- Banks should de-risk their portfolios, focus on loan growth—analyst
Five top banks have recorded a decline of N50.645billion in impairment loss on financial assets in the first half of 2018, even as some financial analysts and major stakeholders have frowned at N36.487billon low interest income recorded by
them.
The five banks are FBN Holding Plc, Diamond Bank Plc, Zenith Bank Plc, FCMB and GTBank Plc.
A cursory review of the performance of the quoted banks on the Nigerian Stock Exchange in the period under review showed that FBN Holding reported a drop of -15.4 per cent to N-52.810billion impairment loss on financial assets from N-62.408billion in
2017.
The marginal increase of the net interest, the fewer banks lend to the economy which is not good for the economy, especially when we realize that Nigeria is just a year from recovery from recession
Diamond Bank followed with a decrease of 18.391billion impairment loss on financial assets in the first half of 2018, from N18.941billion which it recorded last
year.
Zenith Bank’s impairment loss on financial assets drops by 77 per cent to N-9.720billion from N-42.398billion in
2017.
Others are FCMB and GTBank whose impairment loss on financial assets stood at 26.5 per cent to N7.333billion from N9.972billion, and 71.8 per cent to N-2.032billion from N-7.213billion in that order.
In the categories of the banks with a drop in net interest income FBN Holding reported 8.8 per cent to N149.640billion in 2018, from N164.085billion in the 2017
GTBank followed with 9per cent drop in net interest income to N117.930billion in 2018, from N129.537billion last year.
Diamond Bank and Stanbic IBTC followed with N46.241billion in 2018, from N53.811billion, and N40.169billion in 2018, from N41.035billion
respectively
Market pundits who spoke with our correspondent believe that although, some of the commercial lenders recorded a decline in their numbers, they applauded the banks that have reduced their bad debts drastically, saying it will enhance profitability of the banks in the third quarter, Q3’18, which in turn would lead to increase in the returns to shareholders at the end of the
year.
Other analysts were of the view that despite the pressure in the polity, Q3’18 corporate earnings are unlikely to be excessively negative in the light of the recovery in the broader economy, adding that bottom line numbers for some of the companies are set to improve.
Commenting on the development, Dean of Faculty of Business Administration, Professor Leo Ukpong, said the performance of the banks showed that they concentrated more on Treasury Bills and FGN Bonds rather than lending which is the core business of banking.
He explained that the implication of the reduction of impairment loss by banks in H’1 2018 “shows the extent Nigerian banks have gone in cleaning their bad debts and also the likelihood of them giving fewer loans which affect the progress of the economy as we witnessed decline in Gross Domestic
Products”
According to him, the less declared of impairment loss by the banks, the more the profits they will record and also the better for shareholders of the banks in terms of return on
investments.
“The marginal increase of the net interest, the fewer banks lend to the economy which is not good for the economy, especially when we realize that Nigeria is just a year from recovery from recession,” he said.
Deputy National Coordinator of Institute of Chartered Economist, Professor Ganiyu Oladapo, said impairment loss indicates decline in the future of economic benefits of an asset after charges for depreciation and that the decline in impairment loss reflects managerial effectiveness.
He explained that goodwill must be tested annually to ascertain that its recorded value is higher than fair value otherwise, goodwill will be deemed
impaired.
He noted that shareholders benefits from reduction in impairment as it provides valuable information on how a company manages its goodwill. “It also enables shareholders to evaluate quality of management’s decision making process and track records. Any write-off due to an impairment loss can adversely affect a company’s balance sheet and its financial ratios,” he
said.
The Managing Director, APT Securities, Mallam Kurfi Garba, said banks derive interest income from loans and deposits. “The prevailing economic situation has made loans unattractive as banks are cautious at giving loans. This is to avert challenges of
default,”
“This scenario has made margin from interest income to shrink. Interest income is also a function of a bank’s sensitivity to asset and liability in the event of changes in interest rate.
“Many banks’ assets are in loans because loans have higher interest rates. This is expected because loans are riskier assets compared with marketable securities,” he added.
He noted that Government’s restructuring of its portfolio of Treasury Bills impacted negatively on interest income of banks that have stronghold in this asset class, adding that the good thing is that decline in interest income is also offset by corresponding reduction in interest expense.
“In this regime of marginal interest income, banks should de-risk their portfolios and focus more on loan growth oriented sectors,” he said.
