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TheCable

Big Nigerian banks widen gap on profitability, assets amid regulatory headwinds

Big Nigerian banks widen gap on profitability, assets amid regulatory headwinds
October 13
18:28 2020

The gap between big Nigerian banks and their mid/small counterparts in terms of asset and profitability has continued to widen, an analysis by TheCable has shown.

Guaranty Trust Bank Plc, the largest lender by market capitalisation, has an average return on equity (ROAE) of 26.0 percent, Zenith Bank has 21.7 percent, and Access Bank 19.1 percent as at June 2020.

That compares with the ROAE of the largest Tier 2 lenders: FCMB (9.40 percent); Fidelity (12.90 percent); Union Bank (8.40 percent); Sterling (8.72 percent), and Wema, (5.42 percent).

Unity Bank has a negative ROE of 0.742 percent as its net income for the period under review was not enough to wipe out the negative shareholders’ fund of N278.24 billion.

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Return on average equity (ROAE) refers to performance metrics that assesses of a company based on its average shareholders’ equity outstanding

Also, the combined total assets of the five Tier 1 lenders (GTBank, FBN Holdings, United Bank for Africa, Zenith Bank, Access Bank) stood at N31.41 trillion, compared with the largest Tier 2 lenders with a combined total asset of N14.28 trillion as at June 2020.

The big banks in the country, popularly referred to as tier-1 banks, have a large cash base that is deployed into risky assets to generate returns. Also, they are able to attract cheaper deposits and relatively manageable operating leverage.

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On the other hand, Tier 2 lenders have to conserve the cash that they have and build capital buffers as they are reeling from rising non-performing loans (NPLs) and huge operating leverage.

In his view, Gbolahan Ologunro, equity research analyst at CSL Stockbrokers Limited, said it will take time for the gap to shrink given the punitive regulatory and macroeconomic headwinds that they operate in.

Despite industry headwinds such as regulatory pressure, declining yields in investment securities, lower fees and threats from fintechs, Nigerian banks have doubled down on their operations by adopting new business models. Notably, Guaranty Bank, Access Bank and Sterling Bank have announced their plans to transform into Holdco structures.

Zenith Bank is also leveraging on its agency banking which has seen the value of transactions surge to N226 billion in the six months, through June compared to N56.2 billion in June to December 2019. Meanwhile, transaction volume was 22.1 million in the first six months of 2020 from 7.5 million in June to December last year.

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