Business

Banks struggle between steady income lines, declining profits

Published

8 years ago

June 25, 2018

About two-thirds of banks witnessed a contraction in their profitability in the first quarter (Q1) of this year, struggling between relatively steady income lines and declining yields on transactions.

According to findings by National Daily, average profit-making ability of the banking industry declined by 48 basis points to 19.19 per cent in first quarter of the year compared with 19.67 per cent recorded in corresponding period of last year.

Pre-tax profit margin-which measures the underlying profitability of a corporate’s transaction and a global standard for measuring profitability while the analysis covered all quoted commercial banks that have so far submitted their first quarter report was used.

Guaranty Trust Bank-Nigeria’s most capitalised bank still retained the highest profit-making capability in the industry, although pre-tax profit margin slipped marginally from 48.39 per cent in first quarter 2017 to 48.29 per cent in first quarter 2018.

In actual, Zenith Bank took the lead with the largest pre-tax profit of N54 billion in the period under review. Diamond Bank had the least profit-making capacity during the period with pre-tax profit margin of 2.58 per cent, a major contraction from 10.21 per cent recorded by the bank in first quarter 2017.

Altogether, the surveyed banks recorded total profit before tax of N255.86 billion as against N229.01 billion recorded in Q1, 2017. Gross earnings for the three-month period ended March 2018 stood at N1.12 trillion as against N1.056 trillion recorded in corresponding period of 2017. After taxes, net profit also increased from N191.85 billion in 2017 to N217.85 billion in 2018.

Many analysts and bank executives still regarded banks’ performance during the period under review as a positive outlook, expressing optimism that the banks would ramp up performance in the next quarters.

“GTB’s Q1 2018 results are tracking slightly ahead of consensus 2018 estimated profit before tax forecast of N203 billion. Consequently, we expect to see modest upward revisions to consensus 2018 estimated profit before tax forecasts and a positive reaction from the market,” analysts at FBN Quest stated.

Group Managing Director, United Bank for Africa (UBA) Plc, Mr. Kennedy Uzoka, said the group’s first quarter was impressive given the intensifying competition and moderation in yield environment in Nigeria and Ghana.

According to him, the result is a good start to the year and a reflection of the bank’s capacity to sustainably grow earnings over the medium to long term.

Managing Director, Sterling Bank Plc, Mr. Abubakar Suleiman, said the bank’s performance in first quarter 2018 was a promising start to the year.

He said the bank has continued to experience a significant improvement in asset quality as cost of risk declined by 140 basis points to 0.8 per cent by first quarter 2018 from 2.2 per cent in 2017 while the 65 per cent growth in net profit has improved Return on Average Equity by 410 basis points to 12.8 per cent