| CBN Governor, Sanusi Lamido Sanusi |
Majority of the banks in Nigeria have released their 2013 first half year results, most of which highlighted constraints in loan growth, amidst rising profits.
Diamond, Fidelity, Skye, Eco Bank, UBA, Stanbic IBTC, Zenith and FCMB are among the banks that have released their 2013 half year results.
While most of the banks have declared improved profits as compared to their 2012 half year results, a striking occurrence is the slow credit growth and banks’ reluctance to grow credit.
According to analysts, sources of concern highlighted from the banks’ books include cost growth accelerating rapidly; loan growth constrained by capital and continued delay by some banks in finalizing their capital raise, and some banks’ shrinking deposit market share.
While highlighting the factors for Diamond Bank, Renaissance Capital, an investment bank, said constrained by capital, the bank’s net loans were up only 7 per cent Year to Date (YtD)/5 per cent Quarter on quarter (QoQ) versus the 30 per cent/17 per cent achieved YtD/QoQ in first half 2012.
Deposit growth however remained resilient.
“Management is guiding to base case (no capital raise) loan growth of 10 per cent, rising to 20 per cent in a best case scenario for 2013. On the asset side, we note that corporate banking has been the fastest growing credit division over the last two years, with its contribution to the loan book rising to 42 per cent in first half 2013 from 34 per cent in Financial Year 2011. On the liabilities side, business banking remains the most significant and rising contributor to total deposits, with its share standing at 49 per cent in 1H13 versus 44 per cent in FY11,” she said.
Fidelity Bank’s 2013 loan growth target of 20 per cent implies it intends a strong acceleration in 2H13 as it has a 7 per cent YtD delivery. According to Renaissance Capital, the bank’s management noted that it has N80 billion in loans that have been approved and accepted by the customers but still undrawn.
“Oil and gas, power and telecommunication sectors will be key drivers of loan growth this year. Management noted that it is supporting four distribution and two generation companies in the power asset acquisitions, and sees potential credit demand amounting to $200-250mn over time,” Renaissance capital said.
UBA’s 2013 target for loan and deposit growth 2013 of 25 per cent and deposit growth of 15-20 per cent has seen it achieve 11 per cent and 14 per cent respectively, YtD, according to RenCap. Loan growth YtD has been driven by power, telecommunications and upstream oil & gas sectors.
Skye Bank in its peculiar case, have revised downwards its 2013 loan and deposit growth target 10 per cent and 15 per cent from 15 per cent and 25 per cent, respectively. Loan pay-downs were responsible for the lack of growth in 2Q13, RenCap said, while public sector repayments were also largely responsible for the drop in deposit volumes, given the short-to-medium term implications of management’s decisions, we view this as positive for earnings.
“Of the Nigerian banks that have reported so far, barring Skye Bank which recorded no growth during the quarter, Stanbic IBTC’s growth is the lowest so far. Management attributes this to weak demand for credit at prevailing lending rates, which we find baffling given the experience of its peers over the same period. From the numbers, it would appear that either the bank is being quite cautious with risk asset creation or there’s just a relatively greater internal focus on driving trading revenues over credit creation in the short term,” RenCap said.
No immediate respite in view
The financial sector has not been at its best, in terms of asset creation and credit growth. A report by Afrinvest, an investment banking firm rated the Central Bank a weak pass on its promise to ensure the financial sector contributes to the real economy.
According to Afrinvest, the outcome of the banking consolidation was expected to deliver advantages of scale boosting growth in the real economy through the provision of credit. The firm said that banks were expected to begin to engage the real economy through initiatives such as development finance, foreign direct investment, venture capital and public private partnership.
To cap it all, the Central Bank recently announced a 50 per cent Cash Reserve Ratio (CRR) on banks’ public funds. At 12 per cent, the CRR is already at its highest level in many years, which analysts say was already inhibitive to credit growth.
“On the back of lower interest rates and reductions in certain material fees and commissions in first half 2013, we expected the banks to be more aggressive with risk asset creation” RenCap said.
The firm said though it acknowledges the 50 per cent CRR on Public funds policy may slow the pace of credit growth this year as fixed income securities may now look more attractive going forward, “we still expect the banks to be relatively more aggressive in driving credit growth this year than in 2012. This will be necessary to deliver net revenue growth, particularly to offset losses on the Non-Interest Revenue (NIR) front”.
“In the short term, we think this policy could be negative for deposit growth, as we see cost of funds rising in 2H13. Considering that the cost of holding public sector deposits is now higher, as 50 per cent of such balances will have a negative spread given that they will earn no interest in the CRR account, public sector deposit growth is likely to stall. This should lead the banks to focus on driving private sector deposits going forward” RenCap added.
“While we have highlighted our expectation that the banks should remain focused on driving credit growth, the expected increase in lending rates could increase the risk of default going forward. We however do not see this as a material concern in 2013,” the firm said.
As at the end of May, total loans by banks stood at N8.55trn, which represented a year to date increase of 6.66 per cent, from N8.01 trillion; an evidence of a build-up in excess liquidity in the banking system and banks’ appetite for government securities.
Analysts say it is expected that the 50 per cent CRR on public deposits would constrict banks’ credit growth by 2-3 per cent. In addition, it is also expected that there would be a re-pricing of loans as assets become more expensive.
- Premiumtimes