The Managing Director of the Holding Company, Mr Segun Agbaje, in a financial media session in April 2022, explained that the bank was constrained from giving more loans in 2021 due to macro-economic headwinds and regulatory restrictions.
In 2021FY, the bank had, in an apparent cautious move, slowed down its loan book growth to 8.0% from the 10.7% growth it recorded in the COVID-19-dominated period of 2020. This led to a drop in interest income by 12.77% to N252 billion from N288 billion in 2020, but correspondingly, loan impairment charges dropped by 56% to N8.5 billion from N19.6 billion in 2020.
But prior to 2021FY, the bank recorded relative year-on-year growth in net loans, especially in 2019 and 2020; hitting the highest year-on-year growth of 19.02% in 2019 and 10.70% in 2020.
With the released H1 audited financial statements for the period ended June 30, 2022, the bank’s loan book rose to N1.834 trillion from N1.718 in December 2021, reflecting a 1.77% growth rate in six months, and 6.77% in 3 months (January – March 2022).
As a result, interest income on loans grew by 15.51% to N134.986 billion from N116.864 billion in H1 2021, though slower than interest expense, which grew by 38.42% with interest paid on customers’ deposits amounting to N24.312 billion; 92% of the total interest expense of N26.351 billion from customers’ deposit of N4.263 trillion as of June 30, 2022.
Out of the bank’s total deposit of N4.394 trillion as of June 2022, 26% (N1.138 trillion) is on regulatory restrictions. The restricted deposits sure would continue to deny the bank huge resources for trading and further income. As of June 2022, the Group’s Loan book (net) increased by 1.8% from N1.80 trillion recorded in December 2021 to N1.83 trillion in June 2022, compared to deposit liabilities, which grew by 6.4% from N4.13 trillion in December 2021 to N4.39 trillion in June 2022
The Group’s Managing Director, Mr. Agbaje had expressed concern on that. Talking on the regulatory restrictions, in a chat with the financial media in April 2022, he mentioned that bank’s cash was tied down in Cash Reserve Requirement (CRR) during 2021 financial year. He stated, “The thing about CRR, if you release it to us we don’t even have to put it in Treasury Bills. We can actually put in loans to customers, to grow the economy. We also earn income rather than the zero earnings in CRR; we can put it in retail loans even if we lend at 10%, which means our profitability will go up.”
Overall implication is the impact on net interest margin, gross earnings and earnings. In H1 2022, net interest margin dipped by 2.27%, while gross earnings, grew by 15.09% to N239.288 billion from N207.91 billion in H1’ 2021 and profit before tax, grew by 10.95% to N103.2 billion from N93.1 billion in H1’ 2021. On the flip side, profit after tax dipped by 2.24% to N77.557 billion from N79.415 billion in H1’2021, but buoyed largely by increased tax expenses, following the expiration of the tax exemption period for government securities; thus shooting up tax expense by 88.34% to N25.692 billion from N13.641 billion recorded in H1 2021
The Group’s balance sheet, for now, is well-structured and resilient with impressive total assets and shareholders’ funds of N5.7 trillion and N847.7 billion respectively, Full Impact Capital Adequacy Ratio (CAR) at 22%, asset quality sustained as IFRS 9 stage 3 loans ratio at 6.2% and Cost of Risk (COR) at 0.2% in June 2022 from 6% and 0.5% in December 2021, respectively.
However, loan book growth overall affects Capital Adequacy Ratio (CAR). The Full Impact Capital Adequacy Ratio closing at 22% is higher than the 8% CAR stipulated by the Basel II accord. But a dip and continuous dip in earnings would decrease retained earnings and thus will reduce Tier 1 capital. In H1 2022, due to the dip in earnings, retained earnings dipped by 12.651% to N230.470 billion in June 2022 from N263.849 billion recorded in December 2021, consequently, Tier 1 Sub Full Impact Capital dipped by 2.759% to N757.994 billion from N779.499 billion recorded in December 2021. Continuous drop in Tier 1 Capital would definitely reflect the significant impact of consequent increased market Risk Weighted Assets (RWA), which subsequently would reduce the capital adequacy ratio.
The bottom line is to continue to reinforce growth prospects, remain viable and healthy financially in the midst of growing revenue vis-à-vis non-performing risk assets apprehension. Already, the Group’s long-term viability focus, the half-year 2022 scorecard, coupled with dividend signalling in line with market expectations, etc., are going for the Holding Company for now.
