Four of Nigeria’s top banks – GTCO, UBA, Zenith Bank, and Access Holdings – posted a total profit after tax (PAT) of N2.44 trillion in 2023.
This represents a 241.5% increase from the N715.6 billion PAT posted by the banks in 2022.
This is a boost for the deposit money banks as they look to shore up their capital bases ahead of the 2026 recapitalization deadline.
According to the banks’ audited financial statements for 2023, the four banks posted a gross earning of N7.99 trillion in 2023, marking a 114.4% growth from the N3.73 trillion posted in 2022. The earnings were driven by a 96.7% growth in interest income, as the four banks posted a cumulative interest income of N4.43 trillion in 2023, from N2.25 trillion in 2022.
FX revaluation gains were also a notable contributor to the banks’ earnings in 2023, as the four banks recorded a net foreign exchange revaluation gain of N714.6 billion.
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Rationale behind profit growth
For the four banks, the driving force in revenue growth was the rising interest rates due to the hike in the monetary policy rate (MPR). Throughout most of 2023, the MPR was 18.75%, a 225-bps increase from 16.5% at the start of 2023.
A major part of the banks’ interest income was generated from loans and advances to banks and customers. The four banks generated N2.3 trillion in interest income from loans and advances to customers, representing about 62% of their total interest income recorded during the fiscal year.
The interest income generated from loans and advances to banks and customers also marked a 67% increase from the N1.38 trillion interest income from loans and advances in 2022.
The year-on-year rise in the volume and value of short-term debt securities are also a factor to be considered. For example, Zenith Bank’s interest income on treasury bills in FY 2023 appreciated by 310.4% to reach N179.0 billion, from N43.6 billion in 2022. UBA’s interest earnings from NT-bills hit N242.2 billion during the same period, an 105.5% growth from the N117.9 billion in 2022.
It is projected that – With the MPR already recording a 600-bps increase in just Q1 2024, banks are still positioned to cash in on bumper profits from interests in 2024.
Key Highlights
- Access Holdings was the largest earner, posting a gross earning of N2.59 trillion in FY2023, an 87% growth from 2022’s N1.39 trillion. It was followed by Zenith Bank which posted a gross earning of N2.13 trillion, a 125% improvement from 2022’s N945.55 billion.
- UBA and GTCO posted 143% and 120% growths in their gross earnings to hit N2.08 trillion and N1.19 trillion respectively.
- In terms of net income, Zenith posted the largest figure of N679.9 billion, followed by Access Holdings with N619.3 billion. UBA and GTCO recorded N607.7 billion and N539.7 billion PAT.respectively.
- Concerning net income margin, GTCO was the best performer with 45.5%, followed by Zenith Bank with 31.8%. UBA and Access had net income margins of 29.3% and 23.9% respectively.
In the fiscal year 2023, Access Bank reported an earnings-per-share (EPS) of N17.42, accompanied by a proposed total dividend of N2.10. Guaranty Trust Holding Company (GTCO) recorded an EPS of N18.34, announcing a total dividend of N3.20. United Bank for Africa (UBA) reported an EPS of N17.77, declaring a total dividend of N2.80. Meanwhile, Zenith Bank disclosed an EPS of N21.56, with a total dividend of N4.00.
The immense disparity is linked to the CBN’s directive to banks. According to the CBN, banks should not use any revaluation gains to pay dividends or meet operating expenses.
The circular read, “The Central Bank of Nigeria (CBN) wishes to reiterate that banks are required to exercise utmost prudence and set aside FCY revaluation gains as a counter-cyclical buffer to cushion any adverse movement in the FX rate.”
“In this regard, banks shall not utilize any such revaluation gains to pay dividends or meet operating expenses.”
Recapitalization efforts
The four banks cumulatively boast N3.39 trillion in retained earnings. However, the CBN recapitalization directive prevents them from keying into their expansive retained earnings.
The directive notes, “For existing banks, the capital requirements specified above shall be paid-in capital (Paid-up plus Share Premium) only. Bonus issues, other reserves and Additional Tier 1 (AT1 Capital shall not be allowed or recognized for the purpose of meeting the new minimum capital requirements.”
A look through the share capital plus share premium of these four banks shows that the four of them must raise a cumulative of N1.22 trillion to meet the new capital requirements for the international banking licenses which they possess.
UBA needs to raise about N384.2 billion to reach a paid-in capital of N500 billion. GTCO needs must raise N361.8 billion to meet the requirements, Access Holdings and Zenith Bank both have to raise N248.2 billion and N229.3 billion respectively to reach the required paid-in capital.
While these figures look significant, it should be noted that the books of these banks display sufficient leverage to manage the situation. Of the four banks, three – Access Holdings, UBA, and Zenith Bank – have total assets amounting to N26.69 trillion, N20.65 trillion, and N20.37 trillion. GTCO’s total assets as of 2023 are put at N9.69 trillion. These figures reflect increased leverage for raising capital.
