Nigerian banks bemoan difficult operating environment in 2013 third quarter reports

Increased regulatory directives by the Central bank also affected the banks.

The difficult operating environment in Nigeria’s banking industry has reflected in the books of the banks, according to the nine months report on the financial returns of ten banks released for the third quarter of the year.

The banks that have released their financial report for the nine months ending  September 30, include Diamond Bank PLC, UBA; Access Bank PLC, Fidelity Bank PLC, Zenith Bank PLC, Skye Bank PLC, Stanbic IBTC Bank PLC, First City Monument Bank (FCMB) PLC, and EcoBank International.

The performance of the banks was not surprising to most finance analysts, as the various numbers fell within the range of expectations.

The results, however, have mixed impacts as almost all the banks recorded positive and negative performance highlights, with the increase in the Asset Management Company (AMCON) levy, Cash Reserve Ratio, CRR, cut in Commission on Turnover, COT, among some recent policies, weighing in on their earnings and profits.

The Chief Executive Officer, Stanbic IBTC Holdings, Sola David‐Borha, described the banking operating environment as unfriendly, assuring, however, that the bank would strive to achieve its already forecasted goals for the remaining part of the year.

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“Whilst the operating environment has been difficult, particularly with a number of far-reaching regulatory changes, we remain optimistic that we will achieve our set objectives for 2013,” Ms. David‐Borha, said.

The bank’s balance sheet size grew by 29 per cent within the nine months period covered by the report, while gross revenue was up 30 per cent year‐on‐year.

In addition, its liability generating capabilities improved as reflected by the 38 per cent growth in customer deposits in the first nine months of the year.

The financial highlights included gross earnings of N82.9 billion, up 30 per cent (about N64 billion in September 2012); net interest income of N27.1 billion, up 2 per cent (about N26.6 billion in September 2012); non‐interest revenue of N36.4 billion, up 71 per cent (about N21.3 billion in September 2012); total operating income of N63.5 billion, an increase of 33 per cent (N47.9 billion in September 2012), among others.

The Managing Director/CEO, Zenith Bank, Godwin Emefiele, said the bank sustained improvements in its net interest margin, NIM, year-on-year as well as quarter-on-quarter as it had to respond to the regulatory environment by the re-allocation of resources and optimal pricing of asset and liabilities, to counter the effects of the new CRR regime and increased savings deposit cost on its operations.

“Our cost-to income ratio remained stable, despite increased AMCON charge and new COT tariff as we continue to push for other non-interest income through deployment of e-banking products and services,” he said.

The bank’s cost-to-income ratio declined quarter-on-quarter, but increased marginally year-on-year due to the downward review of COT and other bank tariff, increase in AMCON charge, and increase in staff cost.

Profit Before Tax, PBT – N83.04billion, up 10.39 per cent from N75.22 billion in the third quarter of 2012, while profit after tax, PAT, rose to N69.75 billion from N64.06 billion in the first half of 2012.

As COT income began to decline, the bank said it was able to improve on other streams of income, especially in foreign exchange trading, with the bank’s interest income from loans increased by 15 per cent, year-on-year,  even as interbank placements declined by 29 per cent.

The CRR increase by the Central Bank of Nigeria, CBN also affected the bank’s interbank placements, according to the reports.

The Group CEO, EcoBank International, Thierry Tanoh, also highlighted effects of Nigeria’s operating environment on the bank’s books, saying returns in Nigeria were affected by regulatory headwinds.

He said these effects were offset by greater profitability from other parts of the group, particularly in Ghana and the Central African cluster, which showed the benefit of the bank’s geographic diversification.

Financial highlights include net income attributable to shareholders of $217 million, up 74 per cent from the previous year; net revenue of $1,456 million, up 24 per cent, and pre-tax profit of $299 million, up 56 per cent, from the prior year; basic earnings per share of 1.26 $ cents, up 40 per cent, compared to 0.90 $ cents in the previous year.

Cost-to-income ratio of 71.5 per cent, reduced from 76.5 per cent, while return-on-average equity of 15 per cent, increased from 11.9 per cent in the previous year.

Total asset of $21.5 billion, up $3.0 billion, or 16 per cent from the previous year; customer loans of $10.5 billion, up $1.9 billion, or 23 per cent from the previous year, while customer deposits was $15.7 billion, up $2.6 billion, or 20 per cent from the previous year.

The Managing Director/CEO, Fidelity Bank, Reginald Ihejiahi, said the bank had to device other means to create income, due to the negative impact of sector regulatory policies.

“The quarter ended September 30, 2013 recorded strong market volatility due to increased monetary tightening by the Central Bank of Nigeria (CBN), which took over 50 per cent of public sector deposits held by banks, without giving compensation,” Mr. Ihejiahi said. “As a result of this, our net interest margin became threatened, despite on-going pressures on activity-based income resulting from the continued CBN tariff reform.

“In the light of the sustained monetary policy tightening, we have sharpened our focus in implementing our medium term branch roll-out programme and increased recruitment of key businesses in the Small and Medium-scale Enterprises, SME, space in order to continue to build up deposits in the retail business segment, while building the business of tomorrow” he said.

In the months to come, he said the bank expects that the resulting improvement in deposit mix would provide strong impetus for wealth creation for all its stakeholders, while they would continue to pursue new strategies for propelling the share of the Nigerian banking market.

Highlights of the bank’s books include profit before tax, PBT, of N13.66 billion for the nine months ended September 30, 2013, which represents a 16.3 per cent drop from N16.32 billion recorded for the period ended September 30, 2012.

Gross Earnings increased by 13.4 per cent to N92.78 billion for the period to September 30, 2013 from N81.80 billion recorded in September 30, 2012, with net interest income growing marginally by 4.1 per cent to N25.71 billion for the period ended September 30, 2013 from N24.7 billion recorded in September 30, 2012, due to tightened monetary policy environment.

Non-interest Income also experienced marginal growth of 1.5 per cent to N26.50 billion during the period, from N26.12 billion recorded for the corresponding period last year, due to increased pressure on tariff from the CBN.

The Group Managing Director designate of Access Bank Plc, Herbert Wigwe, said the impact of on-going regulatory development has affected the overall operating environment in the banking sector in 2013.

He, however, said the bank’s medium term strategy has put it in a position to cope with these industry headwinds, adding that the improved operating performance in the third quarter would provide the platform for achieving its goals in 2014 and beyond.

Gross earnings of the bank declined 4 per cent to N154 billion, from N162 billion recorded last year; 2 per cent quarter-on-quarter basis to N50.2 billion from N51 billion in the second quarter of 2013; PBT also declined year-on-year to N35 billion, from N39 billion as at last year, while operating income declined year-on-year to N104 billion, from N113  billion recorded last year, and 4 per cent improvement in quarter-on-quarter performance of N35 billion from N34 billion in the second quarter of 2013.

Net interest margin declined year-on-year to 7.1 per cent, compared to 7.7 per cent last year, though it increased quarter-on-quarter from 6.6 per cent to 7.4 per cent, with cost to income ratio of 69 per cent, as against 66 per cent last year due to pressures on earnings, among others.

Meanwhile, the bank said it commenced the focused implementation of its 2013 – 2017 medium term strategy, with strong loan growth with good quality names and revenue benefits expected to begin to accrue from the fourth quarter and beyond.

UBA recorded a profit before tax of N43.43 billion, compared with N42.24 billion last year, an increase of 2.8 per cent, while profit after tax was N37.37 billion, compared with N36.50 billion, an increase of 2.5 per cent.

Total comprehensive income for the period was N48.74 billion, compared with N37.92 billion, an increase of 28.5 per cent, among others.

UBA’s Group Managing Director/CEO, Phillips Oduoza, said results for the quarter reflected strong contributions from UBA’s Corporate Banking as shown in the increase in interest income generated from loan growth from Corporate Banking Division and from African Commercial Banking Groups.

“In line with our guidance for loan growth, we increased our exposure to the power, upstream oil & gas and telecoms sectors of the economy. We firmly believe that the effect of the asset creation decisions we have taken this quarter will have a sustained impact on our revenue growth,” he said.

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