The 2016 financial results of banks showed they were able to surmount the headwinds caused by a shortage of dollars and the exposure to the oil and gas.
Eight out of the eleven lenders under our coverage grew profit on the back of foreign exchange gains and increase in the interest on loans and advances to customers.
Unity Bank and Fidelity Bank recorded took a hit at the bottom lines.
Ecobank Transnational Inc; the pan African lender posted its first loss in a decade. The lender blamed the poor performance on a tough operating environment and the impact of the voluntary adoption of a full impairment charge on its legacy loan portfolio.
The cumulative net income of 11 lenders under our coverage increased by 4 percent to N430.92 billion in December 2016 while interest income moved by 14.58 percent to N2.20 trillion.
Analysts say banks may continue to face the challenges of rising Non Performing Loans (NPLs) as a slow growing economy hinder customers from honoring obligation to financial institution.
“Banks will have to moderate the level of loan delinquency,” said John Chukwu chief Executive Officer of Cowry Assets Management Limited.
The bad-debt ratio at Nigerian banks rose to 13.4 percent last year, according to a report by the Central Bank of Nigeria (CBN).
lenders 2016 loan, deposit and impairment charge growth
Source: Company financial, BMI
Moody’s Investors Service said on Monday that Nigeria’s five biggest banks share common credit challenges related to the economic slowdown. Moody’s expects non-performing loans to increase to about 12 percent over the next 12 months.
A militant attack on oil facilities in the Niger Delta region has compounded banks woes as oil companies’ cash flows were hard hit hence their ability to pay back loans jeopardized.
The economic downturn has resulted in huge write-offs for banks. Combined loan loss expense otherwise known as impairment on financial assets of the 11 lenders spiked by 112.91 percent to N497.20 billion, data gathered by BMI shows.
It must be noted that the devaluation of the naira as a result of the adoption of a flexible exchange rate was a boon for lenders as cumulative total loans and advances 17.79 percent to N12.58 trillion as at December 2016.
A weak currency bolstered the dollar denominated debt in the books of some financial institution.
Guaranty Trust Bank Plc, Nigeria’s biggest bank by value, recorded foreign exchange (FX) revaluation gains of N87.12 billion, United Bank for Africa (UBA) recorded FX gains of N15.12 billion while Zenith Bank’s FX gains stood at N25 billion as at December 2016.
BALA AUGIE
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