Coronanomics (20) - Sectorial Analysis of Nigeria's Finance and Insurance Sector


Friday, June 26, 2020 / 04:40 AM / by Proshare Content/ Header Image Credit:  EcoGraphics


Finance and Insurance Sector

Despite the spread of COVID-19, the finance and insurance sector grew remarkably in the Q1 2020. The sector grew by 20.79% in Q1 2020, an improvement from 20.18% in Q4 2019. Financial institutions grew by 24.0% in Q1 2020 from 22.33% in Q4 2019 and -9.21% in Q1 2019. The insurance sector grew by 2.94% in Q1 2020 from 3.21% in Q4 2019 and 2.58% in Q1 2019.


Illustration 21: Effect of COVID-19 on Banks

Proshare Nigeria Pvt. Ltd.


The pandemic is forecasted to have a negative significant effect on the finance and insurance sector in Q2 2020 and probably the rest of the year. Coronavirus has adversely affected global trade such as the global oil market, causing volatility in oil prices. Data from bank's financials reveals that the majority of their gross loans are allocated to the oil and gas sector making them vulnerable to increase indebtedness i.e. increase in NPL. Weak economic activities caused by the coronavirus will affect the ability of businesses to repay debt, thus weaken asset quality of banks (including microfinance banks). The coronavirus induced interest-rate reduction will weaken the profitability of banks. 


COVID-19 and The Burden on Banks

  • Credit Risk: Increased defaults due to a decline in economic activities, higher credit exposures and rating downgrade of customers, an increase in expected credit losses and non-performing loans.
  • Profitability/Capital Adequacy: Low business activities and higher impairment and losses will likely lead to a reduction in profit level and capital depletion, with Capital Adequacy Ratio likely falling below regulatory limits
  • Market Risk: Expected fair value losses on the back of increased credit spreads, as well as the impact of net foreign exchange (FX) devaluation varying with banks' net FX position
  • Operational Risk: Banks are likely to suffer from Business execution and process management failures as well as the likelihood of system failures and business disruption due to alteration in employee working arrangements in the wake of the Work-from-Home strategy adopted to curtail the spread of the virus
  • Liquidity Risk: Banks' liquidity position likely to be affected by the reduced cash inflows from loan repayments. Increased cash withdrawals relative to reduced savings, a decline in transactional activities will also affect liquidity
  • Cyber Risk: The prevalence of Work-from-Home conditions means increased exposure to cyber risks. Cybercriminals may exploit remote access weakness using new techniques to perpetrate cyber fraud
  • Currency Risk: Banks with a mismatch in their foreign currency (FCY) denominated assets and liabilities may experience face significant exposure to currency risk occurring from the expected defaults on the FCY assets compounded with the recent adjustments in exchange rates by the CBN

The slowdown in economic activity caused by the pandemic will undermine the growth of insurance companies and possible contract insurable exposures. There will likely be a strain on investment portfolios maintained by insurance companies. Furthermore, it is likely going to lead to an increase in insurance coverage disputes, an increase in defaults by insured persons and companies, reduced premium remittance and there is a strong chance that a significant number of insured persons will begin to deprioritize a lot of their insurance policies and restructure them as they focus on survival during the harsh economic conditions.


Illustration 22: Effect of COVID-19 on Insurance Sector

Proshare Nigeria Pvt. Ltd.


The decline in premiums which form the major source of revenue for insurance companies will adversely affect the revenue of insurers and hurt their business sustainability.


Chart 109: Finance and Insurance Sector Quarterly Growth Rate (%)

Proshare Nigeria Pvt. Ltd.

Source: NBS, Proshare Research                                                    

    Note Asterisks (*) - Forecasted figures 


Case Study: Zenith Bank

Zenith Bank is engaged in the provision of banking and other financial services to corporate and individual customers. The Bank's segments include corporate, retail banking and pension custodial services.


Zenith Bank Gross Earnings

Zenith Bank's gross earnings rose by 5.07% in 2019. Its gross earnings rose from N630.34bn in 2018 to N662.3bn in 2019 (see Chart 110). 

Despite a contraction in Nigeria's economy in 2016 and 2017, Access Bank's gross earnings grew by 17.44% and 46.69% respectively. The narration is predicted to be different in 2020. The Bank's gross earnings are predicted to decrease slightly due to the pandemic virus which has affected the oil sector and the overall economy.


Chart 110: Zenith Bank Gross Earnings (N'bn) 2015-2019

Proshare Nigeria Pvt. Ltd.

Source: Zenith Bank Financials, Proshare Research 


Zenith Bank PBT

Zenith Bank's profit before tax rose consistently from 2015 to 2019. Its profit grew by 5.01% in 2019. Its profit rose from N231.69bn in 2018 to N243.29bn in 2019 (see Chart 111).


Zenith Bank's profit before tax was resilient despite the contraction in the economy in 2016 and Q2 2017. In 2016 and 2017, its profit grew by 24.78 and 29.8% respectively. Its profit is forecasted to decline in 2020, due to a fall in global oil demand and the slow down in the Nigerian economy.


Chart 111: Zenith Bank PBT (N'm) 2015-2019

Proshare Nigeria Pvt. Ltd.

Source: Zenith Bank Financials, Proshare Research


Zenith Bank NPL Ratio

Zenith Bank's NPL ratio declined to 4.3% in 2019 from 5% in 2018. In 2016 and Q2 2017 when the economy contracted, Zenith Bank's NPL ratio rose consistently. Its NPL ratio increased in 2016 and 2017 to 3.02% and 4.7% respectively (see Chart 112).


It is forecasted that Zenith Bank's NPL ratio would most likely increase in 2020. This is so because the major chunk of the bank's gross loans goes to the Oil sector which has been adversely affected by COVID-19.


Chart 112: Zenith Bank NPL Ratio (%) 2015-2019

Proshare Nigeria Pvt. Ltd.

Source: Zenith Bank Financials, Proshare Research 


Zenith Bank Leverage Ratio

Zenith Bank recorded its lowest leverage ratio of 38.39% in 2019. Its leverage declined from 97.88% in 2018 to 38.39% in 2019. Its low leverage ratio implies it has higher equity relative to its debt. Its leverage ratio is forecasted to rise in 2020 due to the virus (see Chart 113).


Chart 113: Zenith Bank Leverage Ratio (%) 2015-2019

Proshare Nigeria Pvt. Ltd.

Source: Zenith Bank Financials, Proshare Research


Zenith Bank Liquidity Ratio

Zenith Bank's liquidity ratio declined to 57.25% in 2019. Its liquidity ratio declined from 80.91% in 2018 to 57.25% in 2019. Its liquidity ratio is forecasted to decline further in 2020 due to the coronavirus (see Chart 114).


Chart 114: Zenith Bank Liquidity Ratio (%) 2015-2019

Proshare Nigeria Pvt. Ltd.

Source: Zenith Bank Financials, Proshare Research

Proshare Nigeria Pvt. Ltd.


Related Reports (PDF)

1.     Download the Full PDF Report - Coronanomics and the Nigerian Economy, June 06, 2020

2.     Executive Summary PDF - Proshare, June 06, 2020


Proshare Nigeria Pvt. Ltd.

Related News

1.      Coronanomics (19) - Sectorial Analysis of Nigeria's Agricultural Sector

2.     Coronanomics (18) - Selected Sub-Nationals: The Different Faces of Trouble and Redemption

3.     Coronanomics (17) - Sub-Nationals: Digging Deep, Wide and Hard

4.     Coronanomics (16) - Deconstructing Nigeria's Trade

5.     Coronanomics (15) - Nigeria's National Income - Understanding The Black Box

6.     Coronanomics (14) - Nigeria's Debt Profile - Swimming in Deep Waters

7.     Coronanomics (13) - Nigeria: The Budget, The People and Poverty

8.     Coronanomics (12) - The Nigerian Economy in Relief

9.     Coronanomics (11) - Fighting A Virus - Africa's Equity Market

10.  Coronanomics (10) - Impact on the Travel and Tourism Sector

11.   Coronanomics (9) - China, US-Africa Bilateral Trade Data - Changing Partners

12.  Coronanomics (8) - African Economies - An Emerging Market Fight Back

13.  Coronanomics (7) - Global Policy Responses Against the Negative Impact of COVID-19

14.  Coronanomics (6) - Global Stock Market - Top 3 Decliners Dipped By 0ver 26% YTD

15.  Coronanomics (5) - Global Oil Market - Spinning Around A Vortex

16.  Coronanomics (4) - Chinese Economy and The Rest of the World

17.  Coronanomics (3) - The Global Economy Spinning on a Wishing Wheel

18.  Coronanomics (2) - Easing Out of a Crisis

19.  Coronanomics (1) - Understanding the Realities of an Impending Recession

Related Links and References

Related News - Opinions & Analysis

  1. An African Perspective on the impact of COVID-19 and the Response to it - FBNQuest
  2. Corporate, Financial Institution Downgrades On Pace for Record
  3. The Case Against High Interest Rates in Time of Contagion - Bola Tinubu
  4. The Coming Greater Depression of the 2020s
  5. Why the Global South Should Temper Expectations Over The Basel Convention Ban Amendment
  6. Of Q1'20 Economic Output and GDP Forecasts - Lessons from China
  7. Of Q1'20 Economic Output and GDP Forecasts - Lessons from China
  8. It's Time to Build - OpEd
  9. What Would the World Look Like after Coronavirus: Economically, Politically and Socially?
  10. Risk-Weight Variation Among Emerging Markets Banks Impedes Capital Comparisons

 Proshare Nigeria Pvt. Ltd.

Related News - Reviews and Outlooks

  1. Coronavirus Crisis Impact on Jobs Could Outweigh GDP Impact
  2. Moody's Affirms Nigeria's B2 Ratings, Maintains Negative Outlook
  3. Fitch Revises Outlook on Kaduna State to Negative on Sovereign Rating Action; Affirms at 'B'
  4. Fitch Downgrades Lagos State to 'B' on Sovereign Rating Action; Outlook Negative
  5. Further Multi-Notch Sovereign Downgrades Are Probable in 2020
  6. Various Rating Actions On Nigerian Banks By S and P Following Sovereign Downgrade; Outlooks Stable
  7. Three Ratings Agencies, Now One Message
  8. Fitch Downgrades Nigeria to 'B'; Outlook Negative
  9. Nigerian Banks at Severe Risk from Oil Price Slump, Coronavirus
  10. Moody's Assigns Ratings to Dangote Cement Plc's DMTN Program and Proposed Series 1 Notes
  11. Macroeconomic Review Q1 2020: Steering a Fragile Economy in the Face of Uncertainties
  12. Fitch Downgrades 3 Nigerian Banks to 'B', Places All 10 Banks on Negative Watch
  13. Nigeria Long-Term Rating Lowered To ''B-'' On Weakening External Position
  14. Coronavirus to Weaken Sovereign Fiscal Positions; Track Record Matters
  15. Fiscal Space Limited for Many Sovereigns
  16. Rating Actions Taken On Several Corporate Issuers With Exposure To Nigeria
  17. Outlooks On Six Nigerian Banks Revised To Negative After Same Action On Sovereign
  18. Nigeria's Outlook Revised To Negative On Falling Foreign Exchange Reserves

 Proshare Nigeria Pvt. Ltd.

Related News - Nigeria Economy    

1.       COVID-19 and the Construction Sector

2.     The Lockdown - Food Scarcity and Social Unrest Looming

3.     April 2020 Headline Inflation Will Cross 13.0% - FDC

4.     Nigerian Economic Update: A Throw of the Dice

5.     Guidelines and Recommendations: Reopening the Nigerian Economy

6.     GDP By Income and Expenditure Approach Q4 2019 - Household Final Consumption Declined by -2.40%

7.     Ahead of Tomorrow on WebTV: Discussions on COVID-19; Reinventing Nigeria's Economy

8.     Nigeria Weekly Update: Short and Long Currency Cycles

9.     Nigeria Needs A National Strategy To Integrate Factor Endowment Into A Plan - Prof. Utomi

10.  A Surprising Boost to the FAAC Payout; April Payment Amount to N781bn

11.   Ahead of Tomorrow on WebTV: Discussions on Repositioning Nigeria's Economy Beyond COVID-19

12.  Impact of Privatization on Nigeria's Economy

13.  Can Africa Afford COVID-19 Lockdowns? - Chukwuma Soludo

14.  COVID-19; Nigeria Needs To Relax Foreign Exchange Management To Boost Industrialization - Dr. Yusuf

15.  Nigeria's Economy After Oil: How Should We Prepare?

16.  The Disruptive Impact of COVID-19

17.  Nigeria's Impending Recession

18.  Roadmap to Rebooting Nigeria's Economy from COVID-19

19.  Coronation Weekly: Interest Rate Conundrum

20. Headline Inflation Increases By 12.26% YoY In March 2020; 0.06% Higher Than February 2020 Rate

21.  Ahead of Tomorrow On WebTV: COVID-19 and The Strategic Implications to Business Planning

22. #Coronanomics: The Changing Scale of Edtech, Healthtech, and Virtual Work Space In Nigeria

Related Reports/Articles

1.      COVID-19 and AGM by Proxy: Lessons from GTBank Approach

2.     #Coronanomics: How Tech Businesses Can Sustain Productivity

3.     The End of an Epoch: A New Beginning for Capital Markets in the 21st Century - Bruce Fenton

4.     Nigeria's Post COVID-19 Economic Outlook - Economics Associates

5.     Which Emerging Markets Are in Most Financial Peril?

6.     Global Monthly - World Bank Group

7.     World Economic Outlook 2020 - The Great Lockdown

8.     COVID-19: Economic, Tax and Other Fiscal Stimulus Measures in Nigeria

9.     COVID-19: Crisis And Opportunity

10.  COVID-19: Nigeria Economic Impact and Implications for CPG - McKinsey and Company

11.   The Economics of a Pandemic: The Case of COVID-19 - London Business School

12.  The Impact of The COVID-19 Pandemic in Nigeria - UNDP Nigeria

Proshare Nigeria Pvt. Ltd.

Coronanomics Discourse-WebTV Videos

1.      Social Bonds: A Viable Way For The Capital Market Support To Nigeria's Economy Post COVID-19 - Patrick Ezeagu

2.     COVID-19: Time For Nigeria To Diversify Its Revenue Base Through Agro, ICT - Ayuli Jemide

3.     Post COVID-19: Nigeria Must Prioritize Agro and Manufacturing, To Drive Productivity - Ray Echebiri

4.     Post COVID-19: States Should Rethink Their Economic Models To Drive Productivity - Teslim Shitta-Bey

5.     Economy & Politics: Nigeria Needs a Post COVID 19 Long-Term Plan - Boason Omofaye

6.     Economy and Politics: Nigeria Needs Economic Pragmatism and Robust Institutions - Dr. Temitope Oshikoya

7.     Economy and Politics: How Nigeria Can Address Its External Illiquidity - Ayo Teriba

8.     Economy and Politics: Nigeria Must Deregulate Its Petroleum Sector Post COVID 19 - Boniface Chizea

9.     Market Review: Transparency in Economic Management Key to Nigeria's Stability Amidst COVID 19 - Pandemic - Gbite Oduneye

10.  Economy and Politics: Coordinated Policy Key to Effective Nigerian COVID 19 Tax and Fiscal Stimulus - Yomi Olugbenro

11.   Market Review: FG Should Explore Tax Breaks and Other Incentives o Curtail Massive Job Losses - Tunji Andrews

12.  Market Review: Businesses Need to Reassure Their Customers Through A Well-Structured Communication Strategy - Dr. Tunji Olugbodi

13.  Economy and Politics: Nigeria Needs to Invest in Agro-Industrial Parks, To Boost Manufacturing - Femi Awofala

14.  Market Review: States Need Integrated Economic Policies Post COVID 19 - Teslim Shittabey

15.  Economy and Politics: Advertising Agencies Need Service Providers to Boost Communications Post COVID 19 - Lolu Akinwunmi

16.  Economy and Politics: Government and Businesses in Nigeria Need to Invest More in Digital Technology - George Ashiru

17.  Market Review: Nigeria Needs a Robust Regulatory Framework for Virtual AGMs - Bayo Olugbemi

18.  Market Review: Nigeria Must Deploy Data to Effectively Mitigate COVID 19 Risks - Babajide Ogunsanwo

19.  Market Review: Investments in Storage Facilities and Packaging Key for Nigeria's Agro Sector - Ade Adefeko

20. Market Review: Deregulation of Downstream Sector, Way Forward for Nigeria - Olugbenga Odusanya

21.  Economy and Politics: CBN Should Reduce the CRR and MPR - Marcel Okeke

22. Economy and Politics: Insurance Should be Integrated into Nigeria's COVID 19 Fiscal Measures - Ekerette Ola Gam-Ikon

23. Market Review: COVID 19, An Opportunity for Companies to be Empathetic to Consumers - Lampe Omoyele

24. Economy and Politics: Nigeria must Drive a Harmonized Tax Plan Post COVID 19 - Taiwo Oyedele

25. Market Review: Governance in Nigeria Should Consider Process, Accountability and Transparency Post COVID 19 - Soji Apampa

26. Market Review: FG Should Integrate the Capital Market in its Economic Sustainability Plan - Charles Fakrogha

27. Economy and Politics: Liquidity, Titling and Tech Adoption, Key for Growth of Real Estate in Nigeria - Hakeem Ogunniran

28. Economy and Politics: Why Nigeria Should Explore a N20trn Development Bond - Tope Fasua

29. Market Review: Nigeria Needs More Project Based Funds to Attract Investments - Ebo Ayodeji

30. Market Review: NIPC Working with States to Boost Their Attractiveness for Investments - Yewande Sadiku

31.  Economy and Politics: Nigeria Fintech Industry Attracted About $50m Investments in Q1,2020 - Babatunde Obrimah

32. Nigeria Needs to Align its National Database to Deepen Social Investments - Laoye Jaiyeola

33.   Post COVID 19: Time for Nigeria to Restructure its Fiscal Framework - Zeal Akaraiwe


 Proshare Nigeria Pvt. Ltd.

 Proshare Nigeria Pvt. Ltd.

Related News