Nigeria’s Top 10 Banks by Returns on Investment 2020

…How they rank in building wealth for shareholder in the year.

Banking operations in 2020 were immersed in some operating and regulatory issues that normally affect how much a bank can return on assets or investments under its command. Significant changes happened on each of two operational flows into which any corporate activities are organised.

These are the strengths of the flows of assets into revenue and revenue into profit – the Du Pont analysis model that traces the strong and weak links in the mission of managements to build wealth for shareholders.

Two major regulatory changes intervened in the asset and liabilities sides of bank balance sheets in 2020 that normally affect composition of earning assets as well as yield per naira of assets employed. First, fiscal 2020 was the first full year of implementation of the hike in loan-deposit ratio that prescribed the ‘lend or be sanctioned’ rule for banks.

Banks therefore tried to be out in the lending field despite the heightened loan default risk in the year. The result was a major increase in credit losses that undermined the flow of assets into revenue.

Second, the Central Bank slashed the treasury bill rate, a move that crashed money market rates across the board. That did set short-term money traders fleeing from government instruments and the safest landing places were the banks. The development injected the biggest dose of liquidity into bank balance sheets in many years through customer deposits.

The 2020 financial year was therefore a period in which banks became suddenly awash with money and that is money they must lend or be sanctioned. The big dose of deposit inflow swelled the asset side of bank balance sheets, leading to the strongest balance sheet expansions in decades.

Bank management came under pressure in generating decent returns on the enlarged asset volume at their command. The challenge was how that could be done in a year of extremely bad weather in the lending fieldas well as slashed yields in the investment markets.

Management expertise came into playas the ability of banks to sustain decent returns to investors stood to be tested. If there was a year in which the ingenuity of bank managements to whether the storm was stringently tested, it was fiscal 2020.

Various operational responses by banks happened in the year. The common denominator was the slashing of interest expenses in line with the drop in money market rates. Reduction in cost of funds became a bandwagon strategy in banks in the year.

It was a move to balance a weakened flow of assets into revenue by enhancing the flow of revenue into profit. In other words, if revenue fails to grow, costs get the squeeze in order to defend the bottom line.

Reduction in interest expenses was a key element on the strategy paper of every bank management in 2020. At the same time, customer deposits grew by the highest margin in many years. It was a year in which banks practically retreaded from customer oriented pricing to the sellers market’s dictum of ‘take it or leave’.

It was a red flag up for banks in 2020 that the well-trodden path of growing earnings had closed. On their part, banks raised the green flag that it was a great time to cut interest expenses as much as possible. The operating results for each bank in the year will be how the forces of earnings constraints, credit losses and frantic cost cutting finally played out to shape the bottom line.

Some bank managements found it virtually impossible to comply with the lending rule in consideration of heightened loan default risk in the economy. They stashed the liquidity inflow in low earning cash and bank balances for safety.

Many banks built the most liquid balance sheets in decades in 2020. Some preferred to take on the sanctions for not lending in a bad weather to lending and losing the assets.

The outcome of these developments is that banks could not optimise the productive engagement of assets, which led to a general decline in asset turnover. This means while asset volumes grew phenomenally in the year, revenues failed to grow or even declined.

The capacity of bank assets to generate revenue weakened considerably across the board in the Nigerian banking industry in 2020.Apart from the unwillingness to grow the principal earning assets – loans and advances, a lot of existing risk assets went bad in the pandemic-ruled economy. This constrained the revenue yield of assets further.

The drop in the yield of investment assets further compounded the weakness in interest earnings from loans and advances during the year.

By far, the biggest threat to rates of return last year came from an upsurge in credit losses and this cut across the entire banking industry. This means in addition to the deflated capacity to build revenue, rapidly rising credit loss expenses seriously undermined the conversion of revenue into profit.

It was a double barrel attack on earnings capacity in which many banks suffered on both sides of the operational flow – evidenced by declines in asset turnover and profit margins.

For banks, interest expenses were the only cost saving area in 2020 in defending profit margin. The problem was that the cost saving there was, in many cases, quite insufficient to compensate for the high rise in credit losses.

Consequently, many banks could neither improve asset turnover nor profit margin in the year. The result is a general decline in rates of return in banks in 2020. This happened because asset expansions far exceeded revenue improvements and cost increases squeezed profit margins generally.

Top 10 Magazine went afield in search of the leading banks on returns out of the difficult operating terrain of 2020. The effort was to fish out banks and their managements that extracted the best possible returns for their investors from the confines of regulatory and operational environments of the year.

It was a mission to trace how able bank managements successfully weathered the storm of coronavirus pandemic and economic lockdown to keep the interest of shareholders in the forefront of the enterprise. The top 10 members constitute the group that shareholders can count on for the best possible rewards as the earnings reporting season fast approaches.

The main features found among the banks that made the list include the lowest growth rates in assets and sustained improvement in revenue – which limited the effect of balance sheet expansions on asset turnover.

Also, banks that have the highest profit margins were able to limit the impact of declines in asset turnover. Equally, banks that have relatively low credit loss expenses were able to defend profit margins by limiting the proportions of interest income claimed by loan impairment expenses.

Top 10 Banks by Return on Assets, 2020

BankAsset TurnoverNet Profit Margin %Return on Assets Sept 2020  %
Guaranty Trust Bank0.0942.73.8
Stanbic IBTC Holdings0.0936.03.2
Zenith Bank0.0831.22.5
Access Bank0.117.31.7
UBA0.0818.01.4
FBN Holdings0.0815.51.2
Fidelity Bank0.0813.21.0
Union Bank0.0712.40.9
FCMB0.099.50.8
Sterling Bank0.116.90.7

Guaranty Trust Bank Plc

top 10 bankers 2019
Segun Agbaje – MD/CEO

Guaranty Trust Bank Plc ranks high in the banking industry in terms of ability to convert assets into revenue. The bank’s asset turnover has been stable in recent years, as growth in assets stayed ahead of revenue. At the end of the third quarter of the 2020 financial year, total assets increased by 22 percent while gross earnings increased by 2 percent.

The bank closed the third quarter operations with total assets of N4.6 trillion and the 22 percent increase is the highest growth mark in four years. The principal earning assets, loans and advances remained stable at N1.6 trillion at the end of the third quarter.

Management strategically reduced lending to other banks in the light of the money market conditions and the same caution reflected in a slight decline in investment assets at the end of the period.

Asset turnover

Balance sheet expansion was led by restricted deposits and other assets, which more than doubled to N1.2 trillion, financial assets at fair value through profit or loss that advanced by 180 percent to N206 billion and a moderate increase in cash and bank balances.

Improvement of earnings posed a challenge to the bank in 2020, reflecting a lag in the growth of assets and revenue. Interest earnings recorded an increase of about 2 percent to N228 billion at the end of the third quarter. Non-interest income made a moderate improvement of close to 3 percent at the end of September.

The third quarter operations therefore closed with an increase of 2.1 percent year-on-year in gross earnings to N333 billion. The bank needs to grow more volumes in the face of declining yield to improve its broad income lines – interest earnings from loans and investments and also the transaction-based non-interest earnings.

The strong growth in assets ahead of revenue affected asset turnover at the end of the third quarter. The bank recorded an asset turnover of  0.10 at the end of September 2020. Despite being a decline from 0.12 in 2019, it remains one of the best numbers in the banking industry in the year.

Profit margin

The bank’s management took steps to defend profit and cost-saving strategies were adopted to grow profit and improve returns. This is a route that is well trodden by the bank’s management in recent years. The bank has followed aggressive cost saving drive to build value for shareholders since 2017.

Cost of funds provided a major cost saving line for GTBank and management slashed as much of it as it could in 2020. Interest expenses went down by as much as 25 percent year-on-year at the end of the third quarter to N38.5 billion, stepping up from a drop of 23 percent in 2019.

The drop in interest cost gave the bank a cost saving in the region of N13 billion at the end of the third quarter. It claimed a reduced share of interest income during the period at below 17 percent compared to 23 percent in the same period in 2019.

The cost saving enabled an increase of about 10 percent in net interest income  to close at N190 billion at the end of September. The drop in interest expenses happened alongside an increase of 26 percent in customer deposits over the nine months of the year to N3.2 trillion. This means a significant drop in the average cost of funds for the bank in the year.

GTBank can be expected to close the 2020 financial year with the lowest interest expenses figure in several years. This is one big step the bank’s management took last year that helped to defend profit margin and rate of return.

Yet, two other main cost elements of the bank could not be reined in with cost of funds. These are loan impairment expenses and operating cost.  loan impairment charges – which are largely outside management’s control, grew more than  three and half times at the end of the third quarter to over N10 billion. This is an industry wide trend that reflects the effect of the Central Bank’s new loan-deposit lending rule in a declining economy.

The bank had achieved massive cut downs in loan impairment expenses for the past three years since 2017. The resurgence in 2020 raises a signal for caution to the bank’s management.

The other expense line is operating cost, which rose by 13 percent to N112.4 billion at the end of the third quarter. Reflecting the high inflationary trend in the economy, the cost of operations claimed an increased share of gross income in the year.

This encroached on profit margin though the bank retained its leading position on profit margin in the banking industry. The bank’s profit margin of  50.2 percent at the end of the third quarter tops the records of the peer group.

The cost saving from interest expenses enabled the bank to moderate the impacts of rising loan impairment and operating expenses and stabilize profit performance. GTBank closed the third quarter operations with an after tax profit of N142 billion, which is a moderated decline of 3.2 percent year-on-year at the end of September 2020.

Return on assets

GTBank closed the third quarter operations in 2020 with post-tax return on assets of  4.6percent. The strong growth in assets is expected to enhance revenue growth going forward while a check on loan impairment expenses will prop up profit margin. The big step taken by management to rake in a big cost saving from interest expenses provided a major thrust in building wealth for shareholders in 2020.

Stanbic IBTC Holdings Plc

Demola Segunle – Managing Director/CEO

Stanbic IBTC Holdings Plc followed an aggressive path in asset expansion in 2020 and how to grow earnings to match that level of balance sheet expansion posed a major challenge to management in the year. The bank closed the third quarter operations with a balance sheet size of N2.5 trillion, which is a top speed growth of 37 percent over the 2019 closing figure.

With that, the bank registered one of the most rapid balance sheet size expansions in a decade in the 2020 financial year. It is equally one of the highest expansions of bank balance sheets in the banking industry here last year.

Asset turnover

In line with the industry trend in the year, balance sheet growth tilted to the side of low yielding liquid assets. Cash and bank balances led asset expansion for Stanbic IBTC Holdings to stand at N930 billion at the end of the third quarter. This is an advance of 103 percent over the period representing more than 36 percent of the balance sheet.

The principal income yielding assets -loans and advances lagged behind at an increase of 7 percent to N572 billion over the period. Generally rising credit losses alongside the Covid-19-induced economic difficulties appear to have warranted the bank’s lending caution in the year.

The other growth driving assets are financial investments that swelled by 85 percent to N288 billion and trading assets that rose by 31 percent to N326 billion at the end of the third quarter.

The bank’s asset expansion was funded by an increase of 42.5 percent in total deposit portfolio to N1.3 trillion at the end of the third quarter. Deposit growth was driven by due to banks, which more than doubled to close at N511 billion at the end of the period.

The asset structure that limited the growth of customer credit constrained interest earnings during the year. Interest earnings headed downward across the three quarters of the year, dropping by 10 percent year-on-year to N82 billion at the end of September 2020.

Non-interest revenue made up for the shortfall in interest earnings with an increase of 20 percent year-on-year to stand at over N98 billion at the end of the third quarter. The spur came from trading income, which displaced interest earnings as the principal income line for the bank in the year.

Non-interest income accounted exclusively for the improvement in gross earnings as well as profit the bank reported at the end of the third quarter operations. It provided close to 54 percent of gross earnings at the end of the third quarter.

An improvement of 4 percent in gross earnings year-on-year to over N183 billion is however nothing compared to the 37 percent expansion in asset base. That sent asset turnover declining from 0.13 at the end of 2019 to 0.09 at the end of the third quarter in September 2020.

Profit margin

Stanbic IBTC Bank’s management did not let the weakness in revenue hinder profit growth over the review period. It defied the tight earnings situation and achieved a 19 percent advance in after tax profit to N66 billion at the end of the third quarter.

The ability to grow profit far ahead of gross earnings came from cost savings – which was led by cost of funds. Interest expenses went down by more than 20 percent to N25.7 billion at the end of the third quarter.  This is well ahead of the drop in interest income, which afforded the bank significant cost saving.

The drop in cost of funds is more than twice the decrease in interest income over the same period. Yet the bank still lost net interest income – which went down by 4 percent to close at N56 billion in September.

Stanbic IBTC Holdings gained a major drop in the average cost of funds during the review period. The drop in cost of funds is against the increase of 42.5 percent in total deposits at the end of the third quarter.

The proportion of interest earnings claimed by interest expenses declined by 31 percent at the end of September 2020. This enabled the bank to record a moderate drop in net interest income. 

Some cost saving also came from a marginal decline in operating expenses to N70.8 billion at the end of September. This enabled management to maintain operating cost margin at 38.6 percent – one of the lowest in the banking industry.

Rising credit loss charges defied management’s cost controls and surged up from a marginal net write back of N90 million in the same period in 2019 to N7 billion at the end of the third quarter. That was already more than four times the N1.6 billion net loan impairment expenses the bank recorded in the entire 2019 financial year.

The good news for the bank is that the cost saving from interest expenses was good enough to counter the upsurge in credit loss expenses and still enable substantial profit improvement. The bank ended the third quarter operations of the 2020 financial year with an after tax profit of N66 billion. This represents a year-on-year growth of 19 percent from just 4 percent improvement in gross earnings.

The drop in interest expenses against the improvement in gross earnings made a gain in profit margin possible. Net profit margin improved from 31.5 percent in the same period in 2019 to 36 percent at the end of the third quarter.  This is the highest profit margin that the bank has seen in a decade and one of the highest in the Nigerian banking space.

Return on assets

Stanbic IBTC Holdings achieved a return on assets of 3.2 percent, which is a decline from 3.9 percent at the end of the 2019 operations. The ability to raise profit margin that much from only a moderate improvement in revenue is the key strength in operations the bank’s management mustered last year. Increased ability to convert revenue into profit helped it counter the decline in the ability to convert assets into revenue.

Zenith Bank Plc

Ebenezer Onyeagwu – CEO

The 2020 financial year was one of an outstanding growth in assets for Zenith Bank Plc but how to convert the assets into earnings for a decent return to shareholders tested the ingenuity of management. The bank closed the nine months of the 2020 financial year with an asset base of nearly N8 trillion – the largest bank balance sheet in Nigeria.

This represents an increase of about N1.6 trillion or 27 percent over the closing asset figure of N6.3 trillion in 2019. It is the most rapid asset expansion that Zenith Bank has registered in a decade. It is four times the increase of 6.6 percent in asset base the bank recorded in all of the preceding financial year.

Asset turnover

The year posed a big challenge in growing loans and advances – which are the principal earning assets in view of operating difficulties that ruled the year. The implication is that the ability to convert the assets into revenue was constrained.

Consequently, a large part of the increase in assets stayed in low earning cash and bank balances. Cash and bank balances therefore led the asset growth at an increase of 92 percent over the nine-month period to N1.8 trillion, representing close to 23 percent of the balance sheet.

In the effort to convert the assets into earnings, the bank’s management navigated its way through the difficult credit market ruled by massive asset losses to build loans and advances. Net customer credit portfolio grew by more than N405 billion or over 17 percent to N2.7 trillion at the end of the third quarter.

Adding lending to other banks of N810 billion, Zenith Bank closed the third quarter of the 2020 financial year with a net credit volume in the region of N3.5 trillion, which made up 44 percent of the balance sheet. The bank also expanded its investment portfolio by 54 percent to N910 billion over the same period – using volume to counter the decline in the average yield of investment assets.

Applying the assets to quicken earnings performance posed a big challenge for the bank in the year. In the hostile operating environment of last year, the improvements in assets swelled credit losses rather than build revenue and profit. That put the ability of management to improve returns to shareholders under a serious strain.

Compared to an increase of 17 percent in customer loans and advances and 54 percent advance in the investment portfolio, interest earnings went down slightly instead to close at about N319 billion at the end of the third quarter. This is an indication of a significant drop in the average yield of earning assets in 2020.

The second main income line of the bank – fees and commissions also dropped by roughly 20 percent at the end of the third to close at N59 billion. Strong growth in trading and other incomes however provided the stabilizing impacts on gross earnings during the review period.

There were equally some white flags up for the bank in the earnings field in the year. These include a 34 percent growth in trading gains to nearly N90 billion and53 percent rise in other operating income to N24.5 billion over the same period.

Management used the two revenue growth drivers to moderate the poor performances of interest and fee incomes and succeeded in pushing up revenue moderately at the end of the third quarter.

Zenith Bank posted gross earnings of N509 billion at the end of the third quarter in September 2020, which is an increase of 3.6 percent year-on-year. This is a slowdown from 7 percent increase to N662 billion in 2019 against the outstanding growth in assets in the year.

The result is a decline in asset turnover for the bank from 0.1 at the end of 2019 to 0.08 at the end of the third quarter. This is an affirmation that revenue failed to grow as fast as assets in the year.

Profit margin

The challenge then for the bank’s management was how to defend profit against the moderate increase in revenue – which is an alternative route to improving rates of return. This requires as much cost saving as possible to use improved profit margin to compensate for a decline in asset turnover.

The main cost element of the bank that yielded the much needed saving is interest cost.  Cost of funds provided a big cost saving centre for the bank with a drop of 13 percent to about N94 billion at the end of the third quarter. This enabled an increase of 5 percent in net interest income to N225 billion at the end of the period.

Management also extracted further cost saving from income tax expenses, which dropped by as much as 29 percent to below N18 billion at the end of September.

However the rise in loan default risk would not let the cost saving move happen with respect to loan impairment expenses.Loan losses grew by 37 percent year-on-year to over N25 billion at the end of September, even exceeding the N24 billion loan impairment losses incurred in the entire 2019 financial year.

Management succeeded in saving costs good enough to counter the high growth in credit losses and grow after tax profit ahead of revenue, thereby improving profit margin.

Zenith Bank posted an after tax profit of over N159 billion at the end of the third quarter, which is a year-on-year increase of about 6 percent. The bank improved profit margin slightly at 31.2 percent at the end of the third quarter – one of the highest profit margins in the banking industry.

Return on assets

The bank closed the nine months of the 2020 financial year with a return on assets of 2.5 percent. The strength of the bank in the year lay in the ability of its management to navigate through earnings volatility and high loan default risk to keep profit improving. This means growing wealth for shareholders in defiance of a bad earning season.

Access Bank Plc

Herbert Wigwe – Group Managing Director/CEO

Access Bank Plc experienced a year of consolidation in 2020 after a major increase of 44 percent in the size of the balance sheet in 2019. At the end of nine months of trading last year, the bank reported total assets of N7.9 trillion, which an increase of less than 11 percent from the prior year closing figure. This is the lowest growth rate in asset for the bank since 2014.

Net customer loans and advances portfolio slowed down drastically from 46 percent upsurge in 2019 to a 6 percent increase to close at over N3 trillion at the end of the third quarter. The increase in the size of the balance sheet was led by lending to other banks, which jumped by more than 171 percent to about N415 billion.

Other rapidly growing assets as at the end of the third quarter include non-pledged assets, which grew by 130 percent to N298 billion in nine months, derivative assets, which rose by 38 percent to N198 billion and restricted deposits, which expanded by 26 percent to N1.3 trillion.

Asset turnover

Access Bank is one of the few banks that were able to grow revenue ahead of assets in 2020. Against the increase of less than 11 percent in total assets, it achieved an increase of 15 percent in gross earnings at the end of the third quarter.

Non-interest income provided the spur for the improvement in gross earnings over the review period. It doubled year-on-year to N217 billion at the end of the period, as most of the non-interest income lines recorded considerable improvements.

The growth in non-interest earnings was driven by a kind of windfall in net foreign exchange gain of almost N79 billion in the third quarter. The gain wiped off net foreign exchange losses in the preceding quarters and raised the net gain by 145 percent year-on-year to N12.6 billion at the end of September.

The strong growth in non-interest income was diluted significantly by interest income, which dropped by 7 percent year-on-year to N375 billion. This appears to reflect the sharp slowdown in customer credit and the bad lending environment that prevailed generally in 2020.

Gross earnings amounted to N593 billion for Access Bank at the end of September 2020, which is a year-on-year increase of 15 percent. With a slower growth of 11 percent in asset base, the bank improved asset turnover from 0.09 at the end of 2019 to 0.1 at the end of the third quarter.

Profit margin

The bank’s management applied some cost savings to strengthen its ability to convert revenue into profit. Interest expenses provided the main cost saving area for the bank in the year, dropping slightly ahead of interest income at 8 percent year-on-year to N179 billion. Net interest income still declined by 6.6 percent to N196 billion at the end of September due to the drop in interest income.

Two other major cost lines of the bank could not be tamed with cost of funds. Net loan impairment expenses is the main culprit, which jumped more than three times from less than N11 billion at the end of the third quarter of 2019 to over N34 billion at the end of September 2020. The high rise in credit losses caused a drop of 19 percent in net interest income after loan impairment charges.

The second cost element that undermined margins is operating cost, which grew by 26 percent year-on-year to N247 billion at the end of the third quarter. It claimed an increased share of gross earnings at 42 percent compared to 38 percent at the end of 2019.

Access Bank applied the cost saving from interest expenses to defend profit margin at the end of the third quarter at 17.3 percent. This is just an uptick from 17.2 percent in the same period in 2019 but a marked improvement from the closing net profit margin of 14.5 percent in 2019.

This enabled the bank to grow after tax profit by 15.7 percent year-on-year to N102 billion at the end of the third quarter. The growth is slightly ahead of the 15 percent increase in gross earnings.

The closing third quarter profit figure has already exceeded the bank’s 2019 full year profit of N97.5 billion. The summary of the bank’s earnings story at the end of the third quarter report is that decline in interest expenses countered the flop in interest income. The net effect is that profit margin was defended and the bottom line grew slightly ahead of revenue.

Return on assets

Access Bank ended the third quarter trading with a return on total assets of 1.7 percent, which is a marked improvement from 1.4 percent at the end of the preceding financial year. The bank showed strength in converting assets into revenue, as it grew gross earnings ahead of total assets. It also showed resilience in converting revenue into profit by defending profit margin, which enabled the gains in revenue to flow down into the bottom line.

United Bank for Africa

Kenny Uzoka – GMD/CEO

United Bank for Africa recorded a strong growth in the balance sheet at an increase of 26 percent to over N7 trillion in total assets at the end of the third quarter in September 2020. This is the strongest growth is assets for the bank since 2017.

Cash-based assets led the growth in the balance sheet during the year with an increase of over 50 percent in cash and bank balances to N2.1 trillion at the end of the period. This constitutes 30 percent of the balance sheet. Investment assets grew by 26.5 percent to the region of N2 trillion while customer loans and advances improved by 15.6 percent to N2.3 trillion at the end of the third quarter.

Outstanding growth in customer deposits provided the resources for the asset expansion in the year. Customer deposits rose by nearly 36 percent to N5.2 trillion in the nine-month period, which is the highest growth rate for the bank in many years.

Asset turnover

While assets grew at the highest margin in four years, revenue grew at the lowest rate the bank has seen in a decade at the end of the third quarter. The bank recorded an increase of 5 percent in gross earnings to N425 billion year-on-year at the end of the nine months of operations in 2020- the lowest revenue growth rate since 2011.

The drawback on revenue in the year is non-interest income, which closed flat at the end of the third quarter at N107 billion. Apart from net trading income that improved, all the other non-interest revenues declined at the end of the review period.

Strengthened by the reasonable expansion in customer lending, interest income grew by close to 11 percent year-on-year to N317 billion at the end of the third quarter. This accounted for the entire improvement in gross income at the end of September.

The increase of 5 percent in gross earnings against 26 percent leap in asset base was the weak point for the bank on how good is the rate of return for 2020. It works out to an asset turnover of 0.08 at the end of September 2020, down from 0.1 at the end of the 2019 financial year.

Profit margin

The bank’s management however swung into action when it came to converting revenue into profit. Cost saving went aggressive and the only major expense line that lent itself for pruning is interest cost. At N131 billion, interest expenses went down by about 6 percent year-on-year at the end of the period.

The cost saving from interest expenses was a big plus for UBA in the year, being the first drop in cost of funds in many years. The cost saving here plus the gain in interest earnings enabled an increase in net interest income at 17 percent to N186 billion at the end of the third quarter.

Rising loan impairment charges would not let all the cost saving from interest expenses get down into profit at the end of the review period. At N11 billion at the end of September, net loan loss expenses grew by 72 percent at the end of the third quarter.

Operating cost also grew rapidly at about four times as fast as gross earnings to close at roughly N193 billion at the end of the third quarter. It claimed 45 percent of gross earnings at the end of the third quarter, increasing from less than 40 percent in the same period in the prior financial year.

It is the highest operating cost margin for the bank in six years, which encroached on profit margin in the year. The margin was 38.8 percent at the end of 2019 – the lowest mark in several years.

The advantage for the bank is that despite the high growth rate, loan impairment expenses were relatively low compared to earnings.Yet, the ability to convert revenue into profit weakened over the review period and the bank suffered a profit decline.

UBA closed the third quarter operations with an after tax profit of N77 billion, which is a decline of 5.5 percent year-on-year. Profit margin declined from 20 percent in the same period in 2019 to 18 percent at the end of September 2020. It is however a significantly improved record from the closing net profit margin of 15.4 percent in 2019 and stood higher than the closing profit margins for the bank since 2017.

Return on assets

The bank closed the third quarter operations with return on total assets of 1.4 percent. This is a slip from 1.5 percent it recorded at the end of 2019 operations. The bank therefore shows a great deal of stability in returns over the two years. Its resilience came from cost saving that kept profit margin above the full year figure in 2019. Despite a decline in profit margin year-on-year, the improvement over the closing figure of the preceding year boosted the bank’s position.

FBN Holdings Plc

Adesola Adeduntan – Managing Director

FBN Holdings Plc gained significant speed in growing the size of the balance sheet in 2020. Total assets grew by 17.8 percent over the first nine months of the year to September – the highest increase in seven years.

Lending to customers grew by 11 percent to over N2 trillion at the end of the third quarter from the closing figure in 2019. This is the second year the bank is growing customer credit after two years of a cut down.

Loans and advances to other banks also grew by 8 percent to N816 billion but the investment portfolio declined by 10 percent to about N1.3 trillion over the same period. Liquid assets led the asset expansion programme of the bank with cash and bank balances growing by 71 percent to nearly N1.8 trillion at the end of the third quarter.

Asset growth was financed by a 15 percent increase in customer deposits to N4.6 trillion in nine months, a 71 percent advance in other liabilities to N509 billion and close to 30 percent growth in deposits from other banks. 

Asset turnover

Getting the assets to contribute to revenue improvement was the challenge to the bank’s management in 2020. Gross earnings slowed down across the three quarters of the year and closed at N439 billion at the end of the third quarter operations. This represents a 5 percent increase over the period compared to the almost 18 percent expansion in assets.

The drawback on revenue performance came from interest earnings, which went down by 7 percent year-on-year to N298 billion at the end of the third quarter. The increase in credit volume did not lead to an increase in earnings over the review period.

Non-interest income however made up for the drop in interest earnings and accounted for the revenue improvement at the end of the third quarter. The upbeat came from two income lines, which are net gains on sale of investment securities and net gains from financial instruments. The two income lines recorded exceptional growths of 452 percent to over N41 billion and 122 percent to N7.7 billion respectively over the review period. With the drop in interest income, revenue performance was far behind the expansion in assets in the year. That resulted in a decline in asset turnover from 0.1 at the end of last year to 0.08 at the end of the third quarter. 

Profit margin

The bank’s management took steps to extract an increased margin of profit to compensate for the slow growth in earnings. Interest expenses provided the cost saving centre, dropping by close to 10 percent year-on-year to N105 billion at the end of the third quarter.

The ability to save cost from interest expenses reflects both a strong growth in customer deposits and a drop in average cost of funds. Customer deposits expanded by 15 percent to N4.6 trillion at the end of the third quarter. This represents an addition of N600 billion to the customer deposit portfolio over the nine months of the financial year.

The cost saving strengthened net interest income but a resurgence of credit impairment expenses posed a hurdle on the way. Fiscal 2020 was a year in which three years of rapidly falling credit loss expenses gave way for a high speed upward run for FBN Holdings.

Over the preceding three years, the bank recorded a sustained drop in loan impairment expenses from the height of N226 billion in 2016 to N51 billion at the end of 2019. A change of trend happened last year with a 64 percent rise in risk asset quality impairment year-on-year to about N47 billion at the end of September.

The development was a major challenge to management that is still working frantically to rebuild profit to match the level attained as far back as 2014. Profit improvement slowed down, as loan losses claimed an increased proportion of the bank’s revenue.

The drop in credit loss expenses over the preceding three years had powered an average growth of 85 percent in profit over the years. Conversely, the rise in the loan loss charges last year set the pace for the lowest profit improvement for FBN Holdings in four years. 

As credit losses rose, profit growth slowed down from 63 percent in the first quarter to 31.5 percent at the end of the third quarter. That remains a top record profit growth by industry standard and in consideration of the challenging operating climate of 2020.

FBN Holdings maintained its profit recovery pedestal for the fourth straight year. It is yet to return to the peak net profit figure of N84 billion attained as far back as 2014.

Improved ability to convert revenue into profit is a key strength for the bank in operations last year. The third quarter operations ended in September 2020 with an after tax profit of N68 billion for FBN Holdings, which is a year-on-year growth of 31.5 percent.

Improvement in profit margin is the strength to grow profit in the face of moderate revenue improvement. It pushed up profit margin from 12.4 percent in the same period last year to 15.5 percent at the end of the third quarter in September 2020.

This is the highest net profit margin for the bank in six-years, well ahead of the closing mark of 11.2 percent for the 2019 financial year. It enabled the bank to grow profit more than six times ahead of revenue at the end of the third quarter.

Return on assets

FBN Holdings recorded a return on assets of 1.2 percent at the end of the third quarter, which is an uptick from 1.1 percent at the end of 2019. The bank experienced weakness in improving returns from the flow of assets into revenue, as evidenced by the decline in asset turnover. It gained strength however in converting revenue into profit as indicated by the gain in net profit margin.

Fidelity Bank Plc

Nneka Onyeali-Ikpe – Managing Director/CEO

Fidelity Bank Plc grew the size of the balance sheet by close to 31 percent to N2.6 trillion at the end of the third quarter in September 2020. This is the highest growth in asset base for the bank in a decade.

Low earning liquid assets were the growth drivers in the year. Cash and bank balances grew by more than one-half to N635 billion during the period. Lending to other banks rose by 59 percent to N393 billion while customer lending volume slowed down rapidly in the year.

At about N1.3 trillion, customer loans and advances grew by 13 percent at the end of the third quarter, decelerating from an increase of 33 percent at the end of the prior financial year. The financing liabilities are largely customer deposits that grew by 34 percent to N1.5 trillion – the strongest growth rate since 2011.

Asset turnover

The increase in assets did not lead to an improvement in earnings in the period under review. Instead, the bank lost revenue at the end of the third quarter. In the year in which assets grew by the highest margin in a decade, revenue declined for the first time in the decade.

Gross income dropped by about 4 percent to N155 billion year-on-year at the end of September 2020. Revenue weakness came largely from fee and commission income, which dropped sharply by 25 percent to N14.5 billion at the end of September 2020. Interest income – the main revenue line also went down by 2 percent to N132.5 billion year-on-year.

The bank retained some strength in non-interest earnings at the end of the third quarter, which moderated the earnings disappointments in the main income lines. At N25.5 billion, total non-interest earnings rose by 18.6 percent year-on-year.

Two income lines of the bank were the growth drivers of non-interest earnings during the period. One is other operating income, which grew by 21 percent to N8 billion year-on-year. The other is net gains from financial assets, which multiplied from N329 million to almost N3 billion over the review period.

An increase of 31 percent in total assets and a drop of 4 percent in gross earning made a bad combination for Fidelity Bank at the end of the third quarter. The result is a drop in asset turnover from 0.1 at the end of 2019 to 0.08 at the end of the third quarter of 2020.

Profit margin

The bank’s management faced the challenge of how to defend profit against the decline in revenue. Costs needed to go down to make that happen but that was possible only in one major cost line – interest expenses.

Management appears to have maximized the opportunity to slash interest expenses and it did so to the tune of 25 percent at the end of the third quarter. The move went a long way to shield the bottom line from the loss of revenue during the review period.

With interest expenses at N57 billion at the end of the third quarter, the bank looks likely to close the full year with the lowest interest cost since 2017. The drop in cost of funds is against a 34 percent increase in customer deposits, which represents a considerable cut in the bank’s average cost of funds.

A significant cost saving from declining cost of funds is the main positive factor in operations for Fidelity Bank last year.  It was the critical factor in defending profit from declining revenue.

Cost saving from the drop in interest expenses lifted net interest income by 29 percent to N75 billion at the end of the third quarter. This is the highest growth in net interest income for the bank since 2016. It reflects an optimized strength in extracting an improved margin of declining interest earnings into operating profit.

Rising credit loss expenses however consumed a good part of the enhanced net interest income. Loan impairment charges sped up in the year from a net write back of N4.8 billion at the same period in 2019 to net loan loss expenses of N11 billion at the end of the third quarter.

That consumed almost all the gain in net interest earnings during the period. Net interest income after loan impairment expenses was only marginally up at 1.4 percent to less than N64 billion at the end of the third quarter. It stood out as the key factor that limited profit improvement in the year.

Fidelity Bank recorded a limited improvement of 7 percent in after tax profit year-on-year to N20.4 billion at the end of the third quarter. That at least sustained it on the path of profit improvement for the fourth year running.

Profit improvement against a decline in revenue reflects a slight gain in profit margin from less than 12 percent in the corresponding period in the prior financial year to 13.2 percent at the end of the third quarter.

It is one of the highest profit margins that Fidelity Bank has seen since 2013. This is the impact of cost saving from interest expenses in defending profit against a drop of over N8 billion in gross earnings in the third quarter.

Return on assets

The bank returned 1.0 percent on total assets at the end of the third quarter, which is a drop from 1.3 percent at the end of 2019. This is the lowest rate of return for the bank in several years, reflecting the weakness in growing assets and losing revenue in 2020. The bank has been growing assets well ahead of revenue in the preceding two years but last year was the climax of the asset-revenue mismatch – which produced a big hit on return.

Union Bank of Nigeria Plc

Emeka Emuwa – Managing Director/CEO

Union Bank of Nigeria Plc expanded the asset portfolio for the second year in 2020 from flat position in 2018. Total assets grew by over 19 percent to stand at N2.2 trillion at the end of the third quarter. This is a slowdown however from a 28 percent increase in 2019 – the highest asset build-up in several years.

Leading the asset growth are the low earning restricted deposits, which rose by nearly 82 percent to over N537 billion.  Investment securities grew by 20 percent to N309 billion while net customer credit portfolio increased by 14 percent to N627 billion at the end of September 2020.

Management built the loan portfolio for the second year after a drop in 2018. The portfolio had expanded by 16 percent in 2019 – the highest loan growth in three years.

The bank seems to deviate from the trend of massive build-up in liquid assets with a drop in cash and bank balances at the end of the third quarter. Customer deposits are the source of financing for the asset expansion with an increase of roughly 28 percent over the nine months of the 2020 financial year.

Asset turnover

The increased lending activity in 2020 built loan impairment expenses for the bank rather than revenue. Union Bank ended the third quarter operations with gross earnings of N121.4 billion, which is an increase of 3.6 percent year-on-year.

Interest income closed flat at N85.6 billion at the end of the third quarter, negating the 14 percent expansion in customer loans and advances. Non-interest income provided the spur for the moderate improvement in revenue with a year-on-year growth of 26 percent to N33.5 billion at the end of September 2020.

The asset-income relationship for the bank in 2020 was out of alignment with a 19 percent increase in assets producing a 3.6 percent increase in revenue. The result is a decline in asset turnover from 0.09 at the end of 2019 to 0.07 at the end of the third quarter in 2020. This is the lowest asset turnover for Union Bank in many years.   

Profit margin

Union Bank’s management took steps to balance costs against revenue weakness during the year in order to prop up profit performance. It succeeded in saving cost from two major expense lines at the end of the period.

The first is interest cost – which dropped by 10 percent to N43.5 billion at the end of the third quarter. The cost saving from interest expenses enabled the bank to turn the flat interest income into a 14 percent increase in net interest earnings to over N42 billion at the end of the third quarter operations.

The second cost saving area is operating cost, which closed flat for the bank at N53.6 billion at the end of the third quarter. That reduced operating cost margin from 45.6 percent in the same period in the preceding year to 44 percent at the end of September 2020.

A shift from net write back position in 2019 to net loan impairment charges last year constrained Union Bank’s ability to grow profit at the end of the third quarter. Against a net write back of N4.7 billion in the third quarter of 2019, the bank incurred a net credit loss expense of N6 billion at the end of September 2020.

Net loan impairment expenses consumed 14.5 percent of net interest income at the end of the third quarter compared to a contribution of 13 percent by net write back to net interest income in the same period in 2019. Increasing lending to build credit losses rather than earnings seems to be the dilemma of banks generally in the year under the Central Bank’s rule of lend or be sanctioned.

The increase in net credit loss expenses claimed more than all the increase in net interest income, leading net interest income after loan impairment charges to a drop by close to 14 percent to N36 billion.

Union Bank closed the third quarter operations with an after tax profit of N15 billion, a slip of less than 1 percent year-on-year. A loss of N775 million from discontinued operations against a profit of N363 million over the review period also contributed to the profit weakness at the end of the third quarter.

The bank could not save cost enough to improve net profit margin, which declined from 13 percent in the same period in 2019 to 12.4 percent at the end of the third quarter. This is still an improvement from the closing profit margin of 11.5 percent for 2019 and stands as the best record for the bank since 2015.

Return on assets

Union Bank earned a return of 0.9 percent on total assets at the end of the third quarter, which is slip from 1 percent at the end of 2019. The decline reflects weaknesses on both sides of converting assets into revenue and revenue into profit. The decline in asset turnover was reinforced by a decline also in profit margin.

First City Monument Bank Plc

Mrs. Yemisi Edun – Acting Managing Director

First City Monument Bank Plc [FCMB] grew the size of its balance sheet in 2020 faster than any time since 2013. Total assets expanded by 22 percent to over N2 trillion mark in the first nine months of trading. This represents a creation of N370 billion in new assets in the year.

Leading the asset expansion bid are restricted reserve deposits, which rose by 123 percent to N465 billion and pledged assets, which expanded by 33 percent to N158 billion. The bank’s investment portfolio swelled by over 26 percent to N303 billion at the end of September 2020.

Customer lending improved by about 11 percent to N793 billion over the period. This means an addition of over N77 billion in new lending over the nine-month period. Loans and advances grew for the second year after an increase of 13 percent at the end of 2019.

Asset turnover

The bank maintained its earnings growth levers on the upbeat in the year but failed to get anywhere close to the strong growth in asset base. It achieved an increase of 10 percent in interest earnings year-on-year to N112 billion at the end of the third quarter. This is the highest growth rate in interest income for the bank since 2014.

The increase in interest earnings reflects the expansion of the key earning assets of loans and advances and investments over the period. However non-interest income closed flat at N34 billion at the end of September 2020 and neutralized the gains in interest income.

Nevertheless, FCMB still registered the highest growth rate in revenue in four years over the three quarters of the 2020 financial year. At over N146 billion at the end of the third quarter, gross earnings improved by 7.8 percent year-on-year for FCMB. No reasonable improvement in revenue has happened for the bank since 2016.

The expansion of 22 percent in total assets is out of proportion with the increase of less than 8 percent in gross earnings. The growth in assets did not yield an adequate increase in earnings during the period. This led to a decline in asset turnover from 0.11 at the end of the preceding financial year to 0.09 at the end of September 2020.

Profit margin

Management applied cost saving strategies in the effort to defend profit margin and grow the bottom line. This worked for it in respect of cost of funds that was under its control but failed in respect of loan impairment expenses that are largely out of management’s control.

Interest expenses recorded a year-on-year decline of roughly 4 percent to close at N44 billion at the end of the third quarter. Improving interest income with declining interest expenses made a favourable combination for FCMB in 2020.

The share of interest income devoted to interest expenses went down from 45 percent to 39 percent over the review period. The positive effect is a top record growth of 21 percent in net interest income to N66 billion at the end of the third quarter compared to less than 5 percent improvement at the end of 2019.

There was a major increase in impairment losses on financial assets, which did not let all the increase in net interest income get down into profit. Net loan impairment expenses rose by 70 percent to over N13 billion at the end of September 2020. The expenses claimed nearly 20 percent of net interest income against 14 percent in the same period in 2019.

The development represents a sudden change of direction from three years of sustained drop in credit loss expenses to 2019. The bank’s management didn’t let the asset quality strain impede the growth of the bottom line.

FCMB combined the strengths of improving revenue and declining interest expenses and was able to dilute the impact of rising credit loss expenses and still add some momentum to the bottom line.  The bank maintained the path of growing profit for the third consecutive year at the end of the third quarter though it is yet to return to the peak profit figure of N22 billion it attained as far back as 2014.

The bank closed the third quarter operations with an after tax profit of roughly N14 billion, which is a year-on-year growth of 30 percent. Profit accelerated from 16 percent growth the bank recorded at the end of 2019.

The ability to grow profit more than three times ahead of revenue underscores a gain in profit margin. Net profit margin improved from 7.9 percent in the same period in 2019 to 9.5 percent at the end of the third quarter 2020. This is the highest net profit margin the bank has seen since 2015. The strength came from cost saving from interest expenses and a moderated operating cost during the review period.

The bank shows good prospects for retaining the key strengths of growing revenue, moderating interest expenses and improving profit margin to full year. That would keep it on course for rebuilding profit for the third straight year in 2020. 

Return on assets

FCMB closed the third quarter operations in 2020 with a return on assets of 0.8 percent, down from 1 percent it registered at the end of the preceding financial year. The weakness reflects largely the decline in asset turnover in the year but also on the bank’s relatively low profit margin. Despite that profit margin improved, it is at the low end of the wide gap in profit margin among banks.

Sterling Bank Plc

Abubakar Suleiman – Managing Director/CEO

Sterling Bank Plc expanded the balance sheet by 10 percent to N1.3 trillion as at the end of third quarter operations in September 2020. That was a stronger growth rate than recorded in three years. Asset expansion was led by cash and bank balances that rose by 90 percent to over N297 billion from the closing figure in 2019.

The key earning assets of the bank declined during the period. Customer loans and advances were slightly down at N610 billion at the end of September and the investment portfolio also dropped by 8.5 percent to N256 billion at the end of the third quarter.

The decline in loans and advances is further to a marginal decline the bank recorded in 2019. There has been no reasonable improvement on the bank’s credit portfolio since 2017. Even lending to other banks dropped by 59 percent to the lowest figure in several years at the end of the third quarter.

Rising loan impairment expenses appears to have warranted the lending caution on the part of the bank’s management in 2020. The expenses were already standing at 150 percent of the full year figure in 2019 at the end of the third quarter.

Asset turnover

Management’s caution on new lending plus the decline in investment assets weakened interest earning capacity of the bank in 2020. Increased credit losses in the year added further strain on earnings for the bank.

Interest earnings dropped for the first time in a decade by 6.7 percent to N88.7 billion year-on-year at the end of the third quarter. The margin of decline had widened from 4 percent at half year, suggesting a likely further decline in the final quarter.

A quickening force on revenue performance however came from non-interest revenue, which grew by 19 percent year-on-year to N17.4 at the end of the third quarter. Net trading income provided the spur for non-interest income, which multiplied more than three and half times to N7 billion over the review period.

The increased margin of decline in interest income hindered the bank from growing revenue at the end of the third quarter. Gross earnings closed at N106 billion at the end of September 2020, which is a year-on-year decline of 3 percent.

The decline of 3 percent in gross earnings against an increase of 10 percent in total assets resulted in a decline in asset turnover from 0.13 at the end of 2019 to 0.11 at the end of the third quarter. The slight decline reflects a comparatively slower increase in assets than other banks over the period.

Profit margin

Cost saving from a decline in interest expenses presented a major operating strength for the bank for the second year in 2020. Interest expenses went down by 17 percent year-on-year to N39 billion at the end of September 2020. This represents a reduction of N8 billion over the period.

Interest expenses therefore provided a major cost saving centre for the bank in the year, dropping two and half times as fast as interest income during the period. The drop in interest expenses and the strong growth in non-interest income are the key favourable developments on the earnings story of Sterling Bank in 2020.

With the cost saving, net interest income improved against the drop in interest earnings. Net interest income went up by 3.5 percent to N49 billion out of the 6.7 percent drop in interest earnings.

The bank’s management also kept operating cost in check in the third quarter and closed the period with a slight reduction in total operating expenses at less than N49 billion. However the slacken performance in revenue raised the cost margin in the third quarter to 46 percent.

With the strong growth in non-interest earnings, the bank pushed up operating income by 7 percent to N66.6 billion at the end of the third quarter. The increase however failed to reach the bottom line.

Credit loss expenses consumed more than all the increase in operating income, leading to a marginal decline in net operating income after impairment charges at about N57 billion. Loan impairment charges rose by 148 percent to over N9 billion at the end of the third quarter – already 150 percent of the full year figure of N6 billion in 2019. It is the strongest growth in loan losses the bank has seen since 2014, which happened to the detriment of profit improvement.

Sterling Bank closed the third quarter operations with an after tax profit of N7.4 billion, a decline of under 3 percent year-on-year. A high rise in tax expenses accounted exclusively for the drop in after tax profit against a 5 percent improvement in pre-tax profit to N8 billion over the review period.  

The bank’s management was able to defend profit margin at 6.9 percent year-on-year at the end of the third quarter. This means it succeeded in matching cost savings from interest and operating expenses with the increase in loan impairment expenses. Its profit margin is however a decline from the closing mark of 9 percent for 2019 – the highest in four years.

Return on assets

The bank ended the third quarter operations with return on assets of 0.7 percent, which is a decline from 0.9 percent at the end of the preceding financial year. It ranks high on asset turnover but its drawback continues to be its comparatively low profit margin.