There are indications that investors in bank stocks will reap a good return on their investment at the end of the 2023 financial year, given the competition among banks listed in the stock market to boost their earnings. Top four banks- Access, GTCO, Zenith and UBA are leading with average Earnings per Share standing at about 26 percent at the end of first quarter ended March 31, 2023. FESTUS OKOROMADU reports.
Competition among banking stocks to remain attractive to investors is getting hotter by the day as the average Earnings per Share recorded by top four banks in first quarter of 2023 is in the double digits with the average standing at about 26 percent.
By definition, Earnings per Share is a measure of a company’s profitability. The higher a company’s EPS, the greater the profit and value perceived by investors. Bearing in mind that quoted companies usually pay out a portion of their EPS as dividend (unless otherwise), it is therefore safe to assume that the higher the EPS the higher the prospect of a quality dividend distribution.
Analysis of the EPS of four top banks namely: Access, Guaranty Trust, United Bank for Africa and Zenith in the first quarter shows that the portion of profit attributable to every unit of their share grew by at least 13 percent year-on-year (y-o-y) thereby heightening the prospect of higher dividend payment if the trend continues till the year end.
GTCO Plc, arguably the most investor-friendly bank in Nigeria remains most outstanding, growing its EPS by 35.1 percent year on year to stand at N2.04 per share in Q1, 2023 from N1.51 per share in the same period of 2022.
UBA Plc followed with a 28.9 percent growth, reporting a return of N1.47 per share as against N1.14 in Q1, 2022.
UBA is keenly pursued by Access Holdings Plc, appreciating by 26.4 percent to N2.06 per share compared with N1.14 per share in Q1, 2022, while Zenith Bank Plc achieved the least growth among the four with 13.5 percent to stand at N2.10 per share in Q1, 2023 from N1.85 in the corresponding period of 2022.
Investment analysts at Cordros Research hinted that the strong performance of EPS reported across board in the review period is attributed to similar growth in top and bottom lines of the banks, driven by earnings from core and non-core business activities.
“Investment analysts at Cordros Research hinted that the strong performance of EPS reported across board in the review period is attributed to similar growth in top and bottom lines of the banks, driven by earnings from core and non-core business activities”
HOW THEY STAND
GTCO HOLDING PLC
The unaudited report of GTCO for the period shows that interest income advanced by 47.3 percent y/y to N104.08 billion, as all contributory lines made a rich impact. Specifically, the Holdco generated higher income from loans and advances to customers which rose by 25.0 percent y/y to N63.59 billion, investment securities grew by 49.3 percent y/y to N27.70 billion, cash and balances with banks soared 962.4 percent y/y to N12.77 billion, and loans and advances to banks appreciated by 264.2 percent y/y to N2.00 billion.
The Holdco’s interest expense increased by 63.2 percent y-o-y to N21.93 billion, primarily driven by the higher fees expensed on customer deposits which rose by 57.3 percent y-o-y to N19.94 billion).
Likewise, cost of borrowings grew by 60.6 percent y-o-y to N1.03 billion and financial institutions deposits came in higher in the period under review as it advanced by 794.7 percent y-o-y to N85.00 billion.
However, despite the expansion in expense, the group still recorded an improvement in its funding mix. Accordingly, the Holdco recorded a 43.6 percent y-o-y increase in net interest income. But as a result of higher charges for loan impairments which rose by 184.8 percent y-o-y, the net Interest income (ex-LLE) settled at N78.71 billion, translating to a 40.6 percent y-o-y growth.
The Holdco reported an 11.1 percent y-o-y increase in its non-interest income to N51.52 billion, majorly driven by the higher income from net fees and commission which rose by 59.6 percent y-o-y to N29.94 billion, thereby offsetting the little gains from FX trading and investment securities which declined by 31.2 percent and 26.0 percent y-o-y to N9.07 billion and N1.55 billion respectively.
Overall, GTCO’s profitability was stronger, with profit-before-tax settling 36.5 percent higher year-on-year to N74.09 billion.
UNITED BANK FOR AFRICA
Interest income grew by 53.4 percent y-o-y to N191.88 billion driven by gains recorded across all the major lines. The group generated higher income from the following items: loans and advances to customers, up by 36.6 percent y-o-y, investment securities, by 64.8 percent y-o-y, cash and bank balances by 210.2 percent y-o-y, and loans and advances to banks by 92.7 percent y-o-y.
UBA recorded a 79.7 percent growth in interest expense to N72.25 billion due to the higher cost incurred on deposits from financial institutions which grew by 203.6 percent y-o-y, borrowings up by 71.0 percent y-o-y, and deposits from customers by 65.4 percent y-o-y. Consequent to the faster growth in interest income than interest expenses, the group recorded an expansion in net interest income increased by 41.0 percent y-o-y.
Eventually, net interest income ex-LLE closed 39.6 percent higher y-o-y to N112.60 billion after taking account of the 68.1 percent y-o-y growth in the group’s impairment charges in Q1-23.
Also supporting earnings, non-interest income advanced during the period by 35.3 percent y-o-y to N56.08 billion, driven by gains from investment securities which grew by 127.4 percent y-o-y to N13.42 billion, net fees and commission income rose by 19.3 percent y-o-y to N28.98 billion, and FX trading up by 20.8 percent y-o-y to N12.10 billion. Consequently, operating income rose by 38.1 percent y-o-y to N168.68 billion.
All in, profit-before-tax grew by 38.0 percent y-o-y to N61.37 billion. The group recorded a 29.1 percent y-o-y growth in profit-after-tax, amid the higher income tax expense which grew 160.5 percent y-o-y to N7.78 billion).
ACCESS HOLDING PLC
During the period under review, the group’s interest income grew by 46.4 percent y-o-y to N254.22 billion, with sound contribution across all major lines except income from cash and balances with banks which declined by 6.4 percent y-o-y to N2.56 billion. Higher income was generated from loans and advances to customers as it appreciated by 62.6 percent y-o-y to N149.10 billion, investment securities rose by 18.0 percent y-o-y to N90.47 billion and loans and advances to banks soared by 360.6 percent y-o-y to N12.10 billion.
Interest expense advanced by 84.1 percent y-o-y to N158.94 billion, as the group incurred higher costs on deposits from financial institutions which grew by 152.2 percent y-o-y to N39.12 billion, deposits from customers up by 82.2 percent y-o-y to N98.09 billion, and other borrowings – interest-bearing borrowings up 27.1 percent y-o-y to N14.31 billion and debt securities issued rose by 11.4 percent y-o-y to N6.00 billion) in the period under review.
Similarly, the group’s non-interest income advanced by 42.5 percent y-o-y to N154.82 billion, primarily driven by the gains in FX trading which increased by 30.9 percent y-o-y to N112.39 billion and net fees & commission rose 5.8 percent y-o-y to N45.38 billion.
Operating expenses surged by 27.8 percent y-o-y to N149.79 billion, triggered by the combined impact of higher regulatory costs and inflationary pressures in the review period. For clarity, the group incurred higher costs on business travel expenses which rose 676.6 percent y-o-y to N7.58 billion, administrative expenses up by 105.2 percent y-o-y to N15.92 billion, AMCON levy up by 24.8 percent y-o-y to N33.32 billion, NDIC premium increased 22.0 percent y-o-y to N7.65 billion), and personnel expenses went northward 14.8 percent y-o-y to N33.57 billion.
On a balancing note, the Holdco recorded a profit before tax growth of 25.3 percent y-o-y to N81.60 billion. Eventually, the group delivered a 24.8 percent y-o-y growth in profit-after-tax to N71.66 billion, amid the higher income tax expense of 28.5 percent y-o-y to N9.94 billion in the period.
ZENITH BANK PLC
Zenith Bank posted interest income growth of 51.6 percent y-o-y to N191.63 billion, underpinned by the higher income from investment securities up by 44.7 percent y-o-y to N55.87 billion, loans and advances to customers increased by 41.1 percent y-o-y to N123.87 billion, and cash and balances with banks up by 51.6 percent y-o-y to N191.63 billion.
The management of Zenith Bank disclosed that the income growth from loans and advances to customers was due to the group repricing its risky assets during the period.
But more significantly, interest expense spiked by 174.1 percent y-o-y to N70.84 billion, reflecting the 140bps increase in the bank’s cost-of-funding (CoF) to 2.7 percent in Q1-23.
During the period, the bank incurred higher interest costs on deposits from customers as the figure rose by 160.4 percent y-o-y to N45.76 billion and other borrowings surged by 195.2 percent y-o-y to N24.42 billion, reflecting the higher interest rate environment. Accordingly, net interest income settled higher by 20.1 percent y-o-y at N120.79 billion. Eventually, the bank’s net-interest margin (NIM) for the period declined to 6.9 percent from 7.3 percent in the corresponding period of the prior year.
The bank’s non-interest income (NII) advanced by 27.1 percent y-o-y to N72.75 billion in Q1-23. This can be attributed to the expansions in net fees and commissions’ income up by 2.0 percent y-o-y to N34.15 billion and gains on investment securities up 4.0 percent y-o-y to N33.89 billion.
In the same vein, the gains on FX revaluation amounting to N1.21 billion (vs a loss of N10.48 billion in Q1-22 further supported the growth in non-interest income. This expansion in NII, alongside the growth in net interest income, led to a 23.0 percent y-o-y increase in operating income to N185.81 billion.
Further down, operating expenses rose by 19.5 percent y-o-y to N99.21 billion, with the most pressure exerted by AMCON levy up by 22.5 percent y-o-y to N37.92 billion, personnel expenses rose by 7.6 percent y-o-y to N23.17 billion, and NDIC premium rose by 31.9 percent y-o-y to N6.56 billion. Consequent to the bank’s operating income growing faster than opex, the bank’s cost-to-income ratio (ex-LLE) settled lower at 53.4 percent (Q1-22: 55.0%).
All in, profit-before-tax grew by 27.4 percent y-o-y to N86.61 billion. However, financial analysts are optimistic that the bank would record stronger income growth by year end on the back of improved risk creation, higher yields in the fixed-income market, and strong NII growth.
“Prospect for stock market investors as top four banks record double-digit earnings growth in Q1”
Wema Bank reports gross earnings of N39.35bn in Q1 2023
Another commercial bank, Wema Bank Plc has also announced its unaudited results for the first quarter ended March31, 2023.
According to a press statement issued by the bank, the lender recorded gross earnings of N39.35 billion, a year-on-year increase of 35.04 per cent (Q1 2022: N29.14bn). Interest Income went up 31.73 per cent y/y to N33.63 billion (Q1 2022: N25.53bn). Non-Interest Income up 1.96 per cent y/y to N5.72 billion (Q1 2022: N5.61bn).
The bank posted a profit before Tax (PBT) of N6.21 billion, a y/y increase of 88.18 per cent over the N3.30 billion reported in Q1 2022. Profit after Tax (PAT) also increased y/y by 88.81 per cent to N5.40 billion (N2.86bn in Q1 2022).
Total deposits in the first quarter of the year had a slight decline by 0.44 per cent to N1.160 trillion from N1.165 trillion reported in FY 2022. Loans and Advances rose by 0.47 per cent to N523.90 billion in Q1 2023 from N521.43 billion in FY, 2022.
Moruf Oseni the Managing Director/Chief Executive Officer of the bank, while commenting on the result, said: “Our Q1 2023 results show the acceleration in our growth plan and our continued focus on delivering optimal returns to our investors as well as the impact of a talented workforce dedicated to delivering exceptional service to our customers. We expect this growth to continue all through the 2023 financial year.”
Also speaking on the result, the bank’s Chief Finance Officer, Tunde Mabawonku, explained that the bank’s continued focus on prudent asset creation and management as well as its deliberate emphasis on building a best-in-class digital play is yielding commendable results and will position it for industry leadership in the future.
“It has been a good Q1 performance for the bank with gross earnings growing by 35.04% year on year and earnings per share at 168.0kobo,” Mabawonku said.