Among the thirteen (13) banks quoted on the floor of the Nigerian exchange, five (5) banks have recorded Returns on Equity (ROE) higher than 10%. The 2020 Audited Financial statement of these banks revealed that they are healthy and successful in generating cash internally. The high return on equity also points to their efficiency at utilizing investment financing to grow their business and provide better returns to investors.
Return on Equity is a financial ratio derived by dividing the net income by the shareholders’ equity or net assets, in the same period.
To simplify, ROE tells an investor how much profit one unit of his shareholder’s equity has generated in that period. The higher the ROE, the more efficient a company’s management is at generating income and growth from its equity financing.
The performances of these banks are summarized below.
Access Bank Plc
Access Bank currently has a Return on Equity of 14.12%, suggesting that for every unit of shareholder’s equity held, 14.12 kobo was generated as profit in 2020.
The bank reported a net income of N106.01 billion, reflecting a growth of 12.70% from N94.06 billion in the corresponding period of 2019. The bank’s audited report for 2020 financial year showed that Net Assets for the period stood at N751.04 billion.
In Q1 2021, the bank’s ROE was pegged at 6.63% as net income stood at N52.55 billion from N40.93 billion in the corresponding quarter of 2020.
Access bank is currently valued at N9.15.
It is worth noting that, the low ROE recorded in Q1 2021 period for all the banks is due to the fact that the shareholder’s equity/net assets are compared with the net income for a single quarter.
United Bank for Africa Plc recorded a return on equity of N15.71%, which suggests that at the end of the 2020 financial year, each shareholder’s equity within the bank generated 15.71 kobo as profit.
In the 2020 audited report, UBA Plc reported a net income of N113.77 billion, translating to a 27.70% appreciation from N89.09 billion in 2019. In the same period, net assets for the bank stood at N724.15 billion.
However, in the first quarter of 2021, UBA Plc had an ROE of 5.00% as net income increased to N38.16 billion from N30.10 billion in the corresponding quarter of 2020.
UBA Plc is currently valued at N7.60.
Zenith Bank Plc recorded a return on equity of 20.63% in full-year 2020, translating to a profit of 20.63 kobo for every unit of shareholders’ equity held in the bank during the period.
According to the bank’s audited report, a Net Income of N230.57 billion was recorded for the full-year 2020, to reflect a growth of 10.41% from N208.84 billion in 2019. Net assets for the same period stood at N1.12 trillion, making Zenith Bank the only bank with net assets worth a trillion.
In the first quarter of 2021, the bank had a Return on Equity of 4.86% as net income stood at N53.06 billion from N50.53 billion in the corresponding quarter of 2020.
Zenith Bank’s share price last closed at N24.45.
Stanbic IBTC plc has the second-highest Return on Equity relative to other banks listed on the exchange. The bank recorded a Return on Equity of 21.98%, which means that for every unit of shareholder’s equity held, 21.98 kobo was generated as profit in the period under review.
The group reported a 10.89% growth in net income of N83.21 billion compared to N75.04 billion generated in 2019. In the same period, Net Assets for the group stood at N378.60 billion as of December 2020.
Stanbic IBTC, in Q1 2021, recorded an ROE of 2.93% as net income dipped to N11.26 billion from N20.60 billion in the corresponding quarter of 2020.
Stanbic’s share price last closed at N41.00
GT Bank currently has the highest Return on Equity relative to other banks listed on the exchange. The bank recorded an ROE of 24.73% in 2020, suggesting that for every unit of shareholder’s equity held, 24.73 kobo was generated as profit in the year.
The bank reported a net income of N201.44 billion, to reflect a marginal growth of 2.33% from the previous year. In the same period, the Net Assets of the bank stood at N814.40 billion.
Noteworthy, in Q1 2021 GT Bank recorded an ROE of 5.44% as net income stood at N45.55 billion from N50.07 billion in the corresponding quarter of 2020.
GT HoldCo’s share price is currently valued at N29.05.
Why this is Important
It is crucial that investors keep track of the profitability of the company they have invested in, as more profit generated means a higher return on investment. The net assets of a company signal the financial healthiness or otherwise of the company which can positively or negatively affect the return on equity and in the same vein, the return on investment.