UBA, GTBank outperform tier-one peers in Q1’15

Lenders in Africa largest economy Nigeria have defy analysts expectation as first quarter (Q1) earnings surged amid Central Bank of Nigeria’s (CBN) increase in interest rate and a slump in oil price that culminated in the devaluation of the naira.

The cumulative total asset of tier one banks hits N16.03 trillion, which is 20 percent of the rebased GDP of N80.22 trillion.

UBA records highest profit growth

The five tier one banks recorded growth at the bottom line with United Bank for Africa (UBA) leading the pack with a 34.71 percent increase in Q1 2015 profits, while Access Bank, Zenith Bank, GTBank, and FBH Holdings recorded profit growth of 18 percent, 17 percent, 15 percent and 5 percent, respectively.

GTBank and UBA, the most efficient in Nigeria

We believe that these lenders’ ability to cut costs while increasing profits as evidenced in reduced cost to income (CIR) ratio is responsible for the high return on investments to shareholders in the first quarter of the year.

GTBank and UBA are the most efficient lenders in Nigeria; at the moment both banks recorded the highest return on shareholder’s investment. GTBank’s 29.03 percent return on average equity (ROAE) and UBA’s 24.80 percent (ROAE) are the highest in the banking industry (see table).

UBA is the most cost efficient as it recorded the highest reduction in CIR of 7.50 percent, outperforming peers. This explains its 34.71 percent profit growth amid regulatory induced costs such as the AMCON charge.

The lower the cost to income ratio the more efficient a bank, and the higher the ratio the less efficient the lender is in reducing costs while increasing profit.

UBA has the lowest NPL ratio

Nigeria lenders have well diversified loan portfolios given their aggressiveness to lending to the oil and gas explorers, telecoms and the real sector.

UBA is improving its Risk Management Strategy (RMS) and also improving on its quality of loan portfolios given its NPL ratio of 1.6 percent, is the lowest among the tier one banks.

The average NPL ratio of 2.58 percent of tier one banks is below than 5 percent benchmark set by the CBN.