President Muhammadu Buhari etched his name in Nigeria’s history, when he became the first candidate to oust an incumbent president since the country’s independence. As a result of the enormous goodwill he enjoyed which secured his victory, and based on his campaign mantra of ‘change’, Nigerians, nay the whole world, expected a lot of positive changes from the former military ruler by subsequently putting the nation on a path of sustainable economic growth and needed infrastructural development.
State of the economy pre-Buhari
In fairness to President Muhammadu Buhari, he inherited a very fragile economy on May 29, 2015 from his predecessor, President Goodluck Jonathan. The economic cloud was not looking bright, especially in Nigeria’s banking system, as a result of the crash in global crude oil prices in the summer of 2014. Crude oil (which contributes as much as 90% of Nigeria’s revenue and 70% of her export earnings) that had been sold for $122 per barrel in June 2014 had crashed to $65, when he took over.
Buhari’s economic era
Buhari began his tenure on a wrong economic note, by failing to form his cabinet in the first six months of his administration. The Commander-in-Chief left the management of the nation’s economy technically at a standstill for 166 days, during which uncertainty crept in; hence, confidence weakened, and capital flight accelerated.
This blunder and many other sluggish starts, no doubt greatly affected the economy to the extent that, by the time the Buhari-led administration began taking action in late 2015, the economy had already been battered, and was entering its first full year recession since 1991 and the worst since 1987.
Nigeria’s economy grew by 3.96% in the previous quarter before he took over the mantle of leadership. But by the end of his first full quarter in September 2015, the economic growth had declined to just 2.84%. As if that was not enough, it further slowed to 2.7% by the end of 2015 — the slowest pace in the democratic era.
Beginning from the first quarter of 2016, the economy went through five straight quarters of declining real GDP growth rates. As a result of two consecutive negative GDP growths, the economy slipped into recession in Q2 2016. Worse still, the administration showed little or no concrete plans mapping how the economy could exit the recession.
Most Nigerians still believe that, apart from his poor economic policies, President Buhari’s poor political handling of the fragile peace in the restive Niger Delta also contributed to the recession, since militants resumed attacks on key oil infrastructure, which led to a decline in Nigeria’s output. The nation’s oil production fell from 2.2 million barrels per day at the beginning of 2016, to about 1.6 million barrels per day for the most part of 2016.
Current state of the economy
The ailing economy was able to finally exit recession, after managing to record a growth of 0.72% in the second quarter of 2017. The improved performances in crude oil, agriculture, manufacturing and trade boosted the economic recovery. Further growths of 1.17% and 2.11% in Q3 and Q4 2017 respectively cemented the recovery with an annual growth of 0.82% for 2017, which was higher by 2.42% than -1.58% recorded in 2016.
Although the economy made some recovery after exiting the recession, the gains recorded have since been eroding away. Nairametrics published an article a few weeks ago, where it brought its readers’ attention to the struggling state of the Nigerian economy, after recovering from the economic recession in the second quarter of 2017.
The economy had initially made a post-recession recovery in Q2 and Q3 2017 before it began declining gradually in the first quarter of 2018 – when GDP fell to 1.95% representing a quarter on quarter decline of 7.58%. Since then, the Nigerian economy has been recording macro-economic indices which show that the economy is really on a decline.
Buhari’s current economic indicators
- Although GDP grew by 1.50% in the second quarter of 2018, it slowed down by 0.45% from the growth rate of 1.95% recorded in the previous quarter of Q1 2018, indicating that the economy is still very fragile.
- Nigeria’s external reserves have been on a free fall in the past few months. It instead dropped below $47 billion for the first time in 4 months, on August 6, 2018. It has been dropping since then and currently stands at $43.84 billion as at October 5, 2018.
- This administration met Nigeria’s debt profile at N12.12 trillion, as at the end of June 2015, but the total debt stock currently stands at N22.38 trillion at the end of June 2018. The worst part of it is that the nation is still borrowing and planning to borrow more.
- President Buhari came in when the value of Naira was around N190 to a dollar, but that exchange rate is now wishful thinking, as it has since soared. As at today, the exchange rate is N358 to a dollar.
- The unemployment rate was at a single digit of 8.3% in the second quarter of 2015, when Buhari came onboard. The unemployment rate remains one of the economic indices that this regime has not been able to stop its dwindling fortunes, with the index jumping to 18.8% by the third quarter of 2017.
- The ease of doing business is very poor in Nigeria now. The World Bank currently ranks Nigeria 145 out of 190 countries in its Ease of Doing Business index for 2018, showing how difficult it is to set up and operate a business in Nigeria.
- The number of Nigerians wallowing in extreme poverty has continued to increase, with Nigeria overtaking India as the nation with the highest number of poor people, in May this year, with about 87 million Nigerians living in extreme poverty.
Can Atiku revive the struggling economy?
Though there are scores of presidential aspirants aiming to take over Nigeria’s seat of power, Aso Rock, Atiku Abubakar will be President Buhari’s main challenger come February 16, 2019, since he emerged as the People Democratic Party’s (PDP) presidential flag bearer last weekend.
Interestingly, Atiku is not new to the presidency, as he was the deputy Commander-in-Chief to President Olusegun Obasanjo, from 1999 to 2007. Nevertheless, being the general commander (president) is a different ball game entirely. He also rose to the second-in-command position in the Nigerian Customs Service – serving as Deputy Director before retiring in 1989.
He was reported to be very powerful and influential in the administration of President Obasanjo in the early 2000s, when Nigeria recorded some economic advancements, before falling out of favour with his boss, towards the tail end of their second tenure.
That administration is still regarded by many to have assembled Nigeria’s best economic team ever, comprising world-class professionals that included Ngozi Okonjo-Iweala, Charles Soludo, Nuhu Ribadu, Nenadi Usman, Nasir El-Rufai, etc. The economic team was led by Atiku and it achieved several economic feats, among which was stable economic growth, which saw the Nigerian economy grow at 33.7% in 2004, 10.4% in 2003, 8.2% in 2006, etc. The economic team’s greatest achievement was securing a debt relief of $18 billion for Nigeria, from the Paris Club of Creditors in 2006.
Atiku’s economic ideas
Speaking recently in Minna, the PDP presidential candidate lamented the high level of joblessness and poverty in Nigeria, claiming that recent indices in Nigeria have revealed that the nation has not fully recovered from the recession. He said:
“The nation has recorded the lowest economic growth since the return of democracy. It is clear that the APC government has failed so far as economic growth is concerned, that is why we have the highest level of joblessness and poverty.”
Also, at a parley in the Catholic Bishop Conference of Nigeria in 2014, Atiku identified waste, poor management and failure to diversify the economy, as the reasons for the adverse economic impact of the fall in oil price then. According to him:
“Had we been able to diversify and manage our economy in such a way that we conserve rather than waste our resources in surplus years, the present austerity measure would not be necessary.”
The PDP flag bearer went ahead to inform the bishops that it was the need to streamline Nigeria’s alarming debt stock, when he was Vice President that compelled him to get the World Bank to assign Prof Ngozi Okonjo-Iweala to join his economic team in the presidency, to locate and collate Nigeria’s actual debt for liquidation. He claimed that the former Minister of Finance worked in his office for nine months which led to the establishment of the Debt Management Office (DMO).
Meanwhile, in his response to a popular comedian last December, the ex-Vice President stated:
“If you ask what our first task was, coming into government in 1999, it was to bring stability to the economy after decades of military rule. Between 1999 and 2003, oil prices then were hovering between $16 and $28, yet we managed to pay up salaries from decades back, clear up our national debts and build up foreign reserves. Our GDP grew at the fastest rate we have seen, since the return of democracy.”
Who can manage the economy better?
Nairametrics conducted a Twitter poll immediately after the former Vice President won the PDP presidential primary on Sunday, where people were asked to choose who they think can manage the economy better among the trio of President Buhari, Atiku Abubakar and SDP presidential candidate, Donald Duke.
More than half of the respondents to the poll (55%) believed that Atiku will be able to manage the fragile economy better, after May 29, 2019. Donald Duke was second with 24% of the poll, while President Buhari was the least among the trio – after almost 4 years of governance, he only got 21%.
Quoting Onye Nkusi, a public analyst on Twitter, “The business community will prefer Atiku to Buhari, but not sure how much weight they carry.”
Being an employer of labour himself, the business community and millions of unemployed Nigerians may prefer Atiku who they will see as one of their own.
Speaking with Nairametrics, a popular financial expert, who prefers to be anonymous said:
“Based on track records, there appears to be likelihood that Atiku will perform better, but this can only be confirmed in hindsight.”
Meanwhile, an economic expert, Alex Onwodi, who also spoke with Nairametrics disagreed with the poll. He said:
“I think Buhari has learnt his lessons and will manage the economy better in his second tenure than Atiku, who will be a new comer.”
Another top financial expert who responded to Nairametrics on the condition of anonymity believes that Buhari is a leader who is more inclined towards socialist policies that cater more to the poor and stifling corruption, even if it means shutting out the flow of money in the economy. He explained,
“For Buhari, much of his economic polices have not delivered the growth spurt expected following the exit from recession. It is even believed that as things stand, we might slide back into a recession. He has also been short on implementing some of the reforms required to create the foundations for a sustainable economic transformation.”
“Atiku, on the other hand, has been tested as the Vice President during the era of president Obasanjo who presided over a period of economic growth. Atiku’s private sector experience and flexibility, when it comes to economic policies, suggest that he may be better suited to implement tough home grown economic policies that might produce the sort of growth required to move the country forward.”
Nevertheless, Nairametrics believes that President Buhari should not be ruled out of the race entirely, as some Nigerian voters do not vote from the economic point of view, but rather cast their votes along religious, political and ethnic lines.
Is Zenith Bank thriving on the strength of sound financial indices?
Zenith Bank posts N103.8bn profit in half-year financial result.
Sound financial indices have made Zenith Bank one of the largest banks in the Nigerian banking Industry. It was recognized as the Most Valuable Banking Brand in Nigeria 2019, in the Global Banker magazine Top 500 Banking brands; and Best Commercial Bank in Nigeria 2019, by the World Finance.
Zenith Bank has successfully bolstered this narrative even further with the release of its Half Year 2020 Financial Report, where it closed with a profit of N103.8 billion.
Growing profit position in these perilous times, speaks remarkably of the suppleness and elasticity of any establishment. A lull in economic activity caused by inflationary pressures, precariousness of the market, and the coronavirus pandemic has forced most Deposit Money Banks (DMBs) to cave in, and reveal achievements worse off than their 2019 results y/y – but not Zenith Bank Plc. The institution has showcased beyond reasonable doubt, that the apparent limitations are incapable of distorting its active growth pattern.
Zenith Bank closed H1 2020, 16.8% better off than it did in 2019 y/y, in terms of profit after tax. Although this massive leap, hugely resulting from tax paid as profit before tax, noted just a 2.2% growth. Further analysis of its HY’2020 results, demonstrates more efficiency, a focused cost of fund optimization, and an aggressiveness in generating income across its business heads and segments. This strategy had begun since 2018, and was shared by the bank when it disclosed planned implementation of an improved core banking system, hoping it would ultimately enhance efficiency while reducing costs.
Zenith Bank has thrived on the strength of its sound business model, corporate governance, conservative risk management, and strategic corporate social investment. The bank has been very forceful in the market, improving massively across all of its income generating segments, despite the plausible and obvious hindrances. This is a testament to its superiority, and sponsors its claim for supremacy.
The bank made N22billion from foreign exchange revaluation gains and despite evidence to the contrary, it endeavored in operating expenditure (OPEX). OPEX may have grown by 7.7%, but disclosures and note to the accounts shows that in virtually every expense head, costs dropped. The 7.7% was triggered majorly by Information Technology related costs, fuel and maintenance, and an increase in the compulsory banking cost fund, set up for the Asset Management Company of Nigeria (AMCON) by the CBN.
Now, like every hero susceptible to their hubris, Zenith has its own problems, which questions its position at the top. Yes, the bank may have an amazing and constantly improving interest expense to interest income ratio, but it does not possess the finest result in this regard as of yet. HY 2019 interest expense took as much as 33.6% of its income, while HY 2020 dropped to 27.4%. This is good, but still considerably high, if we carry out a peer-to-peer analysis with Guarantee Trust Bank Plc (masters of low-interest expenses), whose ratio stands at 16% for HY 2020.
However, Zenith has sustained the momentum of positioning itself as the crème de la crème in the Nigerian Banking Industry for quite some time. The bank’s pattern of growth and performance, strongly indicates its capabilities to manage its interest expense in subsequent quarters. It will be interesting to see how this pans out by year end.
In summary, despite economic difficulties this year, with most bank’s bottom-line at a worse position than the corresponding period last year, Zenith posted improved profit yet again. Could this be enough to portray supremacy?
UBA Plc H1’2020 results, a true reflection of its rightsizing decision?
UBA’s H1 2020 result is yet another demonstration of the resilience of its business model.
The upward review in benefits of some employees and directors this year, coupled with the rising operational costs, constitutes the hot topics from the 2020 semi-annual results released by UBA Plc.
Widely regarded as the banking sector’s largest employer of labour in Nigeria, the bank in December 2019, embarked on a ‘rightsizing’ exercise, which partly resulted in new hires, as well as promotions, improved remunerations, and benefits for existing employees.
The Group Head, Media and External Relations, UBA Plc, Nasir Ramon commenting on this said, “over 5000 staff of UBA Plc, started the new year with a lot of cheer, as the bank promoted to new grades, coupled with salary upgrades. Beneficiaries of this exercise will receive up to 170% increase in their salaries and benefits, whilst a good number have been moved to higher grade levels.”
Directors saw their emoluments amplify by 177.7% (Fees and Sitting allowances) as demonstrated in the financial statements of the bank. Rising to N50million in June 2020, from N18million in 2019 y/y.
Now, Deposit Money Banks (DMB’s) might be adjudged to be honorable in all of their objectives, but the truth is they are neither self-sacrificing nor are they expected to be. DMB’s are established for profit, and would incessantly prioritize business good sense over social empathy, for the sake of their owners. The import of this is, UBA Plc expects its colossal investments in employees and directors to overwhelmingly reflect in its bottom-line.
Half-year 2020 results is clearly not in sync with this philosophy, as it reflects a weakened position compared to the corresponding period last year, despite the investments in human capital. Profit before tax dropped by 18.7%, from N70.3billion recorded in HY’2019 to N57.1billion in the current period. Profit after tax waned as well by 21.7% to N44.4billion from N56.7billion in HY’2019.
Interestingly enough, the top-line fared pretty well. Interest income and fee income showed improvements, albeit marginally by 0.3% and 6.7% respectively. This makes it illogical to attribute the entirety of the decline in profit to the recent austerity measures put in place by the CBN, reducing funds transfer fees and card maintenance charges.
The Coronavirus pandemic played a big role too, by widely stunting the economy in the second quarter of 2020, and negatively impacting profit. But even these do not provide substantial and sufficient convictions as to why the Tier-one bank did not hit the profit-bar it set for itself, from its truly emphatic 2019 financial year. Does this mean that UBA Plc got the decision wrong at the start of the year?
Six months seem too short a period to immediately class management’s decision to jack up the benefits and emoluments of its internal customers as a failed one. Although, no one anticipated the travails of COVID-19 and its resulting consequences, investments in human capital is widely proven to yield tremendous growth in the long haul. Besides the fact that it has given UBA Plc a solid reputation in the market place, it also makes the company very attractive to the very best of industry talents. Furthermore, employee engagements of this nature, foster brand loyalty which ultimately trickles down to how passionately these personnel undertake their tasks and deliverables. The true bearing of this investment is expected to reflect in due course, in subsequent quarters.
Commenting on the result, UBA’s Group Managing Director/Chief Executive Officer, Mr Kennedy Uzoka said, “Our H1 2020 results is yet another demonstration of the resilience of our business model in an extremely uncertain and tough operating environment. We recorded commendable growth in our underlying business in terms of customer acquisition, transaction volumes, and balance sheet whilst inflation, depressed yield environment and exchange rate volatility impacted our net earnings as anticipated.”
In today’s increasingly aggressive marketplace, where consistently generating revenue, is paramount to preserving the longevity and going-concern status of any establishments, costs must also be accorded as much attention and significance. Tightening and managing costs with the aim to improve and generate profit is genius strategy especially in today’s banking industry. The banking industry is under threat from ruthless competitions. Multifarious streams that had hitherto been available for generating income for DMB’s are being severely hindered by the ‘austere’ policies (from the perspective of commercial banks) from the apex bank, making effective cost management a survival mechanism.
Explore the Nairametrics Research Website for Economic and Financial Data
Employee benefits rose by 20% from N37.2billion in HY’2019 to N44.6billion in HY’2020, while Directors’ emoluments (Fees and Sitting Allowance) as earlier stated, surged by 177% from N18million in 2019 to N50million in 2020 y/y. The total operating expenses increased 22.6% in 2020. UBA Plc, unavoidably expended N22.4billion on Banking Sector Resolution cost trust fund, in compliance with the CBN’s requirement to contribute to the cause of the Asset Management Company of Nigeria (AMCON). Security and other payments for core services experienced increase as well compared to the preceding year.
Avoidable expenses like Penalties and Premises Maintenance Charge, should be extensively reviewed and extinguished wherever possible, to improve bottom line. UBA plc has forked out N565million in penalties so far in 2020, representing 6177.7% increase from just N9million in 2019 y/y. This is a prime example of the operational brick walls, UBA Plc must properly address to improve its fortunes in subsequent quarters.
Finding Balance: GTB’s impeccable gains versus its notable losses
Bank’s strategy of increasing gains while seeking out ways to decrease its losses is on a true course to growth.
Guarantee Trust Bank Plc (GTBank), over the past few years, has taken the Nigerian banking industry by storm, particularly through the foresight and strategic actions of its management.
The bank has, over time, tactically built its operations and expanded its market share, earning its spot as one of the credible names in the Nigerian banking space.
Faced with challenges like increase in the loan-to-deposits ratio (LDR) instituted by the CBN, and the COVID-19 pandemic that got companies in the financial sector thinking of new ways to survive, GTB may have found its way out.
Overview of its half-year results
Net interest income increased by 9.7% to N127.6 billion in H1 2020, compared with N116.4 billion in H1 2019. Its Profit before income tax stood at N109.7 billion in H1 2020, compared with the N115.8billion in the corresponding period in 2019 – a decrease of 5.2%.
Somewhere in-between the good and the not-so-good, the bank has been able to round off its earnings to a balanced output for H1 2020.
The good: Foreign Exchange gains
One of the best happenings to investors this year, is the extreme volatility of the forex market – among other currency and commodity plays. In H1 2020 period, the company’s financial assets at fair value through profit or loss, was up by 91.6% to N140.8 billion, when compared with N73.5 billion in H2 2019.
Interestingly, this was due to 129.2% increase in treasury bills from N56.9 billion in H1 2019 to N130.5 billion in H1 2020. Through forward foreign exchange contracts and currency swaps, they were able to increase derivative assets by 49% from N188.6 billion (notional contract amount) in H1 2019 to N280.9 billion in H1 2020.
Explore the Nairametrics Research Website for Economic and Financial Data
Foreign exchange revaluation gain in the half-year period was significantly boosted, from N2.6 billion in H1 2019, it attained 723% growth to N21.9 billion H1 2020, and it was a major reason for the 28% increase in other income within the period under review. Deposits from customers were also higher by 18.5% to N3 trillion. While loans and advances to customers increased in line with the apex’s bank directive. This could be both a bad thing and a good thing, depending on the level of credit risk.
The not-so-good: Impairment losses, CBN’s penalties
Following CBN’s issuance mandating commercial banks to increase the percentage of customer deposits that were loaned to 65%, so as to effectively stimulate the economy, stringent penalties had been imposed on non-compliant banks by the apex bank.
Consequently, the company’s restricted deposits had increased to N1.054 trillion, owing to its limitations in full compliance. While its increased cash balance of 27.8% in the period under review, could signify that the worst of the challenge is over (particularly following the comparative reduction in cash in Q1 2020), a cursory look at the reason for the strengthened cash position, is the 75.7% increase in money market placements to N333.5 billion – another positive for the bank.
Loan impairment charges in the half-year period, increased by 209.7% from N2.1 billion to N6.8 billion, and this was as a result of increased provisions for expected credit losses on financial assets extended to its customers, no doubt as a result of the economic uncertainties, synonymous with the period under review.
Commenting on the half-year results, the CEO, Segun Agbaje, noted that; “Going forward, our focus is not just to survive this pandemic, but to thrive beyond it. That is why we are going ahead with our plans to re-imagine how we create value for all our stakeholders.
“We know that making financial services work for customers goes beyond banking, and in line with our long-term strategy, we will seek to create and drive innovative financial solutions that go beyond banking.”
The bank’s Return on Equity (ROE) of 26.8% is currently one of the best in the industry, and a testament to this promise. Its strategy of increasing gains by focusing on its strengths, while also seeking out ways to decrease its losses, is one that will set any organization on a true course for growth. GTBank is certainly on that path.