Crushing debt, dip in revenues, others threaten banks’ operations in 2021

With the current harsh operating environment, exacerbated by the impact of COVID-19 on businesses which has impacted negatively on the third quarter (Q3) result of some of the biggest banks point to an uncertain 2021 for businesses.

According to analysts, the banking sector, which has been the most liquid in the Nigerian equity market over the years, has come under significant headwind in recent months.

According to data from the National Bureau of Statistics (NBS), total banking sector credit to the economy stood at about N18.8 trillion in the second quarter of 2020, up from N17.1 trillion at the end of 2019. However, NPLs at the end of the second quarter of 2020 rose by 2.27 per cent to N1.2 trillion.

Presently, the five big banks (FUGAZ) — FBN Holdings, United Bank for Africa (UBA), Guaranty Trust Bank (GTBank), Access Bank and Zenith Bank— are currently trading at values described by operators as very low, compared to their fundamentals.

A look at the third quarter (Q3), 2020 performance of the banks revealed that despite efforts to cope with the pandemic, profit of some Tier one banks, especially GTB and and UBA, dropped.

For the Q3 ended September 2020, United Bank for Africa’s (UBA) unaudited result showed 5.99 percent growth in gross earnings, from N428.7 billion in September 2019 to N454.4 billion in 2020.

However, its profit before tax fell from N98.2 billion to N90.4 billion, while Profit After Tax (PAT) stood at N77.1 billion; thus putting the annualised return on average equity at 16.4 percent.

Similarly, Guaranty Trust Bank Q3 result showed that the group reported a PAT of 167.4 billion, representing a decrease of 1.9 per cent over 170.7 billion recorded in the corresponding period of 2019 and an improvement on the 5.2 per cent dip posted in H1-2020, relative to H1-2019.

The bank’s loan and deposit book, however, grew by 4.5 per cent and 25.1 per cent from N1.502 trillion and 2.640 trillion recorded as of December 2019, to N1.569 trillion and N3.303 trillion in September 2020 respectively.

Zenith Bank ‘s unaudited results for the third quarter ended 30 September 2020 showed four per cent rise in gross earnings to N509 billion, from N491 billion posted in the corresponding period in 2019.

FBN Holdings gross earnings grew by 5.1 per cent to N439 billion from N418 billion in the previous quarter.

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The bank’s PBT grew by 16.1 per cent to N63.3 billion while PAT grew by 31.9 per cent to N68.2 billion. Access Bank Plc Q3 2020 Unaudited results showed 15.4 per cent increase in gross earnings to N593 billion from N514 billion achieved in 2019. PBT grew by 15.7 per cent to N117 billion, while PAT grew by 15.7 per cent to N102 billion.

Reacting to the performance, the Chief Research Officer of Invest data Consulting Limited, Ambrose Omordion, said the banking sector’s Q3 numbers were mixed and flat.

He argued that, aside from GTBank that seemed to be selling at premium price, the banks were underpriced and currently selling at a discount in the stock market.

A stockbroker with APT Securities, Jamiu Kayode, said: “All the tier one banks have improved when you compare Q3 2020 to that of 2019, except GTBank and UBA whose profit dropped from N146 billion to N142 billion and N81 billion to N77 billion.”

He stated that the government must continue to create the enabling environment for companies to thrive so that loan facilities from banks would be properly utilised.