Nigerian Banks’ Performance – H1 2018

Proshare

 Wednesday, September 26, 2018    05.40PM / Temitope Babalola, Research Desk 

  

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Executive Summary 

Financial intermediation in any economy is largely impossible without any sound financial system.  Moreover, with the back dialing  in the cycle, analyzing and taking an in-depth look into the financial performance of banks have become inevitable.  

 

Thus, this edition of the Proshare Confidential looks at the performance of Deposit Money Banks (DMB’s) for the first half of 2018.  Amongst many indicators that came to light, the study discovered the growing dominance of corporate banking (product wise) and we also highlighted the growing size of ‘the Treasury’.    

 

The study showed an aggressive mobilization to recover loans on the part of DMBs as they churned up N1,385 billion in total interest income and N1,1278 billion in total operating income; which is 1.19% and 1.09% of 2017 Gross Domestic Product respectively.    

 

It appears that there is   a persistent tilt towards income from government securities from the DMB’s either as a direct attempt to hedge against the possible dip in interest income on loans or as a viable investment option given the economic realities.

 

Most DMB’s are preoccupied with reducing loan assets and increasing the hold of treasury bills. This improves the amount of liquid assets on the one hand and also improves their loan to deposit  ratio,  as most  DMB’s went to work to  clean  up  their  balance sheet.  

 

The recovery in oil prices coupled with the ability to veer off the real economy has led to a diminishing in non-performing loans.  Therefore, they have been an improvement in the micro prudential levels of the bank.

     

There current policy response to macro-economic dynamics have forced DMB’s to resort to  replenishments strategies - locking into short term maturity, especially  risk-free instruments. This is largely reflected in their cash flow statement(s), showing an improved pool of  marketable asset; which reduces the room of mismatch of risk. 

 

The report showed a strong  correlation between low interest deposit expense and cost to income ratio, banks with relatively low interest deposit expense ratio have  low cost  to  income  ratio.  Thus, banks with relatively low cost of borrowed fund tend to have a low  cost  to income ratio. 

      

This would perhaps be the clearest justification for the cautious  attitude of DMB’s to  the  real  sector which  remain  a  headwind  to  private investment.  It also hints to the fencing of  financial intermediation, especially to the informal sector. 

 

The  report  highlighted  the  softening  in  the interbank call rate as the  election cycle  draws  closer,  underlining the  rising  liquidity, thereby, forcing DMB’s to resort to indirect tools  to  manage the rising liquidity.

 

As a follow through, the report  also  commented on the CBN’s intention  to  use  its  base  money  to  create  a scaffold  for  growth  and  reduce  unemployment moving  forward. 

  

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Proshare Nigeria Pvt. Ltd. 

 

Previous Proshare Confidential Report (s)

1.       AMCON and Financial Services Debt Burden in Nigeria – Jul 2018

2.      Poverty Tracker and Nigeria: Raising The Red Flag – Jun 2018

3.      POCKET Economics: Addressing Income Inequality – May 2018

4.      The Silent Drug Epidemic: A Gathering Storm - Apr 2018 

5.      Judging IMF’s Position on Development Indices – Mar 2018

6.      Money Market: The Folk Road – Feb 2018    

7.      The Headache of Missing Targets – Jan 2018

8.     2018 Outlook on the Nigerian Economy: The Need for an Even Keel – Dec 2017

9.      Nigeria External Economy and the White Noise of Import Dependency – Nov 2017

10.  States and the Rising Weight of Debt – Oct 2017

11.   Money Supply: Reeling from Policy Response – Sep 2017

12.  How Rail and Energy Will Deliver a Robust Economy for Nigeria – Aug 2017

13.  Too Big Government: The Hysteria of Developmental Quagmire – Jul 2017

14.  The Nigerian Debt Conundrum and the Need for Automatic Stabilizers – Jun 2017

15.   Article IV vs. ERGP - The Third Way – May 2017

16.  Lifting The Veil off The Financial Sector – Apr 2017

17.   Towards An Economic Model for Nigeria; Going Beyond Symptomatic Responses - The Panama Model – Mar 2017     

 

 

Proshare Nigeria Pvt. Ltd.

 

Proshare Nigeria Pvt. Ltd.

 Proshare Nigeria Pvt. Ltd.

 

 

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Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

 

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