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Macro-economic, regulatory pressures diminish top banks’ efficiency



The financial results of the leading banks in Nigeria has indicated that they faced significant challenges in 2021 financial year, FY’21, which still lingers through first quarter of 2022, Q2’22.

The banks include Access Bank, First Bank, Guaranty Trust Bank, Stanbic Bank, United Bank for Africa, UBA, and Zenith Bank.

Though their earnings record, on the average, was not impressive, some financial analysts believe that despite the sustained pressures in Q1’22, an improvement in earnings is expected in the full year of 2022, FY’22, albeit a moderate one, given the continued low yields and rising costs.

Overall across the tier-1 banks including Stanbic the tier-2 leader, the results were mixed, with exactly half of the banks recording growth in net profits while the others recorded declines.


Net Interest Income, NII, which accounts for 54% of the revenues of the leading 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% Year-on-Year on average.

On lending, most of the banks were implementing changes, such as making loans costlier for customers, in the first half of 2021, H1’21.

However, this did not seem to playout well for the most of them. Analysts at Coronation Merchant Bank said, ‘‘re-pricing loans upwards proved more challenging for the price-sensitive customer base.’’


As a result, yields on loans were flat across most of the banks but the case was different on investment securities where yields more than doubled.

The banks seemed to be more successful in lowering their Cost of Funds, CoF. Specifically, the average CoF across the leading banks fell from 2.4% in FY’20 to 2.0% in FY’21.

Overall, average NII growth across the banks was muted (+2.8% YoY). However, Net Interest Margins, NIM, fell to 5.0% from 6.1% amidst pressured asset yields.

Elsewhere, the 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% YoY across the selected banks.

The comparative performance of the leading banks in the efficiency ratios also re-enforces the mixed financial results across the industry.

While the average NII for the top banks was 2.8%, four of the top banks recorded increases in their NII, but two recorded significant declines.

UBA was leading in the positive NIIs significantly above the average at 22.1 percent, followed by Access Bank at 14.6%. Zenith bank came third at 7.0% and Stanbic came with 1.6%.


Net Interest Margins 

As the NIM narrowed during the year, the leading banks’ average was 5.0% as against 6.1% in 2020.

GTCO which led the pack performing above the average, rose 7.1%, but this shows a push back from 9.2% in 2020. It is followed by First Bank (though in nine months to September) rising 5.1% as against 6.8% in the full year 2020.

Stanbic rose 4.9% as against 6.3% in 2020, Zenith rose 4.8% as against 5.6% in 2020, while UBA rose 4.1% same in 2020 and Access Bank rose 3.9% as against 4.7% in 2020.


Cost of Funds, CoF

The top banks’ were able to fight the cost pressure successfully leading to an average CoF of 2.0% as against 2.4% in 2020.

Again GTCO emerged most successful doing better than the average with 1.2%, also better than the 1.4% in 2020. It was followed by Zenith which recorded 1.5% as against 2.1% in 2020; and followed by Stanbic in beating the average at 1.8% as against 2.4% in 2020.

First Bank recorded 1.9% in its nine months as against 2.3% in the full year 2020; UBA was 2.2% as against 2.9% in 2020; and Access was 3.4% as against 3.3% in 2020.


Cost-to-Income Ratio

The banks’ Cost-to-Income ratio deteriorated during the year with the top banks’ posting average of 57.4% as against 54% in 2020.

However, GTCO significantly outperformed the tier-1 average posting 41.4%, though less efficient compared to its 2020 record of 36.4%. Zenith followed in the above average performance with 46.0% even better than its 2020 record of 45.4%.

Access recorded 58.8% as against 63.4% in 2020; Stanbic was 62.1% as against 47.4% in 2020; while UBA was 62.7% as against 61.8%; and First Bank was 73.5% as against 68.6%.


Return on Average Equity

As a result of the narrowing margins and other pressures Return on Average Equity (RoAE) amongst the top banks pulled back to average of 16.2% as against 19.7% in 2020.

Again, GTCO was in the leading position, outperforming the average recording 20.6%, but was behind its 2020 record of 26.8%.

Other above average performance are Zenith which was 20.4% as against 22.4% in 2020; and Access Bank which the only bank in the tier-1 recording improvement in RoAE at 17.8% as against 15.6% in 2020.


UBA recorded 15.6% as against 16.6% in 2020; while Stanbic was 15.1% as against 24.4% in 2020; and First was 7.7% as against 12.6% in 2020.

2022 Outlook

In the Q’22 most of the challenges faced by the banks were still much in play. They include rising cost of operations declining yields, regulatory and monetary policy shackles as well as the general macro-economic headwinds.

Speaking on weathering the storms in 2022, analysts at Coronation Bank said, ‘‘For the most part, we have been cautious about forecasting significant earnings gains for the banks in 2022F.


Although there is an upside risk to market yields from increased FGN borrowings to fund the deficit, the 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 (Cash Reserve Requirement) 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.’’


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