Can Banks Sustain Q1 Performance?





After most banks exposed their losses and meagre profits, the calculations currently for most of the banks, is how to strategise to ensure that the numbers end better come next common- year end, December 31, 2010. Emele Onu reports



Merrill Lynch, the investment banking and wealth management division of Bank of America, is one of the world’s leading financial management and advisory companies, providing financial advice and investment banking, among related services. Last January this year, the global financial research and analysis group, painted a gloomy picture of Nigerian banks, in its banking industry outlook for 2010.It stated in a published report : “Nigerian banks are in a transformational stage this year, transitioning through government bail outs, capital injections and provisioning.”



According to Merrill Lynch, a full recovery from a banking crisis typically takes longer than six months (usually 24 months). It  noted: “Large-scale Non Performing Loan (NPL) problems in our opinion, cloud the near-term investment outlook for Nigerian banks.”The research group stated that the era of losses by Nigerian banks might not have ended, adding that banks had provided for N1.5 trillion out of their N9 trillion non-performing loans (in the results declared to September 30, 2010).



“Based on our calculations, Nigerian banks could have about N9 trillion toxic loans on their balance sheets against which they have taken N1.5 trillion (net) in provisions and capital injections to date,” the report said. The   Merrill Lynch report also indicated that with all the provisions made by banks (up to September 2009 results), more was waiting to be made by the release of the audited statements to 2009 year-end and even beyond, making it look forlorn to expect the banks to declare profit even to the next two years. That thinking by Merrill Lynch might be faulted by the time the banks release year 2010 reports, giving the results already declared for the first quarter. 



The first quarter pre-tax profit reports of some of the banks showed for instance: Union Bank  with  N3.56billion,  First Bank – N15.42billion, Zenith Bank – N13.2billion, GTBank N13.01billion, ETI – N8billion, Access Bank – N5.29billion, Syke Bank – N3.17billion, Stanbic IBTC -N2.47billion, Diamond Bank – N2.06billion, Sterling Bank – N1.4billion, Ecobank Nigeria – N1.21billion, Finbank – N1.165billion and  Wema Bank – N764million). 



Intercontinental Bank Plc is also poised to release three of its results this week and feelers from the CBN indicates that the bank made profits in the first quarter of 2010.But although analysts have commended the first quarter reports, which they said signposted the good thing to come by year- end, they also warned that the expected improved performance was not guaranteed.   Globally, banks are still struggling for survival and strategising on how to sustain income that improved recently, with easing of the world economic meltdown.



Just last week, it was reported that Bank of America Corporation and other banks in the United States were preparing for new fees on basic banking services in a bid to beef up their income statements. The US banks want to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans.



Reports indicated that free checking accounts, which have been widely available for more than a decade, have been a boom to middle-class consumers in US and attracted low-income customers to the banking system for the first time. Should the US banks implement the new fees; customers will be required to pay new monthly maintenance fees on the most basic accounts that do not even generate a lot of activity. US analysts said to avoid the fees, customers will have to maintain certain account balances or frequently use other banking services such as credit and debit cards, the automated teller machines (ATMs) and their online accounts.



It is of interest how Nigerian banks will want to sustain their own improved earnings performance to year- end, but more importantly is how to ensure that the marginal increase (efficiency ratios) on the bottom-line do not decline in the subsequent quarters. But as the President, Association for the Advancement of the Rights of Nigerian Shareholders (AARNS) Dr. Faruk Umar, observed: “The results are encouraging and shows that the CBN is succeeding in reviving the rescued banks and the industry, following the crisis that peaked in 2009. What comes after the first quarter, said Umar, is important to the banks and their stakeholders.



Banks’ Year-end, Q1 Results


Banks, given their 2009 year-end reports and what were showcased in the first quarter, have realigned and refocused businesses towards resource optimisation, improved earnings and efficiency in line with their targets for the running year. Union Bank, which ended the nine months to December 31, 2009 with a loss after tax of N281 billion, posted a group pre-tax profit of N3.55 billion for the first quarter ended March 31, 2010, a development market watchers said indicates better days ahead for shareholders and other stakeholders of the bank.



The result also showed that Union Bank made group gross earnings of N34.235 billion for the three months, as against N51.25 billion for the three months ended March 30, 2009. Its group post-tax profit was N3.33 billion as against a loss of N97.88 billion in the corresponding period of 2009.Market analysts hailed the performance, pointing out that it portrays the efforts the new management has put into reviving the financial conglomerate.



According to an analyst, “considering the image battering Union Bank and the other banks rescued by the CBN went through, the performance is highly commendable and showed the high level of customer loyalty the bank still enjoys.”  Responding to the performance, President, Association for the Advancement of the Rights of Nigerian Shareholders (AARNS) Dr. Faruk Umar, said it is very encouraging and shows that the CBN is succeeding in reviving the rescued banks.“It is a good development and it shows   that the apex bank is succeeding in the task of reviving the banks. My advice is that the management of the banks should not derail and should remain determined to put the banks back on their feet and put smiles on the faces of shareholders,” he said.



Also speaking, the Chairman, Ibadan Zone Shareholders Association, Chief Oluremi Oyepeju, said the results showed that Nigerians are capable of managing the banks and making profit. He therefore, called on the CBN not to bring in any foreign investors. “I am one of the people that have been calling for the rescued banks to publish their results and the result of Union Bank is encouraging. It has proved that Nigerian managers and investors are capable of resuscitating these banks.  There is therefore, no need for the CBN to sell the banks to any foreign investor. The CBN should allow the existing shareholders to recapitalise the banks,” he said.



Group Managing Director and Chief Executive, Mrs. Funke Osibodu, recently expressed optimism that Union Bank would regain its rightful position in the banking industry now that its books have been cleaned up. She said that the bank is poised to exploit the business opportunities arising from the gradual recovery in the global economy, stressing the need for the esteemed customers to remain steadfast with the bank and increase their patronage.When the new management assumed office last year, Osibodu said the focus would be specifically on risk management and control, marketing and business development.



Guaranty Trust Bank (GTBank) for the eight months ended December 31, 2009, recorded increase in earnings by N61.945 billion or 61.57 per cent to N162.55 billion from N100.605 billion in the 12 months ended December 2008. Its Profit before tax for the period stood at N27.963 billion, representing a decline of about N7.366 billion or 20.84 per cent from the previous year’s N35.329 billion.The net profit dropped by N4.629 billion or 16.34 per cent to N23.686 billion, as against the N28.315 billion reported in 2008. GTBank for the first quarter of 2010 achieved growth in earnings by 11.05 per cent to N26.75 billion from last year’s N24.088 billion, out of which PBT closed at N13.01 billion, up by 2.97 per cent from the previous N12.635 billion. Net profit increased by 2.97 per cent to N8.847 billion, as against N8.591 billion, a year earlier.



First Bank’s audited statement to December 31, 2009, showed earnings at N196.408 billion, down by N21.222 billion relative to the previous year. Group’s pre- tax profit stood at N11.585 billion, down by 78.47 per cent from the N53.79 billion posted in the 12-month ended March 2009. After tax profit to December 2009 (nine months) was N3.189 billion, down from N12.569 billion.  For the first quarter, earnings stood at N62.399 billion, a decline of about N7.44 billion or 10.65 per cent, compared with the N69.839 billion reported in the corresponding period of last year. Group’s pre- tax profit was N15.42 billion, up by 256.61 per cent from the previous loss of N9.846 billion, while net profit at N12.336 billion, represented 196.38 per cent improvement over the net loss of N12.8 billion.



Zenith Bank announced earnings of N211.639 billion to December 31, 2009, a rise by N65.661 billion or 31.025 per cent from N211.639 billion. Net profit stood at N20.603 billion, from the previous N51.993 billion. The bank restated its commitment to improve on last year’s performance, as it announced a 12 per cent growth in pre- tax profit from N11.8 billion to N13.2 billion at the end of March 31, 2010.



Access Bank for the nine-month ended December 31, 2009 declared earnings of N66.076 billion, a drop from the previous N89.552 billion during the 12-month ended March 2009. It declared a net loss and minority interest of N4.194 billion, from net profit and minority interest of N21.034 billion in the previous 9-month to March 2009.



But the bank emerged stronger in the first quarter, with net profit and minority interest rising to N4.049 billion, representing an increase of about N253.766 million or 6.68 per cent. Earnings rose to N27.778 billion from the previous N26.624 billion.



United Bank for Africa (UBA)’s income for the 15-month period rose by N77.139 billion or 45.48 per cent to N246.725 billion, from N169.586 billion in the 12 months ended September 30, 2008, out of which profit before tax fell by about 75.95 per cent from N56.815 billion. Net -profit dropped by about N38.45 billion to N2.375 billion, compared with the N40.825 billion profit in the previous reporting period.The bank’s first quarter result to March 31, 2010 showed earnings dropped by N9.116 billion or 15.91 per cent to N48.174 billion, as against N57.29 billion in the comparable period of 2009. PAT and exceptional items dropped to N1.557 billion, representing a dip of by about N6.007 billion or 79.41 per cent from the previous N7.564 billion.



Sterling Bank recorded a pre-tax loss of N11.63 billion for the financial year to December, 31 2009 against a profit of N6.28billion in the preceding year. However, the bank posted a 137 per cent rise in pre-tax profit for its first quarter ended March 31, 2010 as it recorded N1.4 billion compared with N592 million in profit in the preceding year.  



Afribank recorded profit before tax for the first quarter of N2 billion and N25 billion in gross earnings in the first quarter, 2010. It returned to profitability in March 2010, compared with a loss of N39 billion in the corresponding period of last year. As an aftermath of the good showing in the results of the banks for the three months of the running year, most of the institutions have announced plans to sustain the tempo to year-end. Interestingly, some of the banks have re-strategised and retooled to top the performance list by December 2010 common year- end, but emphasising more the efficiency of resource use. That, analysts said, typifies healthy competition.



2010 Competitive Growth Strategies


The strategy for most of the banks involves scaling up of operations through organic or inorganic growth, rollout of terminal growth plans as well as improved competitiveness of operations targeted at the top line and bottom-line.For instance, as part of the process for repositioning the bank to enhance customer service and profitability, Union Bank recently realigned its operations bank wide.



Group Managing Director of the Bank, Mrs  Osibodu, made this known during an interactive session with newsmen in Lagos recently.Specifically, she said that the realignment process became necessary as part of the efforts designed to reposition the bank into profitability. Before the latest development, at least 70 per cent of the branch staff were back office. The new expectation according to the Union Bank boss, is to have at least 60 per cent of the branch staff to be in contact with customers (i.e front facing) whilst not more than 40 per cent will be in back office.



She said the development has necessitated the expansion of the current 19 operational zones of the Bank to 42 zones and the appointment of senior management staff (some of whom are currently in the Head Office) to lead the newly created operational zones spread across the country.Osibodu said: “in addition, the current branch structure of the bank is being reorganised both in terms of management and focus. The branches will now be managed by more senior personnel designated as business development managers while chief marketing officers will be appointed within each branch to lead the strategic business units comprising retail, corporate, commercial and public sector business as applicable to locations and business opportunities.



“Appointment of key staff for the branches is expected to be unveiled soon in phases starting with 55 flagship branches. The re-energised branches will serve as the fulcrum to relaunch Union Bank to market prominence.” In the same vein, bank plans to roll out 200 Automated Teller Machine (ATM) plazas, with 50 to be deployed in a the pilot scheme, as part of the efforts to decongest the braches and move banking services closer to the customers.



The bank had in the past few months recruited more than 700 new staff, mostly fresh graduates, 50 senior staff, mostly accountants, all in an effort to deliver better and quality service to the bank’s customers. Also, Skye Bank is reviewing its out-sourcing policy on staff and other third party supply process in order to streamline its staff engagement process and enhance efficiency of operations in the running year.The bank explained that because of its new business and operational focus, it has discontinued its Direct Sales Agents (DSAs) structure, by which contract officers mobilise retail deposits on its behalf, adding that such Direct Sales Agents are no longer engaged for its retail business.



The DSAs were first engaged about two years ago to mobilise retail liabilities (savings and current accounts) to deepen the retail business of the bank. However, with the change in the business focus of the bank, their continued need has been overtaken by events. Afribank last weekend announced a two- year turnaround plan, designed to return the financial institution to optimal performance. The plan, according to the management is divided into three stages: diagnostic (clean up and reengineering), transformation (guided growth) and consolidation.



The bank intends to implement many initiatives under the plan including a paradigm shift in its business architecture, technology upgrade, capacity development – skills upgrade, human capacity development, resource optimisation – optimisation of core and non-core assets as well as branch optimization, among others. Managing Director/CEO, Access Bank, Mr Aig-Imoukhuede, said Access Bank will continue to pursue strong business fundamentals. The bank, he said, is now in a vantage position to take advantage of the new banking landscape. He said: “We are particularly thrilled that our efficiency driven initiatives around cost of funds, cost of risk and cost to income are paying off across our group operations.”



The managing director of First Bank, Bisi Onasanya, said the bank would continue to win market share as one of the longstanding, trusted institutions in the country, while Zenith Bank said its strong capital base provides stakeholders with a high level of comfort and that the bank is well placed to withstand any unexpected turbulence in the financial sector. However as the President, Association for the Advancement of the Rights of Nigerian Shareholders (AARNS) Dr. Faruk Umar, said: “The management of the banks should not derail and should remain determined to put the banks back on their feet and put smiles on the faces of shareholders.” There are other equally interesting suggestions on how the banks can sustain the first quarter performance.



Achieving 2010 Growth Projections


On how the managers of the banks can improve the financials, going forward,  Merrill Lynch noted: “For the banks to record similar levels of profitability as in the past, there is the need to see a sizeable expansion in margins to offset slower advances in growth.”The research group however, warned that margins might come under pressure from higher business costs and lower income in 2010.The report advised that banks should find a way to grow income and reduce operating cost, for them to return easily to productivity. The exemption is where a bank is expending on expansion projects that will ultimately impact on the organisation in the long run.



Banks provide payment services just as bank account is considered indispensable by most businesses, individuals and governments. Through their intermediation roles, they lend money to individuals, households, businesses and government.  Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds.



They lend money by making advances to customers on current accounts, or giving out credit and by investing in marketable debt securities and other forms of money lending. Through these channels, the banks earn commission, fees and interest, among others. It is believed that with good operations strategy, followed by adequate tactical actions to optimise income sources, most of the banks can sustain the good beginning witnessed in the first quarter to 2010 year -end.




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