Big Banks’ Profits Rise 4% in H1:2020 Earnings Season
With stronger than expected first half 2020 profitability records, the Nigeria’s bulge bracket balance sheet deposit money banks earnings performance defied COVID-19 to show strengths.
The big five names like FBNH, ACCESS, UBA, Zenith and GTBank defied negative prediction about the banking sector performance in the first half of 2020 as combined profits hit ₦353 billion, representing a 4% growth when compare with ₦338.05 billion reported in the comparable period in 2019.
With the results, analysts said the big lenders bucked emerging market trend combining improved earnings capability with cleaner risk assets.
Recalled that amidst the outbreak of the COVID-19 pandemic, a slew of equity analysts from leading investment banking firms had projected a blurry earnings season for lenders.
Analysts’ bearish outlook had hinged on lower global oil prices, devaluation of the local currency amidst foreign exchange scarcity and the need for loans restructuring.
Zenith Bank Plc maintained the lead as the lender’s raise profit for the year by about 17% to ₦103.8 billion at the end of the first half of 2020 despite the fact the economic lock down.Big Banks' Profits Rise 4% in H1:2020 Earnings Season
Meanwhile, in the virus-free first half of 2019, lender’s profit after tax came at ₦88.99 billion.
GTBank, the industry profitability challenger came close but it after tax profit actually declined in absolute term.
The lender’s profit after tax printed at ₦94.231 billion in the first half of 2020, representing a 5% year on year decline when compare with ₦98.916 billion reported in the comparable virus-free earnings season in 2010.
Access Bank Plc size of profit came third in the ranking, though it dropped year on year amidst lower economic activities.
The lender recorded a profit after tax of ₦61.034 billion, representing a marginal decline of 1.4% when compare with ₦61.874 billion in the first half of 2019.
FBNH, after its successful balance sheet repair, gained momentum as it delivered a mouth-watering earnings performance that excite slew of equity analysts.
The centenarian lender raised profitability strongly above its peers in the sector despite a virus-infected economic environment.
Its profit after came at ₦49.46 billion, which translated to a 56.32% uptrend when compare with ₦31.64 billion reported in the comparable period.
Due to its footprint across the African soil, the United Bank for Africa reported worst year on year decline in profitability in the first half 2020.
UBA profit declined 21.6% year on year to ₦44.431 billion in the first half of 2020 as against ₦56.739 billion reported in the comparable year in 2019.
With the earnings scorecard, a slew of analysts raised earnings expectations for the second half of 2020.
Meristem Securities Limited rated FBNH BUY as analyst upgrade expected earnings per share (EPS) to ₦2.43 from ₦2.00, following the completion of the divestment.
Analysts maintained target price earnings of 2.87x, which yields a December 2020 target price of ₦6.97, thus indicates an upside potential of 38.10%.
Meristem noted that FBNH sustained its earnings momentum from the first quarter, albeit as expected, growth was at a much slower pace.
This was off the back of a weak second quarter scorecard, which portrayed the impact of the pandemic on its business.
Specifically, gross earnings growth slowed to 5.82% year on year from 14.50% in the first quarter.
This was fueled largely by a 37.28% quarter on quarter decline in non-interest income and more weakness in interest income.
Analysts said the 2.28% dip in interest income is unsurprising given the current yield backdrop, triggering further depression in the company’s asset yield to 10.80% from 11.40% in H1:2019.
In the first half, GTBank pretax and profit after declined by 5.1% and 4.7% to ₦109.7 billion and ₦94.3 billion respectively.
Analysts at ARM Securities Limited explained that drivers for the performance were moderation in non-interest revenue and an expansion in loan loss provision and operating expense.
ARM Securities said it left most of its estimates unchanged save for the potential impact of the revised savings deposit rate on interest expense.
“We now expect GTB to record a slight expansion in PAT of 5.3% to ₦207.4 billion over 2020”, the firm said in its equity note.
ARM Securities also rate GTB stock a buy, upgrade fair value to ₦38.85/share from ₦37.0/share
“We continue to favour GTB and Zenith among the banks given their adequate buffers to withstand the prevailing pressures”, analysts explained.
GTBank bolstered gross earnings by 3% year on year to ₦228.3 billion. The bank’s net Interest income grew 10% to ₦127.6 billion thanks to a 20% moderation in interest expense.
Meanwhile, the bank’s non-interest income grew by a modest 2% to ₦74.6 billion, caused by a 30% decline in fees and commissions income to ₦24.7 billion, which offset an impressive 723% growth in foreign exchange gains, a result of the local currency devaluation.
Zenith Bank reported a 4% year on year growth in gross earnings to ₦346.1 billion, which was stronger than Vetiva Capital estimate of ₦336.240 billion.
Analysts said this was mainly driven by a 10% growth in non-interest income to ₦129.3 billion – though Vetiva forecasted ₦114.8 billion – the result of a 240% jump in currency revaluation gains to ₦22.0 billion.
Meanwhile, interest income improved by only 1% to ₦216.9 billion, although interest expense moderated 17% to ₦59.5 billion, thanks specifically to a 50% decline in interest paid on borrowed funds.
“We had anticipated an improvement in non-interest income to offset the likely decline in interest income in Q2.
“As expected, income from investments, specifically currency revaluation gains of 180% quarter on quarter drove a 46% quarter on quarter growth in non-Interest income.
“Going forward, whilst we do not anticipate further devaluation of the local currency, we foresee more support from this line item in the second half of 2020, driving our improved forecast of ₦258.5 billion to offset the decline in Interest Income”, Vetiva Capital explained.
In the period, Zenith’s net interest income printed at ₦157.409 billion as against ₦142.515 billion in the comparable period in 2019.
Amidst the industry challenges in financial assets pricing, the lender was hard hit due to decline in fair value of its portfolio assets.
A whooping sum of ₦23.923 billion was charged against income statement as impairment on financial assets class, more than 74% over ₦13.735 billion that was booked in the comparable period.
Meanwhile, about 40% year on year decline in net fee and commission income drag the lender’s operating income in the first half.
However, there was significant uptick in net trading and other income lines, thus compensated for drag in fee and commission income.
Net trading income expanded 30.5% year on year from ₦45.101 billion to ₦58.83 billion at the end of first half of 2020.
Similarly, other income line came stronger at 174% year on year increase from ₦8.81 billion to ₦24.151 billion.
For Access Bank, the struggle to becoming the gateway to the world trade centre has begun.
In the first half of the year, the largest bank by assets leveraged on size to build earnings capability as topline grossed ₦396.767 billion, representing a 22.3% year on year growth.
Lender’s net interest income however dropped by 18.7% to ₦126.207 billion from ₦155.146 billion in the comparable period in 2019.
Surprisingly, lender’s non-interest income rose massively by 194.5% year on year to ₦138.852 billion as against ₦47.150 billion in H1: 2019.
Having expanded by more than 31%, operating income printed at ₦265.039 billion in the first half of 2020, from ₦202.296 billion.
Its pre-tax profit records shows a marginal uptick as it berthed at ₦74.306 billion from ₦72.965 billion in the first half.
The banking industry has witnessed a stiffer regulations as the apex bank issued various circulars that diluted earnings potential.
With the improved performance, hope for economic recovery is partly rekindle as Broadstreet raised earnings expectation for financial year 2020.