Wednesday, 15 May 2013

Banking Nigeria: Why banks return to profit making

Finance - Almost all Nigerian banks have declared huge profits in their 2012 financial year. This is against losses that were made by some of the banks in the previous years, following the financial crisis which started in 2008 and affected many banks in the country.

Virtually all the banks also declared dividends for their shareholders. The Nigerian Capital Market is positively reacting to results, as shares of many banks are appreciating. Last week, stocks gained N287 billion.

To investors and stakeholders, the report signals the return of normalcy to the banking sector which the Central Bank of Nigeria had to provide over $620 billion to bailout during the crisis.

For last year's financial results, the total profits declared by all the banks was over N500 billion.

When the reports started coming out in late March, Zenith Bank declared N100.68 billion profit and proposed a dividend of N1.60 per share for its shareholders as against 95 kobo dividend paid in 2011.

GTB declared N86.68 billion profit and proposed dividend of N1.55 per share for its shareholders. First Bank posted N75.71 billion profit for the year under review and proposed N1 per share dividend for its shareholders.

First City Monument Bank made N15.3 billion profit and declared a bonus of one additional share for every 25 shares held by its shareholders, while Skye Bank posted N12.64 billion profit and proposed a dividend of 50 kobo per share to its shareholders.

United Bank for Africa (UBA) declared a profit of N52 billion and proposed dividend of 50 kobo per share for its shareholders, while Union Bank posted N9.06 billion, compared to N107.68 billion loss a year earlier.

Diamond Bank came back from a loss of N17.9 billion in 2011 to a profit of N22 billion last year. It did not declare any profit for its shareholders.

On its part, Ecobank Nigeria posted N45.49 billion profit. Access Bank recorded N38.405 billion profit for the year under review and declared 60 kobo dividend per share for its shareholders.

Sterling Bank's profit was N6.95 billion for its 2012 financial report and it declared 20 kobo per share for its shareholders as dividend.

Fidelity Bank declared a profit of N18.20 billion for the year under review as against N2.58 billion in 2011. It declared 21 kobo dividend for its shareholders.

Unity Bank Plc increased its profit by N3.48 billion from N2.69 billion in 2011 to N6.18 billion in 2012.

Stanbic ITBC posted a profit of N10.2 billion in 2012, compared to N6.6 billion realized in 2011.

Enterprise Bank made a profit of N11.3 billion, while Wema Bank declared a loss of N1.8 billion for the year under review.

Finance analysts have linked the return to profit by the banks to five major reasons.

One of the reasons, they said, was due to the relatively high interest rate last year. According to them, high interest rate served as favourable income source for banks. The banks invested in treasury bills, bonds and securities, which yielded them high income. These investments in fixed income securities helped them make more money.

The Central Bank of Nigeria had expressed worry that banks were only patronizing FGN bonds and lent little to the real sector of the economy, like small and medium scale enterprises.

Another reason for the profits was the impact of Nigeria's Asset Management Company. Experts say the company has helped clean up the banks' books by bearing their bad loans, which had hampered their welfare.

Aside these two, the tax regime was also favourable to the banks as they are enjoying tax concessions on corporate bonds and other investments as well as the 10-year tax waiver they have, which they have already begun to benefit from.

To some extent all banks were helped by the tax exemption on interest earned on their short-term securities and bonds and some had additional tax credits. Fourthly, under the International Financial Reporting Standards (IFRS), on which the banks based their reports, the banks are not required to pay the 1 per cent on their total assets as they would under the previous GAAP reporting requirement.

Lastly, analysts believe that banks appear to be learning their lessons gradually, after the era of losses birthed by the industry's indifference to banking ethics a few years ago.

By Idris Ahmed
Daily Trust

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