Banks Record Lower Impairment Charges as Risk Management Improves

Goddy Egene
Banks have started improving on their risk management leading to a lower impairment charges and cost of risk (COR) for the first quarter ended March 31, 2016, THISDAY checks revealed on Monday.

Huge impairment charges on delinquent loans as a result of the decline in oil prices and general economic headwinds affected the profitability of the many banks in 2015. However, there appears to be an improvement going by the Q1 results.

An analysis of Q1 results released by four top banks-Access Bank Plc, Guaranty Trust Bank Plc, United Bank for Africa (UBA) Plc and Zenith Bank Plc- showed that while total loans and advances increased in Q1 of 2016, the impairment charges reduced indicating improved risk management.

The four banks gave out total loans of N5.778 trillion, up from N5.677 trillion as  at December 31, 2015, while  impairment charges fell from N11.826 billion to N9.364 billion.

Zenith Bank loans stood at N1.928 billion,  up from N1.902 trillion, while  Access Bank Plc advanced N1.438 trillion, compared with N1.366 trillion in 2015.
UBA’s   loans rose from N1.037 trillion to N1.049 trillion. However, GTBank recorded a lower loan of N1.363 trillion, down from 1.372 trillion.

In terms of impairment charges, only Zenith Bank Plc recorded increased provision from N2.577 billion, up from N2.090 billion.  But GTBank recorded impairment charges of N3.386 billion, down from N3.526 billion, while UBA ended the quarter with  impairment charges of N1.003 billion,  down from N2.342 billion.

Access Bank Plc recorded impairment charges of N2.398 billion, down from N3.868 billion in 2015. Analysts at Cordros Capital Limited, an investment banking firm, said the improvement recorded in impairment by Access Bank drove the bank’s COR lower to 0.6 per cent, which they said was significantly behind their 1.3 per cent estimate.

They noted that  Access Bank Plc  Q1 results generally outperform their estimate.
“Access Bank’s  PAT surged by 42.1 per cent (outperforming our estimate by 37.5 per cent) and improved by 9.5 per cent q/q. Annualised earnings per share (EPS) was N2.40, outperforming consensus estimate of N1.72. Return on Average Equity for Q1’16 came in at 20.7 per cent (significantly ahead of our forecast of 14.6 pe cent) and slightly higher than the 20.4 per cent recorded in 2015 full year,” they said.

Group Managing Director/CEO of Access Bank, Mr. Herbert Wigwe said  the bank would  will continue to uphold the highest standards of risk management in order to sustainably maintain asset quality.

“We are encouraged by these results, and in the coming quarters, we will intensify the implementation of our strategic cost reduction initiatives in order to improve our bottom-line. We will also explore and activate other innovative avenues to expand our digital banking proposition so as to achieve improved revenues and deliver sustainable shareholder value in the long term,” he said.