There are indications that the sluggish economic environment  may have taken a toll on tier-1 banks forcing their aggregate topline figures into negative position in the first half of 2018, H1’18.

The banks, namely First Bank of Nigeria Plc, United Bank for Africa Plc, Zenith Bank Plc, Guaranty Trust Bank Plc and Access Bank Plc recorded a decline of about -0.9 percent in their HI’18 gross earnings at N1.285 trillion down from N1.296 trillion recorded in the corresponding period, HI’17.

But their counterparts in the tier-2 category have a good showing during the period as Financial Vanguard  review of banks quoted on the Exchange shows that the tier-2 banks grew their earnings by 6.6 percent to N867.589 billion up from N814.038 billion.

Also the tier-2 banks outperformed the tier-1 in profitability as they recorded a 40.3 percent increase in Profit Before Tax, PBT, as against 6.3 percent rise recorded by tier-1 banks, a situation both market operators and stakeholders have attributed to efficient management of cost and higher deployment of technology. The stellar performance of tier-2 banks also is an indication that they are fast closing the gap between it and tier-1 banks in terms of growth trajectories in topline and bottomline.

Market operators and stakeholders have said that despite  the lower yield in the financial instruments, lower Foreign Exchange, FX volatility, and harsh operating environment in the country, the tier-1 banks and tier -2banks have performed well.

Data released by the National Bureau of Statistics, NBS, in the review period showed the frail state of the economy as with a significant drop in Gross Domestic Product, GDP,   to 1.5 percent Year-on-Year, YoY in Q2’18, against 1.9 recorded for Q1’18. Financial Vanguard review of the period, shows    a combined growth rate of both Tier-1 and Tier-2 banks listed on the Exchange, in the H1’18, at 2.0 and 14.3 percent growth in earnings and PBT respectively.

Earnings and PBT were N2.153 trillion and N  505.337 billion respectively, up from N2.110  trillion and N442.209   billion in the corresponding period of 2017. The tier-1 banks in absolute term accounted for 59.7 percent and 71.2 percent of the total gross earnings and PBT in H1’18 respectively.

Sector Review Analysis

A cursory review of the banking sector by  Financial Vanguard  shows that the 12 banks captured in this study recorded the total gross earnings of N2.152 trillion in H1’18 . This comprises of   the following banks:   UBA- N257.918 billion,   GTBank- N226.632 billion,   Zenith Bank- N 322.201 billion,   Wema Bank -N 25.396 billion , Stanbic IBTC Bank  – N77.637 billion,   FBN Holdings- N  225.404 billion, Sterling Bank – N77.637 billion. Others are: Access Bank N 253.024 billion, ETI – N384.588 billion, Diamond Bank- N98.503 billion, Union Bank- N83.333 billion and FCMB- N83.925 billion.

Top five banks in gross earnings

Analysis of the top five banks on earnings   in  terms   of absolute value shows that Ecobank Transnational Incorporated, ETI Plc recorded the highest figure , with N384.588 billion , followed by Zenith Bank N322.201 billion, UBA N257.918 billion. Others are Access Bank N253.024 billion and GTBank N226.632 billion.

On percentage term, Sterling Bank top the chart with 36.0 percent growth to N77.637 billion from N57.101billion in H1’17. It was followed by Stanbic IBTC recording 17.5 percent growth to N114.207 from N97.198 billion.

UBA occupied the third position with 15.8per cent growth to N257.918 billion from N222.718 billion, followed by Union Bank 15.6 percent to N83.333 billion from N72.062 billion and FCMB came fifth with 8.3per cent growth to N83.925 billion from N 77.508 billion.

Profitability

In terms of PBT for HI’18, the 12 banks’ records show as follows: GTBank-  N109.632 billion, Zenith Bank- N  107.358 billion, Ecobank-N65.099 billion, UBA N58.140 billion, Stanbic IBTC – N50.730 billon, Access Bank- N45.842 billion, First Bank of Nigeria Holding, FBNH-   N38.876 billion , Union Bank N11.458 billion. Others are: First City Monument Bank, FCMB- N7.105 billion, Sterling Bank- N6.363 billion, Diamond Bank- N2.919 billion and Wema Bank- N1.815 billion.

Top five banks in PBT

Analysis of the top five banks in terms of absolute value for PBT is as follows: GTBank-  N109.632 billion, Zenith Bank- N107.358 billion,  Ecobank- N65.099 billion, UBA N58.140 billion and Stanbic IBTC   N50.730 billon.

In terms of percentage, FCMB topped the chart rising by 85.8 percent to N7.105 billion from N3.824 billion, followed by Stanbic IBTC which rose by 73.9 percent to N50.730 billion from N29.169 billion.   Sterling Bank came third with 46.8 percent growth to N6.363 billion from N4.334 billion, followed by Ecobank growing by 40.8 percent to N65.099 billion from N46.242 billion and Wema Bank rose by 26.7 percent to N1.815 billion from N1.433 billion.

Operators/Stakeholders reactions

The Managing Director/CEO, APT Securities & Funds Limited, Mr Garba kurfi said: “The implication of the results is that the tougher the economy is the more difficult it will become for the banks. The tier-2 banks grow faster because of their size and meaning more room for growth but as the higher they rise the less growth rate they may record. So it applies to tier-1 banks as they become bigger the more challenges they will face and the result will be reducing returns.

“It is a good progress for the rise by two percent the banks recorded. This shows resistance in comparison with the decline in the GDP from 1.95 percent to 1.50 percent. The banks could have done better if the economy growth had improved. There is hope for better performance if the economy does better and the capital budget released on time.”

Commenting on the gap between tier-1 and tier-2 banks , he said: “The gap exist and is not likely to disappear, however, it is possible to get one or two banks change the position from tier-2 to tier-1 Therefore, it is a challenge for all the banks because the top three banks that are currently in tier-1 were not in that group twenty years back but now they are there and is not impossible for any bank that did not meet the today challenge can fall back.”

In his own view, Managing Director/CEO, High Cap Securities Limited, Mr. David Adonri, said: “The tier- 1 banks have seriously outperformed the lower tier banks in absolute terms because of the wide gap in profitability and gross earnings. They have consistently performed well. Tier-1 banks have more resources and higher market share to establish competitive edge. The smaller banks, tier-2 are also profitable and competitive notwithstanding the disparity in size. The implication is that tier-2banks are becoming more aggressive in using technology to have higher patronage from customers than tier-1. Tier -2 banks need to improve further in terms of product innovation and raise their capital to be able to compete effectively.”

The Managing Director/CEO, Sofunix Investment and Communications Limited and a chartered stockbroker, Mr Sola Oni said: “Operationally, tier-1 banks have financial muscle to withstand shocks, compared to their tier -2 counterparts that are currently struggling to survive. But tier-1 banks’ earnings is being moderated by the drop in yields of Treasury Bills as Federal Government is fast reducing internal borrowing in favour of cheaper external financing. Against the backdrop of the current inflation rate, the banks’ earnings are not significant. Both tier-1 and tier -2 banks face tough operating climate.

“The way forward for tier-1 banks is to exploit other sources of charges to boost earnings while tier -2 banks should leverage on information technology to enhance efficiency. Regardless of the nature of operating environment, the gap between the two will continue to widen in terms of absolute value as they operate on differential capital base and network.”

Reacting, Head of Research & Investment, FSL Securities Limited,    Mr Victor Chiazor, said :  Both tier-1 and tier -2 banks have performed considerably well during the period despite the lower yield environment and lower FX volatility in the first half of 2018 compared to 2017.

“We expect the tier -1 banks to remain resilient and perform better as they are still better positioned to mobilize cheaper deposits compared to the tier- 2 banks which should improve their net profit margin. It is clear that gross earnings for the banks may not grow significantly like the previous years, but their ability to keep impairment provisioning low and manage their expenses may be the major difference between those who grow PBT and those who don’t.

“Regarding the gap between both tiers, we don’t expect any of the tier-2 banks in terms of growth in absolute value to catch up anytime soon except we see a surprise merger between two players in tier -2 region.”

Commenting as well, the spoke person for Independent Shareholders Association of Nigeria, ISAN, Mr. Moses Igbrude said: “All Businesses generally thrive to grow from year to year by effectively managing their resources efficiently. When tier-1 and tier 2 banks grew their gross earnings marginally by two percent it shows that the environment was very competitive and harsh.   It is an indication that there is a lot more to be done to improve growth by reaching the unbanked population of Nigeria as well as deployment of technology and innovative products to attract new consumers into the sector.

“With the economy as it is, the banks have performed well it is only few of them that did not pay dividend this year. I am encouraging them to do more. From your analysis, it is a good thing that the tier-2 banks are brazing up to bridge the gap between them and tier-1, which is a sign that those managers know their responsibility and are doing their job well. While I encourage the Tier -2 banks to make prudent their watchword. I also encouraged the tier-1 banks to do what it takes to maintain their leadership position in the sector and also managed their cost of doing business effectively.”

The National Co-ordinator, Proactive Shareholders Association of Nigeria, PROSAN, Mr. Oderemi Taiwo said: “It is good news that tier-2 banks performed better than tier-2 banks in terms of percentage growth. But they need to up their capital to compete with tier-1 banks that are using size to outperform them. We want to see more growth in both tiers and that is why the government must double effort to improve the economy. As it is now nothing is happening and the banks are operating on higher cost.” – Vanguard

– Sept. 10, 2018 @ 10:25 GMT