By Kelechi Mgboji
Assistant Business Editor
Equity investments for 2015 turned haywire after banks’ non-performing loans (NPLs) of about N649 billion crashed shareholders’ hopes of fair returns.
NPLs rose 78.8 per cent to N649.63 billion, severe deterioration in the quality of the loans portfolio of the 22 banks, according to a report the Central Bank of Nigeria (CBN) presented to its Monetary Policy Committee (MPC).
Except GTBank, Zenith
Except Guaranty Trust Bank (GTBank) and Zenith Bank which declared above average dividends, several other banks left shareholders high and dry, with little or nothing to show for their equity investments.
The problem stems from the sharp fall in crude oil price, over exposure to oil and gas credit, regulatory head winds, and harsh business environment.
Union Bank
Union Bank reported a NPL of N383 billion for the first quarter ended March 31, 2016, up 2 per cent from N370 billion in the corresponding period of 2015.
It also reported 1.85 per cent increase in NPL ratio for the financial year ended December 31, 2015, from 5.14 per cent in 2014 to 6.99 per cent, above CBN’s 5 per cent threshold.
Skye Bank
Skye Bank gave out N449.872 billion loans to energy firms between 2013 and 2014.
Figures obtained from its 2014 financial statement showed total loans and advances of N651.261 billion in 2014 as against N549.858 billion in 2013.
Some N240 billion issued in 2014 represented 36.97 per cent of that year’s total credit to energy firms, just as N209.076 billion loans in 2013 also represented 38.02 per cent of total exposure to energy firms that year.
First Bank
First Bank of Nigeria Holdings (FBNH’s) gross NPL figure of N354 billion in 2015 represented 54 per cent of banking sector NPLs.
NPL ratio stood at 18 per cent in 2015, up from 3 per cent the previous year, only 40 per cent covered by impairment provisions.
Total impairments for full year 2015 stood at N119.3 billion, up 360 per cent year-on-year.
GTBank
As GTBank grew loans book by 7.5 per cent to N1.371 trillion, up from N1.275 the previous year, its impairment provisioning jumped 74.8 per cent to N12.4 billion from N7.1 billion recorded in 2014.
However, GTB’s Interest Income grew 14.3 per cent to N229.2 billion in 2015 implying that the bank made good profit from growth in loans and advances to customers which stood at N1.371 trillion, up from N1.275 the previous year.
FCMB
First City Moment Bank (FCMB) recorded significant loan impairment charges with 41 per cent rise, from N10.6 billion to N15 billion.
Fidelity Bank
Fidelity Bank recorded 33.9 per cent impairment charges, from N4.3 billion to N5.76 billion in 2015.
Assurances from CBN
The CBN has issued circulars advising banks to retain more of their profits in anticipation of the risks NPLs may pose to balance sheets.
However, CBN Director, Banking Supervision, Tokunbo Martins, assured that despite sharp rise in NPLs, banks are adequately capitalised to withstand the shock.
Her words: “The banks have adequate capital to absorb the shocks that we are experiencing today. But even beyond absorbing the risks, it is also important that they continue to support the real sector.
“The CBN has issued guidelines that in view of the risks that we face right now (most of risks are not our own making), the banks need to be proactive and prudent.
“Therefore, don’t distribute as much (profits) as you used to do before, retain more. And they are doing so. So when you put all that together, they can withstand the shocks and at the same time still continue lending.
“So, I want to emphasise that the industry still remains strong and well positioned to carry out its core function, which is intermediation and support of the real sector.”
Shareholders hard hit
But shareholders bear the brunt as return on investment does not go down well with many whose expectations for capital appreciation fell flat.
Even as share prices of stocks have depreciated significantly, dividend earnings are drastically reduced due to huge exposure to the NPLs of energy firms.
Banks’ earnings and payout ratio for 2015 showed less than desirable profits and returns on investments.
From N125.616 billion gross earnings, Zenith Bank recorded 6 per cent rise in profit after tax which stood at N105.531 billion and 54 per cent payout to shareholders.
With N120.695 billion gross earnings, N98.678 billion profit after tax and a 53 per cent payout to shareholders, GTBank followed closely in terms of above average returns to shareholders.
But the same cannot be said of other banks whose investment returns to shareholders are far below average.
United Bank for Africa (UBA) recorded gross earnings of N68.454 billion and a profit after tax of N58.604 billion. Its 34 per cent payout to shareholders enabled it to retain more in line with CBN’s advice.
Access Bank retained about 76 per cent of its profit after tax of N65.333 billion having paid out only 24 per cent. It reported N75.038 billion gross earnings.
FCMB retained 58 per cent of its profit of N4.761 billion having paid out 42 per cent. It declared gross earnings of N7.769 billion.
Fidelity Bank posted N14.024 billion gross earnings and profit after tax of N13.904 billion. But paid out 33 per cent to shareholders.
FBN Holdings declared N21.512 billion gross earnings and profit after tax of N15.406 billion. It paid out 32 per cent to shareholders.
Seye Sonoiki, a director at Eczellon Capital, said the recent increase in NPLs is a function of the overall economy.
“When the economy is not productive in the real sense, it affects businesses. Businesses need loans to grow and when they are challenged by several environmental and economic factors, their bottom line will be affected.
“This will in turn affect their ability to repay their loans,” he argued.
Banks financed over 80 per cent of the acquisition of oil and gas assets in the past five years, analysts at Ecobank Capital said in a report in January
As of June 2014, it added, loans to finance these acquisitions accounted for over 24 per cent of the loan book of the banking industry.
For investors, how long it will take to get NPLs sufficiently covered by provisions and how banks intend to address acute capital inadequacy, asset quality, corporate governance, and rise in operating costs may pose serious concern in the months ahead.
