Connect with us
nairametrics

Blurb

United Capital result points to how banks could make money in this pandemic

Being the first to publish results, provides a glimmer into what might befall banks this quarter,

Published

on

United Capital Plc

United Capital provided the first glimpse into the latest installment of the earnings season after it released its 2020 half-year results last week. The Investment Bank is the first to release its result this quarter.

The company reported a 37% growth in revenues from N3.24billion same period in 2019 to N4.45 billion in the first half of 2020. The company’s pre-tax profits also rose 14% from N1.99 billion to N2.27 billion in the first half of the year. The company’s earnings per share also rose from 28 kobo per share to 32 kobo per share.

The result provides a glimmer into how the financial services sector could make money in an increasingly changing financial landscape ravaged by the COVID-19 pandemic. The company’s positive result benefited from a significant rise in fees and commission income and net interest income. Fees and commission income refers to money earned from helping companies raise funds or structure corporate deals. During the quarter, it earned N800 million (2020 Q1: N568 million) and NN790 million (2020 Q1N589 million) in commission and fees and interest income respectively. Combined N1.59 billion was earned, dwarfing the N1.15 billion earned in the first quarter.

Get research data from Nairametrics on Nairalytics

The second quarter of 2020 included the month of April and May that saw the economies of Lagos and the FCT shutdown for the pandemic. However, it was also a quarter that witnessed significant fundraising activities such as bond listing, right issues, and other corporate deals. United Capital also issued N10 billion from its N30 billion medium-term debt program. The company claims its bond was also oversubscribed by 24%.

GTBank 728 x 90

Despite its impressive results, the company also recognizes the impact of COVID-19 on its results.  “The COVID-19 pandemic has lasted than envisaged and caused greater speculations of global recession and slower global recovery from the pandemic. The Nigerian economy has been greatly affected by the pandemic as seen in the increasing depreciation of the exchange rate, inflation rate, and other economic indicators. As we stated at the release of our last quarter result, our business was not immune to these challenges; however, the Group was able to endure the challenges – Thanks to the well-articulated and diligent implementation of our plans set out last year.”

READ MORE: Quick take: Non interest income lifts FBN Holdings’ pre-tax profit marginally

The Nigerian Stock market has lost every week since June and is down 0.78% year to date as investors wait eagerly for the release of results. Perhaps the most awaited results will be that of commercial banks as it will provide investors with a glimmer into the state of the economy. Bank results will also be closely watched for income from fees and commissions considering that most companies may have defaulted on interest on loans. This becomes even more critical when you consider the spate of impairments that may be incurred this quarter in line with financial regulations.

United Capital reported a N475 million about impairment charge taken in compliance with IFRS 9, the financial standard that requires financial services firms to take provisions when there are signs that the value of its financial assets may have weakened. The N475 million impairment recorded in this quarter is about 19% of total revenues and 33% of expenses. The impact is significant and contributed significantly to its rise in its cost to income ratio as the company conforms. “The cost-to-income ratio rose by 10.35 percentage points due to the sharp rise of 363.79% in impairment allowance. This increased cost is in compliance with IFRS 9 that requires some financial assets be measured at amortized costs.” 

READ ALSO: STERLING BANK: Reduced fee income, weak operating efficiency drives steep decline in pre-tax profit

The same fate could likely befall several banks and if it does, the stock market could be in for another period of massive sell-offs.

 

Blurb articles are succinctly written opinions editorials from content contributors expressing their views on financial reports, macroeconomic data, and economic policies. Blurb is recommended for readers seeking 'straight to the point' information and viewpoints that can help shape better investment decisions.

Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Blurb

Is Zenith Bank thriving on the strength of sound financial indices?

Zenith Bank posts N103.8bn profit in half-year financial result.

Published

on

Zenith Bank reaffirms market dominance and leadership with Q3 2019 results, Zenith Bank Plc, Access Bank Plc and United Bank for Africa Plc, Zenith Bank reports 7.9% profit increase for full-year 2019

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.

GTBank 728 x 90

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?

Continue Reading

Blurb

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.

Published

on

UBA

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.

READ: Zenith Bank’s Profit After Tax in H1,2020 rises by 16.8% to N103.8 billion

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. 

GTBank 728 x 90

READ: Access Bank posts Profit Before Tax of N74.31 billion in H1 2020

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 capitalProfit 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. 

READ: Are tech talents Africa’s ‘new export’?

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? 

READ: FUGAZ; Nigerian banks considered too big to fail

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.” 

GTBank 728 x 90
Fidelity ads

READ: GTBank, Access Bank, 11 others pay workers N271.64 billion in H1 2020

Rising cost

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 2020UBA 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 2020representing 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. 

Continue Reading

Blurb

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.

Published

on

Finding Balance: GTB’s impeccable gains versus its notable losses, GTB donates medical facility for COVID-19, GTBank, others have begun fulfilling pledges towards fight against Covid-19 (coronavirus), COVID-19: GTBank suspends loan repayment for small businesses, GTBank Releases Q1 2020 Unaudited Results…….. Reports Profit Before Tax of ₦58.2Billion

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.

READ: Nigeria’s inflation rate hits 13.22% in August 2020, highest in 29 months

Overview of its half-year results

GTBank 728 x 90

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.

READ: Even with a 939% jump in H1 Profit, Neimeth still needs to build consistency

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.

(READ MORE:GTBank, Dangote Cement, CAP record gains, Investors post N7 Billion gain)

GTBank 728 x 90
Fidelity ads

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.

READ: Jaiz Bank reports 45.3% profit increase in H1 2020, involved in 21 litigations

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.”

READ: Access Bank posts Profit Before Tax of N74.31 billion in H1 2020

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.

app

Continue Reading
Advertisement
Advertisement
Advertisement
ikeja electric
Advertisement
Patricia
Advertisement
FCMB ads
Advertisement
Fidelity ads
Advertisement
first bank
Advertisement
bitad
Advertisement
deals book
Advertisement
IZIKJON
Advertisement
financial calculator
Advertisement
deals book
Advertisement
app
Advertisement