubts over the integrity of the profits they have declared. According to a report by the CBN released in January 2012, there was a decline of 4.2 per cent in credit to the manufacturing sector at the end of December 2011. The report also revealed that year-on-year banking system’s credit to the private sector fell by 4.6 per cent.
Stakeholders have continued to pick holes in the profits declared by the banks. They attribute some of these profits to sharp practices. Sola Owoeye, an economist and former lecturer, Department of Economics, Lagos State University, explained that sometimes, account statements are riddled with several phantom charges. He recalled that at a time, his account with a popular bank was surcharged for maintenance fee and management fees, and when he inquired, the customer service agent of the bank had no explanations to offer. Ori Adeyemo, a forensic accountant, corroborated Owoeye’s claims, alleging that another prominent bank overcharged one of his clients to the tune of N64 million on a loan facility a few years back. According to him, the case and 400 others with other banks have been at the federal high court, Lagos, since January 2012.
Giving more insight into the activities of the banks, Akintunde Maberu, a financial analyst, said banks engage in several unorthodox practices to increase their profitability. For instance, he said each bank has a software that manages the account of customers and by the time they have one per cent management fee automatically deducted from all accounts, some of which have not been operated by their owners for a long time, they are likely to come up with a lot of money. He was emphatic that part of the profits being declared by banks were generated from charges on ATMs, foreign exchange, text messages, among several others. Yemi Olubajo, MD, Fusedam Industries, Agbado, Ogun State, believes that banks are selective when it comes to project financing, preferring to lend to blue-chip companies.
Experts are generally worried over the poor linkage between the growth of the banking industry and the economy. For instance, Segun Awode, MD, Elegant Paints, Ogba, is concerned about the industry’s orientation towards granting short-term credit. Beyond making funds available and accessible at single-digit rate, Olubajo wants the CBN to make funding of small and medium enterprises, SMEs, a priority for commercial banks. Owoeye regrets that the purpose of making the banks to strengthen their capital base has not been met. According to him, the idea of recapitalisation was not only to solidify the banks, but also to position them to be able to support the real sector, which in turn will lead to economic growth.
Despite the perceived shortcomings of the banks, Peter Adebayo, a financial analyst and an accountant, explained that they are expected to declare profit now that Assets Management Corporation of Nigeria, AMCON, has bought all non-performing loans and margin loans worth N770 billion in the industry. Adebayo, therefore, disagreed that banks are not lending to the real sector, but rather blames lack of access to funds on the sector’s inadequacies.
In the midst of the jumbo profits of banks, there is a rising optimism that the banks have recovered some of their non-performing loans, which they now brought forward into their balance sheets as profits. Olu Sanya, MD, Goldbanc Management Associates, giving reasons for the huge profit of banks, explained that what has happened is an intensification of recovery of bad loans, which were provided for in the past. Laura Oloyede, another financial analyst, agreed that there are elements of transparency in the results posted by banks for the 2011 financial year. According to her, Zenith Bank, FBN and GTBank have different cultures and approach to profit and customers but they have recorded consistent clean slate of account for five years, which is an indication that they are brands most Nigerians want to associate with. This, she said, is evident in the way their shares are always scrambled for on the floor of the NSE.
The huge profits declared by banks so far represent good news to the investors in the capital market, especially as the sector accounts for 70 per cent of the activities in the market. The stocks of the banks have been recording a high level of transactions thereby boosting the major indicators of the market. For instance, while the market capitalisation increased from N6.5 trillion, which it opened the year with, to N7.01 trillion by April 25, 2012, the all share index also grew from 20,774.21 to 21, 970.21 within the same period.
Atiku Kafaru, MD, Camry Securities, explained that the banks are now profitable in terms of return on investment and most of them are consistent in terms of giving returns to their investors over the years. “Another factor driving the shares of the banks is their array of innovations. Kola Olaniyi, a stockbroker, explained that the banks would benefit from e-branch innovation and healthy competition within the sector. According to him, AMCON had cleared the way when it declared recently that the crisis in the banking crisis is over. “This, along with a youthful population, who are technology savvy enmeshed in a culture in which e-banking has gained a foothold, presents key drivers for GTBank and some of its counterparts. A growing, largely youthful population, with increased e-transactions is expected to drive the bank’s products, leading us to estimate that its profit will grow further over the next one year,” he argued.
In all, some analysts like Adebayo believe that, perhaps, the banks may not be free from financial malpractices. But Sanusi assures that the apex bank would conduct another round of stress test for the banks. However, until the end of the stress test, which is a simulation technique used in evaluating the strength of firms, “Nigerians will know whether profits declared are real or fake,” Adebayo concluded.
Additional reports by Raymond Mordi and Ayodeji Adeyemi