CBN Governor, Godwin Emefiele
CBN Governor, Godwin Emefiele

Tier 1 Banks cut 82% of industry’s Profits, account for 75% of Assets

Once again, the big balance sheet banks or “the big-5” listed on the floor of the Nigerian Stock Exchange crowded out their counterparts in the industry as they raked in more than 82% of the industry profits in the first half of financial year 2019.

Further analysis however shows that two banks -GTB and Zenith Plc- accounted for 55% of the profits attributed to Tier I banks, and 45% of the industry’s aggregate in the first half.

These top banks led the rush to safe investment when the nation’s economy dropped down to negative growth in 2017.

The banking sector statistics show most of the banks in the trillion naira assets bracket recorded lower loan to deposit ratio, the pattern that the apex bank saw before it issued its 60% benchmark circular.

Buckled with strong capital adequacy level compare with small size, analysts said this performance is largely on the financial strengths of the big banks with windows to deep pockets financing sources.

“Some of these Tier I banks placed as much as N1 trillion in government securities, and that soften ground for them. Small size banks can’t do that, they don’t have funds to play heavily in government securities, financial experts told MarketForces.

“Until yield started reversing, big banks have been playing strongly in government securities. They were making cool double digit return on investment outlay as big as N1 trillion”, analysts said.

Also, analysts said Tier I banks financing sources are cheaper compare with smaller ones. They noted that GTB has lowest cost of funds at 2.8% as at first half because the bank plays strong at the retail end.

Analysts at a forum organised by MarketForces in the week to discuss banking sector and the economy stated that if Zenith bank is able to develop footprint in the retail segment, its cost of funds may likely dropped below 3% because of its extra capital buffer.

These top five banks, a version of local economy bulge brackets, with carrying value of combined total assets of N26.757 trillion have known to be taking high ticket transactions in the sector.

At the end of first half 2019, these 13 banks combined total asset was N37.743 trillion. This means that the big “5” accounted for 75% of total assets excluding Ecobank Transnational Incorporation.

Leveraging on their strengths, strong capital and liquidity, Tier 1 capital bank have remained a go to partner for highly capital intensive projects in the economy, although many of them however shifted strategy into fixed income market.

The penchant for dealing in fixed interest rate securities is a new normal, some analysts said. They said it is a way to guide against default risk, lowering non-performing loans and improve risk assets in the industry.

In the recent time, the CBN stated that the industry NPL has nosedived. At the end of financial year 2018, banking sector NPL rested at 11.4% as against 14.8% recorded in 2017.

In May 2019, the sector NPL dropped to 9%, it had settled at as high as 15%% in June 2017. It was gathered that the newly adopted strategy by banks to focus heavily on government securities.

This was achieved in addition to aggressive recoveries loans forced NPL down as credits charge on impairment decline on banks book.

In 2018, non-performing loans was N1.792 trillion from gross loans of N15.353 trillion. Preference for cleaner book rather than increased loans portfolio is reflecting on the industry’s statistics, analysts said.

Meanwhile, GTB leads the pack of the most profitable bank in the first half of financial year 2019.Followed closely was Zenith Bank having dropped from usual first rank.

The largest bank by total assets came third. UBA clicked the fourth position and FBNH came after from the bottom of the rank among the Tier 1 gang.

While Tier 1 banks aggregate profits settled at N343.8 billion, GTB with profit record of N99.1 billion accounted for 28.82% of the Tier I class aggregate.

Zenith did N88.8 billion post tax profit, as such accounted for 25.83% of the top five banks total profit.

Access Bank profit settled at N63 billion having muscled up by successfully combine operation with former Diamond bank Plc. At this level of profitability, Access Bank accounted for 18.32% of the Tier I class aggregate profits.

UBA did N56.7 billion in unencumbered profit, thus accounted for 16.49% of the aggregated.

At the bottom of the rank, first bank did N36.2 billion and in relative term contributed 10.5% to the tick financially positioned banks’ profits in the first half of the year.

Other eight banks, apart from Ecobank Trans International, aggregate profit closed the first half at N73.882 billion. Among them, Stanbic IBTC raked in N31.7 billion, Fidelity N13.7 billion and Union N11.9 billion.

Both Unity and Jaiz bank profit were below N1 billion.