Home Business Analysis| Nigerian banks FY 2021 scorecard is a mixed bag

Analysis| Nigerian banks FY 2021 scorecard is a mixed bag

181
0
Central Bank of Nigeria Office
Access Pensions, Future Shaping

TUE 29 MARCH, 2022-theGBJournal| ‘’The scorecard for the listed banks that have reported their FY 21 results is mixed says analysts at Coronation Research in their appraisal of FY 2021 performance.

‘’We expect an improvement in earnings in FY 22, albeit a moderate one, given still-low yields and rising costs. The data points to some winners and losers,’’ they added.

Approximately 80% of the banks within their coverage have now released FY 2021 earnings. Overall, the results across the banks were mixed, with exactly half of the banks recording growth in Net profits while the others recorded Net profit declines.

Investors have reacted accordingly, buying up those with solid earnings and good dividend yields and punishing those with weak earnings.

Net interest income, which accounts for c. 54% of the revenues of the banks, remained under pressure in FY 21.

Specifically, the still-negative inflation-adjusted market yields adversely impacted their investment securities portfolios. To mitigate this, banks took on more risk, expanding their loan books by 21.6% y/y on average, which is much higher than we had expected.

On lending, most banks stated they were implementing changes (e.g., making loans costlier for customers) in H1 21. However, this did not seem to play out for the most part. In our view, repricing loans upwards proved more challenging for the price sensitive customer base.

As a result, yields on loans were flat across our coverage but were more than double the yields on investment securities. Where banks seemed to be more successful was in lowering their Cost of Funds (borrowing costs).

Specifically, the average CoF across the banks we cover fell from 2.4% in FY 20 to 2.0% in FY 21. Overall, average Net Interest Income growth across our coverage was muted (+2.8% y/y). However, Net Interest Margins fell to 5.0% from 6.1% amidst pressured asset yields.

Elsewhere, many banks found alternative means of driving revenue growth. For example, Access Bank benefitted from significant FX gains from its sovereign swap portfolio. At the same time, GTCO and Zenith Bank recorded substantial growth in Fees and Commission income. As a result, on average, Non-Interest revenues (NIR) grew by 8.2% y/y across the coverage banks.

‘’For the most part, we have been cautious about forecasting significant earnings gains for the banks in 2022F,’’ says Coronation Research.  ‘’Although there is an upside risk to market yields from increased FGN borrowings to fund the deficit, the Central Bank of Nigeria (CBN) continues to signal that it is not in a hurry to hike interest rates’’

Q1 22 numbers are likely to reflect the drop in yields from Q4 21, especially on the income from investment securities line. As a result, NIMs are likely to remain pressured. Elsewhere, the CBN’s CRR debits put pressure on the margins of several smaller and less liquid banks last year.

The CBN has already resumed these debits in 2022 and is likely to continue throughout the year, driving illiquid banks to increase their uptake of expensive interbank and term deposits for funding.

Twitter-@theGBJournal|Facebook-The Government and Business Journal|email: gbj@govbusinessjournal.ng|govandbusinessj@gmail.com

Access Pensions, Future Shaping
0 0 votes
Article Rating
Subscribe
Notify of
guest
0 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments