FINANCIAL ANALYSTS: Analysts predict drop in Skye Bank’s earnings

A firm of financial analysts, Proshare Nigeria, has stated that Skye Bank Plc may experience reduction in its earnings for the 2015 financial year.

This came a few weeks after the lender issued a profit warning, informing its stakeholders of a possible decline in its bottom line.

According to Proshare, Skye Bank’s expensive acquisition of Mainstreet Bank and the high cost of integration of its Information Technology platforms and processes will also drive up its operating expenses as reflected in its high cost-to-income ratio which was put at above 70 per cent as of the third quarter of 2015.

Explaining further, the financial analysts said the bank had noted in its profit warning that the growing bad loans in oil and gas and real estate sectors hit its operations considerably.

Proshare said deductions from recent audited reports of a few of the banks presented so far indicated  that the average turnover growth stood at 12 per cent and profit margin of 16 per cent with an attendant surge in impairment charges and bad loans

In its publication titled, “Why investors should expect contained earning in 2015 result” published on its website, Proshare said the effects of some government policies such as the public sector funds freeze would lead to loss of trading revenues for banks, among others.

“The bank will have to deal with its significant exposure to an elongated commodities-price slump that has sparked defaults for it in the oil and gas, power and real estate sector(s),” the report published by the analysts said.

The financial analysts envisaged that 26 per cent of total loan portfolio of the bank in the third quarter of 2015 was in oil and gas while the same troubled sector owns 28 per cent of total non-performing loans (bad debts) as revealed in its Q3’15 result.

It said the oil price slump had made it significantly difficult for risk assets in the sector to perform.

“The challenge for the bank as for virtually all the banks in this risk adjustment crisis must relate to how they treat/recognise the underlying assets that collaterised both the loan and the cashflows thereon,” it said.

The analysts also noted that the banking sector generally experienced a regime of high cost of funds in a distressed economy with the twin issues of loss of revenue from public sector funds, fines and integration costs and a real estate market in a flux.

Oyetunji Abioye/Punch