FBN Holdings, Zenith, three others fail CBN’s LDR test as loan to economy hits N16.51trn

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Customer deposit base up 9% to N32.28trn

Uba Group

Despite the economic hardship ravaging Nigerians, customers of banks are increasing their deposits with top banks in Africa’s largest economy. Deposits in five major banks as at June 30, 2022 stood at N32.28 trillion while loans and advances to customers increased by 11 per cent year-on-year to N16.51 trillion. However, the banks, which are FBN Holdings Plc, Zenith Bank Plc, Access Corporation Plc, GTCO and UBA Plc, fell below the statutory mandate of loan to deposit ratio (LDR) of the Central Bank of Nigeria for commercial banks in the review period. Meanwhile, FBN Holdings was outstanding among its peers with better performance in loan disbursement and profit growth. BAMIDELE FAMOOFO reports.

Leading five financial power houses in Africa’s largest economy accrued a total of N32.28 trillion from their customers across the country during the half year financial period ended June 30, 2022.

The figure represents about nine per cent improvement in deposits from customers on a year-on-year basis.

On the flipside, the banks also increased lending to the economy in the review period as loans to customers jumped by 11 per cent from about N14.88 billion as at June 30, 2021 to N16.51 trillion as at June 30, 2022.

Whilst the gesture of the banks to increase lending to the economy is commendable, they are still miles away from meeting the statutory requirements of the CBN in terms of loan to deposit ratio.

The Governor of the Central Bank of Nigeria, Godwin Emefiele, in a bid to compel commercial banks to increase lending to the economy, mandated banks to disburse not less than 65 per cent of deposits collected from their customers as loan.

But as at the end of June 2022, none of the banks captured in this report were able to meet the regulatory mandate of Loan to Deposit Ratio of 65 per cent.

The best among the top five banks in this respect was FBN Holdings Plc, which disbursed about 60.5 per cent of total deposits collected in the period to customers as loans. The financial group, which collected about N6.3 trillion in deposits, disbursed about N3.81 trillion to the economy as at June 30, 2022.

FBN Holding Plc recorded an appreciable growth in LDR in six months, from 49.2 per cent as at December 31, 2021 to the current figure in June 2022.

Access Corporation Plc, the Holding company which accommodates Access Bank, no doubt, was more aggressive in driving deposits among the pack, but it still comes behind FBN Holding in lending to the economy.

The bank’s LDR as at June 30, 2022 stood at about 58.93 per cent, representing 0.97 basis points drop, YoY, compared to 59.9 per cent achieved in June 2021.

Meanwhile, the group’s loans disbursement increased by 11.06 per cent, from N4.16 trillion as at December 31, 2021, to N4.62 trillion as at June 30, 2022.

Customers’ deposit increased by 12.8 per cent, from N6.95 trillion as at December 31, 2021 to N7.84 trillion in June 2022.

Zenith Bank came behind Access Corp with LDR at 49 per cent as the bank disbursed N3.5 trillion as loans and advances to its customers, from N7.15 trillion received as deposit.

Zenith Bank performed better in the same period of 2021 with LDR standing at 51.93 per cent. As at June 30, 2021, loan disbursements to customers stood at N3.36 trillion out of N6.47 trillion collected as deposit in the period.

GTCO Plc disbursed N1.83 trillion as loan to customers as at June 30, 2022 while it received N4.26 trillion as deposits. Consequently, LDR stood at 43 per cent, lower than 44.9 per cent achieved in the financial year ended December 31, 2021.

United Bank for Africa Plc, however, was the least in terms of loan disbursement in the period. The Bank disbursed N2.75 trillion out of N6.73 trillion deposits collected as at June 30, 2022, leaving LDR at 40.9 per cent. LDR as at June 30, 2021 stood at 42.07 per cent as loan to customers stood at N2.68 trillion as against deposits of N6.37 trillion.

“CBN"

“Whilst the gesture of the banks to increase lending to the economy is commendable, they are still miles away from meeting the statutory requirements of the CBN in terms of loan to deposit ratio”

Q2 Performance Review

Access Holdings Plc

Interest income grew by 16.4 per cent y/y to N372.31 billion, supported by impressive growth in income from loans & advances to customers, which grew by 37.0 per cent y/y to N238.94 billion in the second quarter and a slight expansion in income from loans and advances to banks (+1.8% y/y to N8.09 billion) amid a decline in income from cash and balances with banks (-23.2 per cent y/y to N3.97 billion) and investment securities (-37.7 per cent y/y to N45.84 billion).

Analysis by The Point shows that the growth in loans and advances was driven by an increase in the Holdco’s strong risk assets creation (+11.0 per cent YTD to N4.62 trillion).

The Holdco recorded a significant increase in interest expense (+46.1 per cent y/y to N174.80 billion) underpinned by a higher cost incurred on the deposits from customers (+91.3 per cent y/y to N108.64 billion) despite the improvement in the CASA mix to 60.5 per cent during the review period (2021FY: 58.4 per cent).

In addition, the firm recorded an expansion in its expense on debt securities issued (+11.4 per cent y/y to N11.30 billion) and interest-bearing borrowings (+6.8 per cent y/y to N23.07 billion). Following the faster growth in interest expenses than interest income, net interest income declined by 1.3 per cent y/y to N197.50 billion. After accounting for credit impairment charges (+28.6 per cent y/y to N36.86 billion), net interest income (ex-LLE) settled 6.3 per cent lower, y/y, at N160.64 billion.

Operating expenses increased by 35.2 percent y/y to N256.68 billion as all the contributory line items expanded during the period, evidenced by higher regulatory costs and inflationary pressures. Precisely, increment was recorded in personnel expenses (+33.6 per cent y/y to N58.27 billion); AMCON levy (+27.0 per cent y/y to N52.73 billion); NDIC premium (+11.4 per cent y/y to N11.10 billion), and depreciation & amortization (+8.0 per cent y/y to N21.70 billion).

Following the faster OPEX growth relative to the operating income, the cost-to-income ratio (ex-LLE) settled higher at 72.4 per cent in H1-22 (relative to 66.1 per cent in HY-21).

Analysts’ comment: “We like that Holdco maintained a positive performance in the first half of the year, despite the macroeconomic headwinds, locally and internationally.

Although we are concerned about the increasing cost of funding of the company, we will seek more clarity from the management on this. For the rest of the year, we remain optimistic that Holdco will maintain a positive growth trajectory given our expectation that the payment, asset management, and insurance businesses will be fully integrated by the second half of this year. Also, we expect the growth in operating expenses to temper in H2-22 since the increase in OPEX in H1-22 is partially attributed to the bank completing its transition to a Holding Company.”

UBA

The bank’s interest income rose by 15.6 per cent y/y to N257.36 billion, underpinned by income from the major line items. Notably, the income from investment securities rose by 21.6 per cent y/y, reflective of the higher yield environment; income from loans and advances to banks and customers advanced by 27.7 per cent y/y and 11.2 per cent y/y, respectively.

Operating expenses increased by 21.9 per cent y/y, as all contributory items increased during the period – NDIC premium (+23.7 per cent y/y to N8.79 billion); personnel expenses (+21.9 per cent to N161.90 billion); depreciation and amortization (+13.8 per cent to N13.04 billion); and AMCON levy (+12.1 per cent y/y to N31.18 billion).

Consequently, the bank’s OPEX (+21.9 per cent y/y) advanced faster than operating income, leading to a decline in operational efficiency – the cost-to-income ratio (ex-LLE) settled higher at 65.5 per cent relative to 63.8 per cent in the previous year.

Overall, profit before tax grew by 12.6 per cent y/y to N85.75 billion. Following a lower income tax expense (-1.2 per cent y/y), profit after tax printed N70.33 billion (H1-21: N60.58 billion), translating into a growth of 16.1 per cent y/y.

Comment: “UBA’s financial performance is impressive, given the inflationary pressures during the period. We view the bank’s ability to sustain strong growth in core and non-core income as very positive; therefore, we remain optimistic that the bank will maintain a positive growth trajectory throughout the year.”

“The continued deterioration of the bank’s profitability is a cause for concern, and we attribute this to the higher income tax expenses the bank had to incur following the implementation of the 2021 Finance Act”

GTCO

The Holdco’s interest income grew by 16.7 per cent y/y to N147.20 billion, propelled by all contributory lines. On a nominal basis, the most significant contributions during the period came from income from loans and advances to customers (+13.1 per cent y/y to N103.30 billion); investment securities (+26.0 per cent y/y to N40.39 billion); cash and balances with banks (+15.5 per cent y/y to N2.68 billion); and loans and advances to banks (+145.9% y/y to N832.04 million).

Operating expenses increased by 11.3 per cent y/y to N99.46 billion in H1-22, with the most pressure exerted by deposit insurance premium (+20.0 per cent y/y to N7.10 billion).

Overall, the increase in operating income (+11.1 per cent y/y) compared to OPEX led to the bank’s cost-to-income ratio (ex-LLE) staying at 49.1 per cent YTD.

Overall, profit-before-tax was 11.0 per cent y/y, higher at N103.25 billion but further weighed down by higher income tax expense (+88.3 per cent y/y to N25.69 billion). Consequently, profit-after-tax declined (-2.3 per cent y/y to N77.56 billion).

Comment: “The continued deterioration of the bank’s profitability is a cause for concern, and we attribute this to the higher income tax expenses the bank had to incur following the implementation of the 2021 Finance Act. On the positive side, the growth from core banking operations is impressive; this growth trajectory should be sustained through the year, given the higher yields expected for the rest of the year. We remain cautiously optimistic and will seek management guidance regarding the year’s pressure points so far. Our estimates are under review.”

ZENITH

The bank recorded 18.5 per cent y/y growth in interest income, which settled at N241.73 billion. This strong growth was supported by an expansion in income from loans and advances to customers (+20.7 per cent y/y to N163.41 billion), reflective of the bank’s increased risk appetite (+4.3 per cent to N3.50 trillion in H1-22), while strong income from investment securities (+18.5 per cent y/y to N74.45 billion), driven by the higher yields on investment securities, was also supportive.

Operating expenses expanded by 19.2 per cent y/y to NGN178.60 billion, with the most pressures exerted by regulatory charges: NDIC insurance premium (+21.2 per cent y/y to N9.78 billion); AMCON levy (+16.1 per cent y/y to N44.01 billion) and personnel expenses (+5.7 per cent y/y to N39.74 billion).

Consequent upon the OPEX growth relative to operating income, the cost-to-income ratio (ex-LLE) settled higher at 57.9 per cent (relative to 56.1 per cent in HY-21).
Notwithstanding, profitability was stronger, with profit-before-tax settling 11.1 per cent higher, year-on-year, while profit-after-tax increased moderately by five per cent y/y to N111.41 billion, given the higher income tax expense (+69.9 per cent y/y to N18.59 billion).

Comment: “The bank’s performance was impressive during the period and aligned with our expectations. The strong growth in core and non-core income is very positive and should allow operating income growth to trail expense growth, which is expected to remain under pressure due to spiraling costs. Overall, this should allow the bank to record stronger profitability year-on-year.”