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.
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