The trending economic recovery news in the third quarter of 2017 (Q3’17)/first nine months 2017 (9-M’17) did not prevent the banking sector from some misery in the form of rising bad loans as 14 banks quoted on the Nigerian Stock Exchange recorded 8.0 per cent increase in bad loans (impairment losses), within the period, Financial Vanguard investigations revealed.
Industry stakeholders have said the economy has not fully recovered as banks’ credit customers were still grappling with hardships in meeting their loan repayment obligations.
It will be recalled that the National Bureau of Statistics recently announced that the nation’s Gross Domestic Product grew in Q3 2017 by 1.4 per cent (year-on-year) in real terms, the second consecutive positive growth since the recovery of the economy from recession in Q2, 2017.
The report from the NBS, however, showed that the nation’s economy is still exposed to the risk of sliding back into recession, as only two out of 10 sectors grew during the quarter.
While the oil and gas sector grew by 25.89 percent, the non-oil sector contracted by 0.76 per cent.
Industry stakeholders have stated that the Nigerian economy is still operationally in recession as they opined that the negative growth recorded in the non-oil sector in Q3‘17 figures indicates that the economy has not fully exited recession, and businesses are still facing difficulties in their financial performance.
Consequently, the 14 banks in this report, controlling over 90 per cent of the Nigerian financial market, recorded N368.3 billion impairment losses for the Q3’17, representing an increase of 8.0 per cent from N341.1 billion in corresponding third quarter,Q3’16.
The banks are: United Bank for Africa Plc, Fidelity Bank, Access Bank Plc, Stanbic IBTC, Ecobank Group, Zenith Bank Plc, Guaranty Trust Bank Plc and Diamond Bank Plc. Others are Sterling Bank Plc, FCMB Plc, Wema Bank Plc, Union Bank Plc, FBN Holding Plc, and Unity Bank Plc.
However, the growth rate on the bad loans appeared less upsetting at eight per cent when compared to the net interest income of the 14 banks, which stood at N1.476 trillion, representing a growth of 18 per cent or N222.4 billion from N1.254 trillion recorded in the corresponding Q3’16.
Financial Vanguard review of the banks’ performance with regard to the impairment losses and the interest income showed that the banks recorded credit losses of 24.9 per cent of the net income realised in the period under review.
FBN Holdings recorded the highest impairment losses and net interest income of over N101.731 billion and N254.345 billion respectively during the period, while Wema Bank recorded the least impairment losses (apparently due to lower volume of activities) and net interest income at N256 million and N12.2 billion respectively.
Meanwhile, top five banks on impairment losses for the period under review in absolute value showed that FBN Holdings recorded the largest figure at N101.7 billion, followed by Ecobank Group with N89.3 billion, Zenith Bank N47.053 billion, Diamond Bank N35.503 billion and Stanbic IBTC N20.334 billion.
However, in percentage terms, Wema Bank led the list with 220 per cent increase to N0.256 billion from N0.080 billion in the corresponding period of Q3’16.
It was followed by Zenith Bank, up by 115 per cent to N47.053 billion from N21.858 billion.
Ecobank Group occupied the third position with 74 per cent at N89.3 billion up from N51.182 billion, followed by UBA with 42 per cent to N12.9 billion from N9.098 billion and FBN Holdings came fifth with 34 per cent increase to N101.731 billion from N75.666 billion in Q3’16.
Similarly, the top five banks on net interest income in absolute value for the nine months period ended September 30, 2017 showed that FBN Holdings topped the list as well with N254.345 billion.
It was followed by Ecobank recording N216.311 billion.
Zenith Bank came third on the chart with N201.492 billion, followed by GTBank with N189.566 billion, and UBA came fifth with N152.297 billion.
In percentage terms, Stanbic IBTC topped the chart with 61 per cent increase to N62.947 billion from N39.089 billion in Q3’16; it was followed by GTBank which increased by 43 per cent to N189.566 billion from N132. 7 billion, followed by UBA which went up by 36 per cent to N152.297 billion from N112.073 billion.
FBN Holding occupied the fourth position in the chart as it went up 25 per cent to N254.345 billion from N202.911 billion in Q3’16, while Access Bank occupied the fifth position on the chart with 14 per cent appreciation to N121.472 billion from N106.374 billion in Q3’16.
In his reaction to the rise in loan losses, the Managing Director, High Cap Securities Limited, David Adonri, said: “Non Performing Loans are mounting because borrowers are yet to recover from the economic crisis. Interest income for most banks is mainly from public sector lending which is at high interest rate. For 14 banks to suffer such impairment, it means that there is danger looming.”
The spokesperson for Independent Shareholders Association of Nigeria, Moses Igbrude, said: “The implication of increase in loan losses provision is that these banks’ customers default in loan repayment is on the increase, which invariably will lead to low or no returns to the shareholders at the end of the financial year. It is a sign that the loan facilities given are not performing and it has a grave consequence on the banking industry, which means danger looming in the sector as well.
“Managements should device ways of monitoring all processes of giving out loans. Government should try to improve the economy by diversifying the economy away from oil. They should provide a favourable forex market. Government policies should be consistent with what they preach. They should focus on local production, especially agriculture so that Nigeria can feed itself as a nation. Government should encourage export by paying for the EEG (Export Expansion Grant) as they promised the exporters. They should pay local contractors. Also federal and state governments should pay their workers regularly. This will jump-start the economy and raise the purchasing power of the people. Then the NPL will reduce and banks impairment losses will reduce.”
In his comment, former National Publicity Secretary of Nigeria Shareholders Solidarity Association, NSSA, Alhaji Gbadebo Olatokunbo, said: “The reasons for these NPL is well known. Some of the NPLs comes from loans to telecommunication/oil companies and others, while most of the companies if not all were performing.
“But we also know that the regulatory agencies would force them to make provisions. So both the banks and their debtors are going-concerns; therefore, there is no cause for alarm as the capital would be recovered either now or later.
“The implication of these is that investors should brace up for the results of a bad economy, although, investors invest in the market for a long term, and don’t forget that the banks are making cool profits in other areas of their operations and some if not many banks will still deliver but not as much as expected. This means that we may have good dividends, but not bumper-harvest-dividends.
“We should note that Nigeria just got out of recession and inflation is a by-product of bad economy. It will take some time to fix and improve bad economy and as it improves, then inflation would be tamed. One very bad attitude of Nigerians is that we so much believed in miracles, which doesn’t work with the economy. Economic policies must be well formulated and executed to impact on banks performance.
“We’ve been down economically and so government must follow the due process, with serious improvement in the implementation of good policies in order to achieve a good result and it will take some time to get the economy back on track and never through miracles; while the citizen must be seen to be supporting the economic recovery agenda.”
On the impact of the positive economic indicators, the Managing Director/Chief Executive, Financial Derivatives Company Limited, Bismarck Rewane, said: “If you take away petroleum, it means that all other sectors are actually technically in recession, therefore something has to happen, and the only way to make things happen is to increase electricity output as well as stimulating the nation’s economy. We need to do more as a country in improving access to electricity.”
Cordros Research, a Lagos-based investment house, in its reaction on the recovering economy, stated: “It is difficult to expect a significant rebound in services GDP, as activities in the largest subsector, telecommunications (23 per cent of services GDP), may likely stagnate at current levels or decline further as limited scope for expansion exists in the segment. That said, we think other subsectors in the sector will benefit from continued government effort at improving the ease of doing business and the CBN’s sustained commitment to forex stability.”