Some of the biggest commercial banks in Nigeria declared dividends of N36.7 billion in interim dividends in the first half of the year as the nation grapples with the economic consequences of Covid-19.
According to information gathered by Nairametrics Research, five of the six top banks in the country, all declared half-year dividends out of profits earned in the first half of the year. The banks reported a profit after tax of N348.7 billion in the first half of 2020 up from N344 billion the same period a year earlier.
Zenith Bank one of Nigeria’s largest banks proposed dividends of N9.4 billion out of profits of N103 billion the largest of the pack. GTB the second most profitable bank declared N8.8 billion out of its N94 billion profits. In total, dividend payouts of the 5 big banks totaled 10.5%. FBN Holding did not declare dividends.
Disconnect with the economy?
Contrary to expectations Nigerian banks have declared huge profits as the wider economy battle with arguably the worst economic crunch since independence. Globally bank profits have declined, mostly due to higher loan loss provisioning and expectation of high credit losses due to the impact of economic lockdowns on loan repayments.
In the US, six of its giant banks cut about $35 billion from their profits as they anticipate an increase in loan defaults. In South Africa banks have also cut profits as they expect a significant increase in loan losses. As banks around the world cut profits, so did dividend payouts halt. But Nigeria is a stark exception.
Help from the Apex Bank
In Nigeria, banks reportedly cut a deal with the Central Bank to defer taking impairment on some loans effectively allowing them rake in significantly higher profits for the year. Despite the deals cut with the CBN, the top 6 banks (including FBN Holdings, owners of First Bank) saw their loan losses more than double in the first half of the year compared to 2019.
Loan losses rose to N92 billion in the period ending June 2020 compared to N45.4 billion in the same period in 2019. FBN Holdings and Zenith Bank reported the most loans with N30.6 billion and N23.9 billion. Despite the losses, banks still reported higher profits on the back of a significant reduction in interest expenses, another benefit from CBN policies.
Since the central bank forced down interest rates on savings deposits banks have taken advantage, cushioning the drop in interest revenues emanating from a reduction in new loans. While gross interest income dropped, interest expenses dipped even further filtering into higher profits.
Banks have also recorded an uptick in deposit this year despite the increase in CRR debits.
- In a nutshell, cheaper deposits led to a boost in profits
- Banks also saw a boost in profits driven by a revaluation of the foreign currency positions another factor helped by the devaluation of the naira, another CBN monetary policy.
- The banks have had a breather this year and as they did in 2016 are fairing better than the economy. Data from the National Bureau of Statistics also buttresses this. As the economy suffered a 6.1% contraction, financial institutions grew by 28.41% in the second quarter of the year.
- The banking index on the Nigerian Stock Exchange is also up 3.5% month to date.
Optics: The spate of loan losses recorded so far this year, despite the deferment in provisioning of some loans portents a deeper problem that could come back to bite banks sooner rather than later.
- Critics of the banking sector operations will once again point to the disconnect between the real sector and the financial sector as yet another major example of banks profiting at the expense of the larger economy.
- By paying dividends banks are sending a message to the economy that all is well with their finances and do not require any policy assistance from the CBN.
- It also begs to wonder why banks cry foul whenever their accounts are debited with CRR sequesters.
CBN to drive implementation of zero balance account opening in banks
The CBN has urged the DMBs to allow zero balance for the opening of new accounts.
The Central Bank of Nigeria (CBN) has urged the Deposit Money Banks (DMBs) to allow zero balance for the opening of new accounts, as part of the efforts to promote greater financial inclusion across the country.
In addition, the banks are also expected to simplify their account opening processes, while adhering to Know-Your-Customer (KYC) requirements in the push towards financial inclusion.
This disclosure was made in the Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for 2020/2021 fiscal year, which was issued by the Central Bank of Nigeria (CBN).
While stating that these measures are part of the efforts to encourage banks to intensify deposit mobilization during the 2020/2021 fiscal years, the apex bank also encouraged banks to develop new products that would provide greater access to credit.
A part of the report reads, “As part of its effort towards promoting greater financial inclusion in the country, the bank shall continue to encourage banks to intensify deposit mobilization during the 2020/2021 fiscal years. Accordingly, banks shall allow zero balances for opening new bank accounts and simplify their account opening processes, while adhering to Know-Your-Customer requirements.
“Banks are also encouraged to develop new products that would provide greater access to credit.”
In addition, the apex bank said that the Shared Agency Network Expansion Facility (SANEF), which was established to enhance the provision of financial services access points in under-served and unserved locations and drive financial inclusion through agent banking, would continue in the 2020/2021 fiscal years.
It states that banks, mobile money operators, and super-agents would continue to render returns in the prescribed formats and frequency to the CBN.
CRR: Banks suffer N917.5 billion debits in latest CBN action
The central bank debited Nigerian banks N917.5 billion last week in its latest CRR action.
Nigerian banks suffered a total of N917.5 billion in new CRR debits from the Central Bank of Nigeria. Reliable sources inform Nairalytics Research that the latest debits occurred in the week ended October 23rd, 2020.
The cash reserve requirement is the minimum amount banks are expected to leave retained with the Central Bank of Nigeria from customer deposits. In January, the CRR was increased by 5% to 27.5% by the CBN Monetary Policy Committee (MPC) who explained that the decision was intended to address monetary-induced inflation whilst retaining the benefits from the CBN’s LDR policy.
From the data, Zenith Bank topped the list with N285 billion followed by UBA with N160 billion. The rest of the FUGAZ, Access, FBN, and GTB were debited N140 billion, N95 billion, and GTB N55 billion respectively. The FUGAZ also suffered a N1.9 trillion debit in CRR sequesters in the second quarter of 2020 (April – June) alone.
Nigeria’s central bank has since 2019 debited Nigerian banks a chunk of their deposits as part of a mutually inclusive cash reserve requirement (CRR) and Loan to Deposit Ratio policy that is targeted at coercing banks to lend more to the private sector.
Last month, Nairametrics reported that the CBN now holds a total of N6.57 trillion in CRR debits from the nation’s top 5 banks a whopping 43% higher than the N4.58 trillion held in March and more than double the N3.5 trillion CRR debits as of December 2020. CRR debits in the third quarter of 2020 will be revealed when banks release their results in the coming days and weeks.
Meffynomincs: CBN under the leadership of Godwin Emefiele has deployed several heterodox policies as it strives to stimulate the economy and manage the exchange rate crisis in the absence of strong fiscal support.
- Interest rates on fixed deposits and money market instruments have fallen to single digits despite the galloping inflation rate.
- Last month, the CBN monetary policy committee admitted it was no longer combating inflation but will direct its policies towards stimulating lending to the private sector hoping this will spur local production.
- This policy has placed banks in the crosshairs with the Apex bank exposing them to CRR debits if they cannot use customer deposits to spur lending.
#EndSARS: Access Bank announces N50 billion interest-free facility for businesses
Access Bank Nigeria Plc has announced plans to offer N50billion interest-free credit facility to individuals and businesses.
Access Bank Nigeria Plc. has announced N50 billion in support of Nigerians through interest-free loans and grants to support communities, the youths, and micro, small and medium-sized businesses.
This information was disclosed by the bank through its official LinkedIn page.
The bank’s official statement read thus,
“Now more than ever, we remain committed to our purpose of impacting lives positively. In light of the recent occurrences, we will be supporting Nigerian businesses with 50 Billion Naira interest-free loans and grants. Watch this space for more information.”
Why it matters
The impact of the pandemic, coupled with the hijacked #EndSARS protests that led to the looting of businesses and destruction of properties has thrown so many Nigerians into debts.
This show of support from Access Bank will help alleviate and stimulate economic activities, as well as produce many positive multiplier effects on the economy.