How Bank Stocks Fared in Q1
Obinna Chima examines the performance of some bank stocks in the first quarter of 2017
The tough macroeconomic environment is obviously taking its toll on commercial banks as well as other financial institutions with most of them adopting various strategies to remain afloat.
Clearly, the impact of the situation in the Nigerian economy which fell into recession last year, manifested in the recently released full year 2016 results released by the banks that are quoted on the Nigerian Stock Exchange (NSE).
Some of the issues that the banks had to contend with in recent times included forex scarcity, inflationary pressure, rising non-performing loans, withdrawal of the treasury single accounts and the Central Bank of Nigeria’s restrictive monetary policy.
Indeed, these challenges have continued to weigh down the performances of banks on the NSE. For instance, the NSE Banking Index recorded a year-to-date decline of 0.03 per cent to 274.25 basis points in the end of the first quarter.
Also, the NSE’s market indicator, which measures the total performance of the Exchange dipped by 3.7 per cent in the first quarter of 2017 to N8.829 trillion at the end of March, 2017. Similarly, while the NSE All-share Index dropped by 5.05 per cent to 25,516.34 basis points at the end of the first quarter.
Nevertheless, some banks’ improved performance in the first quarter of 2017 was attributed to their resilience, enhanced productivity and geographic diversification.
United Bank for Africa
The United Bank for Africa Plc’s (UBA) share price performed better than its peers in the industry in the first quarter of 2017. It appreciated by 30 per cent in the first quarter, from N4.45 per cent at the beginning of the year, to N5.77 per cent at the end of the first quarter. Its closing price for the first quarter was its highest in the period under review.
According to analysts, the performance of UBA’s stock price was largely influenced by its 2016 full year results. UBA, which operates in 19 countries reported a 22 per cent growth in gross earnings to N384 billion for December ending 2016, from N315 billion at the end of the 2015 financial year, illustrating the bank’s ability to grow profitability despite the difficult macroeconomic environment. In addition to the rising adoption of electronic banking channels in many of the African markets where UBA operates, the bank leveraged its strong franchise and geographical footprint.
As reflected in the results, UBA saw a 32 per cent growth in profit before tax to N91 billion, compared to N68 billion profit recorded over the same period of 2015, while the bank’s profit after tax grew by 22 per cent to N72 billion, from N60 billion recorded the previous year. The key profitability driver was the 40 basis points expansion in the bank’s Net Interest Margin (6.7%) owing to the strong growth in Interest Income on account of favourable money market rates and a nearly flat interest expense (due to a contraction in funding costs).
GTBank
Guaranty Trust Bank’s (GTBank) share price ended the first quarter at N24.90 per share, which was a three per cent appreciation, compared with the N24 per share it was at the beginning of the year.
The highest price the bank’s stock attained in the first quarter was the N26.80 per share it got to on March 27th. GTBank delivered solid fully year 2016 numbers. Its profit after tax was up 55 per cent year-on-year (y/y) while its net profit also climbed by 33 per cent in 2016.
The bank reported gross earnings of N414.62 billion for 2016, showing an increase of 37 per cent from N301.85 billion in 2015. The gross earnings were driven primarily by growth in interest income as well as foreign exchange income. Interest income rose by 14.5 per cent to N262.5 billion, from N229.2 billion, while net interest income stood at N195.4 billion in 2016, up from N159.9 billion, showing an increase of 22.2 per cent. The bank therefore declared a final dividend of N51.5 billion.
Analysts at CSL Stockbrokers Limited maintained a ‘Buy’ rating on GTBank with a target price of N28.19 per share.
“Even in the event of an unexpected asset deterioration (which we think is unlikely in the near term), we see limited risk to the bank’s capital from potential provisions in 2017 considering the bank’s strong earnings retention capacity,” they added.
Zenith Bank
From N14.40 per share at the beginning of the year, Zenith Bank Plc’s climbed as high as N16 per share, before closing the quarter at N14.05 per share as investors took advantage of the capital appreciation recorded within the period. The
Zenith Bank had opened the full year 2016 earnings season of Nigerian banks with positive numbers. The bank posted gross earnings of N384.56 billion, showing an increase of 10.4 per cent. Net interest income grew by 6.9 per cent from N224.58 billion in 2015 to N240.2 billion in 2016. Also, its net impairment charges jumped by 106 per cent from N15.67 billion to N32.35 billion. However, other operating income soared by 401 per cent from N5.302 billion to N26.598 billion. The bank maintained a low cost profile as personnel expenses rose marginally by 2.3 per cent to N69 billion, from N67.5 billion. Similarly, other operating expenses rose by 4.9 per cent from N89.9 billion to N94.4 billion. Profit before tax rose by 24.7 per cent to N156.75 billion from N125.62 billion, while profit after tax stood at N129.65 billion, from N22.7 billion, showing an increase for 22.7 per cent.
Access Bank
Access Bank Plc’s share price improved by eight per cent in the first quarter of the year as it appreciated from N5.81 per share at the beginning of the year to N6.28 per share at the end of the first quarter. The highest price the bank’s share recorded in the first quarter was the N7.05 per share it attained on January 23rd, before it was hit by profit-taking. Access Bank recently paid out a total of N18.8 billion in dividends for the year ended December 31, 2016. The dividend translated to 65 kobo per share, up from 55 kobo per share received in 2015. The declaration of a better dividend pay-out for its shareholders was reflective of Access Bank’s better than expected revenue of N381.3 billion, an increase of 13 per cent from the N337.4 billion reported by the bank in 2015. Just the same, its net interest income rose by 32 per cent from N105.4 billion to N139.1 billion, while non-interest income grew marginally by 3.5 per cent to N134 billion, from N129 billion in the previous year.
Stanbic IBTC
The share price of the holding company appreciated by 13 per cent in the first quarter of the year to N17.78 per share at the end of March 2017, up from the N15.69 per share it was at the beginning of the year. The highest price the bank’s share attained in the period under review was the N18.50 per share it was as at March 21.
Stanbic IBTC delivered positive numbers for full year 2016, with its Net Income 51 per cent higher y/y. The key driver of net income growth for the bank was an expansion in net interest margins as a result of lower funding costs. While its impairments increased y/y and cost of risk deteriorated to 5.2 per cent, the improved non-performing loan ratio, according to analysts at CSL Stockbrokers Limited gave investors some level of comfort. Ratio of its non-performing loans to total loans, although still higher than the regulatory maximum of five per cent, declined to 6.4 per cent from 8.5 per cent in 2015. The bank continued to maintain strong capital ratios. Its capital adequacy ratio of 22.8 per cent was well above the regulatory requirement of 10 per cent.
Union Bank
Union Bank of Nigeria Plc’s share price declined in the period under review. It fell from N5.49 per share at the beginning of the first quarter of 2017, to N5 per share as at March 31. Union Bank recently revealed that following approvals from its shareholders, it will launch a rights issue in the second quarter of 2017 to raise up to N50 billion in tier 1 capital as it looks to accelerate business growth and position as a leading commercial bank in Nigeria. The additional funding, according to the bank, would also allow it to maintain compliance with regulatory capital requirements. Union Bank’s group audited financial statements for the year ended December 31, 2016 showed that profit before tax was up six per cent to N15.7 billion, compared with the N14.9 billion it was in the comparable period of 2015. Union Bank’s gross earnings was also up by eight per cent to N126.6 billion, as against the N117.2 billion it was the previous year. Also, interest income was up by eight per cent to N98 billion, compared with the N90.9 billion in 2015.
