TUE, MARCH 12 2019-theG&BJournal- Winter Is Coming” is the motto of House Stark, one of the Great Houses of Westeros. The meaning behind these words is one of warning and constant vigilance.
Investors will be taken aback to hear that banks’ profits are expected to fall in 2019 compared to last year, signalling the end of free money as evidenced by a low yield environment.
Guarant7y Trust Bank (GTBank) Plc, the largest lender by market value in Africa’s largest economy said in a presentation on its website that it forecast pretax profit to increase by 2 percent this year to N220 billion after rising 9 percent in 2018.
Analysts say yield on short term government securities are expected to nosedive in the second quarter of the year after the election as the economic activities are expected to slow.
Yields on one year Treasury bill (T-bills) is at 17.6 percent, but still lower than the 22 percent it traded in 2018.
Analysis of the financial statement of lenders that have released 2018 results showed profit has been growing at a slower pace as interest income on loans and advances are no longer adding impetus to revenue.
For instance, GTBank’s net income increased by 10 percent to N184.94 billion in December 2018 from N167.91 billion as at December 2017; this is compared with a growth of 26.93 percent between 2017 and 2016 and 33.63 percent uptick between 2016 and 2016.
Interest income on similar charges were down 6.22 percent to N306.96 billion in December 2018 as against N327.33 billion the previous year; this compares with 24.70 percent growth in interest income between 2017 and 2016.
Zenith Bank Plc’s net income was up 11.29 percent to N193.42 billion in December 2018 from N173.79 billion as at December 2017; this compares with a 34.05 growth in net income between 2017 and 2016 and 22.70 uptick between 2016 and 2015.
But analysts at CSL Stock Brokers are of the view that banks will continue to make money even if yields on government instruments remain as above 10 percent, and that they believe such could mean that banking sector credit to the real sector will remain subdued for a long time.
Banking sector credit to the economy declined 2.9 percent quarter on quarter (q/q) from N15.6 trillion the third quarter of (Q3) 2018 to N15.1 trillion in the fourth quarter (Q4) 2018, according to data from the Nigerian Bureau of Statistics’ (NBS) banking sector report. On a y/y basis, total banking sector credit to the economy declined 2.5% to N61.7 trillion in 2018 from N63.3 trillion in 2017.
Corroborating CSL Stock Broker’s position is a recent data compiled by Bloomberg that showed Nigeria’s naira bonds have returned six per cent and are second best performing local debt in the emerging markets for the month of February.
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