Nigerian lenders have continued to increase credit into the economy with N7.99trillion disbursed in 12 months in 2021. Financial scorecard of top three banks made available to the Nigerian Exchange Limited for the financial year ended December 31, 2021 showed that lending to the economy increased by 11.9 percent from N7.14trillion in 2020. The scorecard likewise revealed that deposits from customers in the financial period increased by 16 percent to N16.85trillion. BAMIDELE FAMOOFO reports.
Aggregate Performance Review
Nigerian banks have increased their effort to mobilize more funds for disbursement to create credit for Nigerians engaged in economic activities that has the capacity to boost economic growth.
Analysis of the credit portfolio of top three banks for the financial year ended 2021 showed that over 47 percent of aggregate deposits from customers were disbursed as loans and advances.
The leading banks amassed N16.85trillion as deposits from customers in 2021, representing about 16 percent increase over N14.53trillion achieved in the preceding financial year. On the aggregate, credit disbursement to the economy stood at N7.99trillion, representing year on year increase of 11.9 percent.
Total assets base of the banks grew by 10.94 percent to N23.43trillion as against N21.12trillion in 2020.
Breakdown of the performance of the three major leading banks in the industry indicated that Zenith Bank Plc was more aggressive in creating funding for businesses with credit portfolio standing at N3.5trillion in 2021, rising from N2.92trillion in 2020.
The bank accounted for 43.8 percent of aggregate loan disbursed by the top three banks. It was responsible for over 38 percent of deposits accrued from customers of the three banks in the review period.
Zenith Bank accounted for 40.33 percent of the combined assets of the banks considered in this analysis. Further breakdown of the bank’s performance as at December 31, 2021 showed that it increased deposits from customer by 21.2 percent to N6.47trillion compared with N5.34trillion in 2020 while total assets base stood at N9.45trillion, up 11 percent as against N8.48 trillion recorded in the preceding financial year.
The bank increased credit more to the General Commerce sector of the economy with a 59 percent growth from N318.46 billion in 2020 to N505.93billion in 2021.
The Manufacturing sector was also favoured with an increase in disbursement to the tune of 37 percent to N848.48billion from N620.31billion in 2020.
“The leading banks amassed N16.85trillion as deposits from customers in 2021, representing about 16 percent increase over N14.53trillion achieved in the preceding financial year”
Oil and Gas received the least increase of credit from the bank at about 7.0 percent increase. Credit to the industry stood at N782.41billion as against N731.52billion in 2020. Lending to Government ranked fourth on the bank’s priority list at N509.02billon increasing from N432.77billion in 2020. A look at geographical allocation of credit in 2021 indicated the South West received a chunk of the bank’s credit disbursement at N2.45trillion as against N2.17trillion in 2020.
United Bank (UBA) Plc advanced N2.68 trillion in loans and advances to customers in 2021, which accounts for 33.5 percent of aggregate of loans and advances of the three big banks. The bank’s deposits portfolio which stood at N6.37trillion in 2021 of about 38 percent of aggregate while Total Assets accounts for about 37 percent N23.43trillion delivered by the three.
Guaranty Trust Holding Company Plc disbursed N1.80trillion in loans and advances, increasing by 8.44 percent from N1.66 trillion in 2020 while deposits portfolio grew by 14.25 percent to N4.01 trillion in 2021. The Group’s Asset’s base stood at N5.44trillion as against N4.95 trillion, increasing by 9.90 percent.
Peer- to- Peer Review
Zenith Bank
Zenith Bank Plc, one of Nigeria’s leading lenders, grew its loans portfolio by about 21 percent as at the end of the financial year 2021.
Figures obtained from the bank’s audited 2021 financial report showed that N3.36 trillion was distributed to customers as loans and advances in the review period.
Interest income grew by 1.6 percent year-on-year (y/y) to N427.60 billion, supported primarily by the income from loans and advances to customers which increased by 16.5 percent y/y to N292.22 billion. The impressive income growth from loans and advances was in line with the bank’s drive to moderate sanctions from the CBN’s Loan-to-Funding Ratio initiative non-compliance.
The bank’s board proposed a final dividend of N2.80 per share as against N2.70 per share paid in 2020. The proposed N2.80 dividend per share in 2021, equates to a dividend yield of 10.3 percent based on the closing price of N27.10 per share as of the 28th of February 2022.
Meanwhile, other contributory lines recorded declines – loans and advances to other financial institutions (-74.4% y/y) and investment securities (-10.4% y/y).
Also, interest expense declined by 11.8 percent y/y to N106.79 billion, reflecting lower interest costs on deposits from customers (-25.6% y/y to N60.32 billion) as the bank has maintained its strategy of amassing lower-cost deposits (CASA: 93.0% as at 2021FY similar to 2020FY: 93.9%).
On the other hand, the cost of borrowings increased by 17.4 percent y/y to N43.04 billion. Consequent to the decline in interest expense, net interest income settled higher by 7.0 percent y/y at N320.80 billion. After accounting for credit impairment charges (+51.6% y/y to N59.93 billion), net interest income (ex-LLE) settled 0.3 percent higher year-on-year. The significant growth in loan loss expenses (LLE) confirms the higher risk environment as impairment charges are estimated using the IFRS9 Expected Credit Loss model.
Non-interest income (NII) generation was strong, settling 22.8 percent higher y/y at N309.04 billion. The growth recorded was supported by expansions in gains on investment securities (+37.6% y/y to N167.48 billion) and net fees & commissions income (+31.0% y/y to N103.96 billion) as the sector continues to benefit from the increased adoption of digital banking platforms. This expansion in NII, alongside the growth in net interest income, led to an 11.3 percent y/y increase in operating income to N569.91 billion.
Operating expenses growth was also significant given inflationary pressures in the macroeconomic environment and balance sheet expansion – leading to higher non-discretionary regulatory expenses. As a result, operating expenses (opex) grew by 13.1 percent y/y to N289.53 billion, with most pressures exerted by AMCON levy (+22.5% y/y) and other operating expenses (+22.0% y/y) following a surge in IT, outsourcing services and maintenance costs. Following the opex growth relative to operating income growth, the bank’s cost-to-income ratio (ex-LLE) settled marginally higher at 50.8 percent compare with 50 percent in 2020.
“Total assets base of the banks grew by 10.94 percent to N23.43trillion as against N21.12trillion in 2020”
UBA
The bank’s core income growth and lower funding costs supported its strong performance. Overall, the bank recorded a 9.4percent y/y growth in EPS to N3.39 in 2021FY (2020FY: N3.10), on which the management approved a final dividend of NGN0.80/share, a significant increase (+128.6% y/y from N0.35/share) from the corresponding period last year. This represents a dividend yield of 9.7percent on the last closing price of N8.25/share as of the 4th of March 2022.
Impressively, interest income recorded a double-digit growth of 10.8percent y/y to N472.26 billion propelled by all contributory lines. Most significantly (in nominal terms), income from loans and advances to customers (+11.9% y/y), loans and advances to banks (+117.7% y/y), investment securities (+4.3% y/y) and cash with banks (+5.2% y/y) recorded growth during the period.
Also boding well for the bank, interest expense declined by 6.4% y/y to NGN157.55 billion driven by the lower cost of borrowings (-28.5% y/y to N32.54 billion). Interestingly, the bank recorded a marginal 0.4percent increase in funding costs for deposits, despite the 12.2percent y/y growth in deposits (to NGN6.37 trillion) owing to its improved CASA mix (2021FY: 86.6% vs 2020FY: 81.8%). The collective impact of higher income and lower expense led to a 22.1percent increase in net interest income to N316.71 billion. Likewise, impairment charges on loans and other financial assets declined (-52.4% y/y) to pre-pandemic levels and supported profitability margins. All in, net interest income ex-LLE expanded by 30.7percent y/y.
On the other hand, dissimilar to other Tier-1 banks which have released results thus far, non-interest income declined by 14.1percent y/y to N128.21 billion due to (1) losses from FX revaluation and derivative contracts compared to the gains recorded in 2020FY and (2) lower FX trading gains (-31.2% y/y) and mark-to-market gains from trading investment securities (-6.6% y/y). The decline across these lines offset the robust growth in net fees and commission income (+18.6% y/y to N45.77 billion).
Operating expenses (opex) increased by 11.7percent y/y as the balance sheet growth and increasing inflationary pressures in the business environment drove most expense items higher – most significant were regulatory charges for NDIC premium (+38.5% y/y to NGN15.91 billion) and AMCON levy (+21.0% y/y to N27.98 billion). All in, the faster increase in operating income (+13.1% y/y) compared to Opex led to improved operational efficiency – cost-to-income ratio (ex-LLE) moderated to 64.6percent (vs 2020FY: 65.5percent and 5-year average: 65.1%).
GTCO
GTCO released its 2021FY earnings after the close of trading on Friday (4th of March), which showed that the bank recorded a decline in the top and bottom-line earnings, in line with the performance recorded through the year. The pressured interest income segment dampened the performance alongside higher operating costs. On the EPS of N6.14 (-13.6% vs 2020FY), the board has proposed a final dividend of N2.70/share (unchanged from 2020FY), which equates to a yield of 10.4percent based on the last closing price of N26.00/s as of 4th of March, 2022.
Interest income declined by 11.3percent y/y to N266.89 billion, driven by lower income from loans and advances to banks (-44.7% y/y), investment securities (-38.7% y/y), cash (-5.5% y/y), and assets pledged as collateral (-4.3% y/y). All of these masked the higher interest income from loans and advances to customers (+5.5% y/y), likely attributable to the acceleration in risk assets to customers (+8.4% y/y to N1.80 trillion).
Elsewhere, interest expense continued on a positive trajectory as it pared by 1.7percent y/y to N46.28 billion, despite an increase in deposits by 14.3percent y/y to N4.01 trillion, as the bank’s CASA (low-cost deposits: current and savings accounts) mix improved to 90.9percent (2020FY: 88.9%). Following the faster decline in income than funding cost reductions, net interest income declined by 13.0 percent y/y to N220.61 billion. However, the significant decrease in credit impairment charges (-53.6% y/y) moderated the impact on net interest income ex LLE (-9.4% y/y).
Growth in non-interest income (NII) was strong during the period, edging 13.4 percent higher y/y to N171.68 billion, despite a decline in gains from investment securities (-45.9% y/y) and lower FX revaluation income (-20.5% y/y), given substantial growth in net fees and commission income of 39.9 percent y/y. Considering the impressive support from NII, operating income settled marginally lower by 0.5 percent y/y to N383.76 billion.
Operating expenses expanded by 10.1 percent y/y to N162.27 billion, with the most pressures exerted by regulatory charges – NDIC insurance premium (+43.9% y/y to N12.24 billion), AMCON levy (+27.3% y/y to N21.89 billion) and non-cash expenses (+21.5% y/y to N35.30 billion). Consequent to the OPEX growth relative to operating income decline, the cost-to-income ratio (ex-LLE) settled higher at 42.3% (relative to 38.2% in 2020FY). All in, profitability was weaker, with profit-before-tax settling 7.0 percent lower year on year. Profit after tax also dropped further lower (-13.2% y/y to N174.84 billion), given the higher income tax expense (+27.3% y/y to N46.66 billion).
