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Nigerian Big Banks profit growth slumps as virus hurts economy

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Nigeria’s largest banks posted the slowest profit growth in five years as stringent policies by regulators and the unprecedented economic uncertainty caused by the coronavirus pandemic cast a pall on future earnings growth.

Their combined income rose by 6.60 percent to N232 billion in the first three months through March, which compares with 15.71 percent, 13.01 percent, and 31.06 percent growth in 2019, 2018, and 2017 respectively.

The slow growth at the bottom-line was largely driven by a low yield environment as the regulator (CBN) late last year barred individuals and local corporates from investing in Open Market Operations (OMO) auctions.

As a result of the more stringent monetary policy, average fixed income yields across all tenors now hovers between 1-4 percent, which compares to an all-time high of 22 percent and 18 percent in 2017, a period when lenders made money from short term government securities.

Analysts say banks’ profit growth will continue to decelerate because the lockdown induced by Covid-19 means operators in the industry will have to brace for loan losses as the pandemic casts serious doubts over the capacity of consumers and companies to pay their debts.

What this means is that bad loans will have to be written off, eating deep into gross earnings, and leaving very little to absorb operating expenses and foreign exchange loss.

“Earnings will be beaten down and Non-Performing Loans (NPLs) will go up in the third quarter since customers will find it practically difficult to meet their obligations due to the lock down induced policy,” said Wale Okunrinboye analyst at Sigma Pensions Limited.

Okunrinboye said that the central bank will have to step in to restructure some of the loans, because a lot of retail and personal loans will go bad.

Moody’s Investors Service has changed from stable to negative the banking system outlook for Nigeria because of the fallout of the rampaging coronavirus pandemic and oil price slump on the economy.

“In Nigeria, banks will face weakening loan quality and foreign-currency liquidity as low oil prices and the pandemic weigh on the economy,” said the ratings agency.

Some Nigerian banks have placed a hold on loan repayment plans for Small and Medium Enterprises (SMEs).

Guaranty Trust Bank, the largest lender by market value has given a 90 day moratorium to small businesses so as to cushion the effects of the coronavirus pandemic on their businesses.

A breakdown of the profit figure shows GTBank’s net income increased by 1.55 percent to N50.7 billion as at March 2020, which compares to a 10.15 percent expansion in 2019, 7.69 percent increase in 2018, and 61.19 percent expansion in 2017.

Access Bank’s net income tumbled 0.53 percent to N40.92 billion  as at March 2020, which compares with record 86.06 expansion in 2019 financial period, 1.30 percent contraction in 2018, and 33.98 expansion in 2017.

Zenith Bank’s net income was up 0.58 percent to N50.52 billion in the period under review, which compares with a 6.70 percent expansion in 2019, 25.54 percent uptick in 2018, and 33.98 percent increase in 2018.  

United Bank for Africa (UBA)’s net income increased by 0.58 percent as at March 2020, which compares with an uptick of 20.76 percent in 2019, 6.20 percent expansion in 2018, and 31.57 percent increase in 2017.

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