Fragile economic recovery affecting banks’ profitability – Experts
The total asset base of three top commercial banks dropped by N137billion between the first quarter of 2017 and the first quarter of 2018, investigations by The Point have revealed.
Market pundits, who spoke to The Point, blamed the poor performance on the slow pace of recovery in the economy, delay in passage of 2018 budget, insecurity in some parts of the country, which has constrained business operations in those areas, and contraction in yield from Federal Government’s debt instruments, which affected income from banks.
Now, we are at the positive level but the rate of change in the Positive, is slow because the economy is normalising. It has not gathered momentum again for it to start ‘firing’ ahead
A detailed analysis of the bank’s 2018 first quarter results showed that total assets of the affected financial institutions declined from N10.035trillion as at the end of the first quarter of 2017 to N9.898trillion in the same period of June 2018.
The banks are Ecobank Transnational Incorporated, Diamond Bank Plc and Union
Bank Plc.
Specifically, while the asset base of ETI dropped from N6.864trillion in the first quarter of 2017, to N6.837trillion in the comparative period of June 2018, Diamond Bank’s declined from N1.715 trillion in 2017 to N1.680trillion in the same period of 2018. Union Bank recorded a decrease from N1.456trillion in the first quarter of 2017, to N1.381trillion at the end of June 2018.
ETI said its profit for the period ended March 31, 2018, rose by 48.6 per cent to N27.75 billion, from N18.68 billion recorded a year earlier. Similarly, pre-tax profit increased by 48.1 per cent to N33.90 billion, up from N22.89 billion declared the same period of 2017.
Gross earnings of the bank grew from N178.38billion to N198.61billion in the review period of 2018, showing a growth of 11.3 per cent.
An economist and financial analyst, Mr. Stephen Edwards, said the fragile economic recovery constrained companies’ profitability. He explained that the much trumpeted expansion in the economy, which had persisted in the last three quarters, as represented by improvement in macro-economic indices, failed to lift the fortune of companies operating in the country.
Managing Director/Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said a lot of the profit the banks made in the first quarter of last year was from investment in government securities when they were enjoying a yield of close to 22 per cent.
“If you compare that to this year’s, you will observe that the rates have dropped drastically; we are looking at Treasury bill (364 days TB) at nine to 11 per cent, when at the same time last year, it was about 18 per
cent.
“So, for the banks, they have lost a lot of revenue from investment income in Federal Government debt instruments and they have not been able to successfully switch their investment to loans and it will take some time to adjust their books to quality credits. All these indicators have affected their total assets.”
According to Mr. David Adonri, Managing Director/Executive Officer, Highcap Securities Limited, though the country has exited recession, growth in the economy is still at snail
pace.
“That is the reason the performance has not drastically changed. You know, the financial performance of companies changed drastically last year because of the movement from negative to positive rating; so the change was quite
dramatic.
“Now, we are at the positive level but the rate of change in the Positive, is slow because the economy is normalising. It has not gathered momentum again for it to start ‘firing’ ahead.”
Managing Director, Afrinvest Securities Limited, Mr. Ayodeji Ebo, said foreign exchange speculators, who had converted their naira to the dollar, were now re-converting the greenback to naira in order to invest in fixed income securities.
He said those that doubted the ability of the CBN to sustain its intervention were now convinced that the banking sector regulator had enough ammunition to sustain its foray in the market.
“People have been observing the development in the forex market. We have observed, for over four months, that the CBN has continued to emphasise that it will continue to intervene. Some of these policies have in one way or the other affected the banks’ performance generally.”
