Nigerian banks have seen double-digit growth in their operations but decline in staff strength in the banking sector has also been on the double.
While credits to the private sector had tripled, agricultural sector received one of the lowest allocations with 5.4 per cent of total credit allocations, despite the national growth plan centred on agriculture and non-oil businesses.
Also, total number of banks’ employees had dropped by 11.1 per cent between 2018 and 2021.
A report by the National Bureau of Statistics (NBS) on the Nigerian banking sector obtained at the weekend showed a resurgence in banking operations and profitability in the last audited period. The report underlined appreciable improvement in top-line earnings across business segments, which moderated equally significant increase in operating expenses, leaving shareholders with higher net distributable earnings.
The report showed that the core income line- the interest income, rose by 26.2 per cent to N2 trillion in 2021 while the complementary net fee and commission income jumped by 59.2 per cent to N713.2 billion.
Total operating expenses for the banking sector however, rose by 22.3 per cent to N2.2 trillion. These moderated net profit for the period to N739.5 billion, an increase of 6.1 per cent. Banks’ operating expenses had declined by 3.0 per cent in 2020 reversing almost increase of 3.3 per cent recorded in 2020.
The report underlined a recovery in the banking sector which had suffered contraction in the previous year. Interest income had dropped by 15.4 per cent in 2020 while net fee and commission incomes and profit after tax had declined by 18.2 per cent and 16.3 per cent respectively.
Total credit allocations leapt by about 245 per cent to N267 trillion, driven mainly by credit allocations to industry and services sectors, which accounted for almost three-quarters of credit allocations. A breakdown indicated that credits to the industry sector accounted for 37.1 per cent, followed by services sector with 36.8 per cent. Credits to governments amounted to the third largest share of 9.2 per cent while trade and general commerce, agriculture and constructions accounted for 6.7 per cent, 5.4 per cent and 4.8 per cent respectively.
Further analysis showed that credit flows to the oil and gas remained dominant with 49.5 per cent of credits to the industry sector allocated to oil and gas businesses. Manufacturing businesses received 44.3 per cent of allocations to the industry sector. Out of the allocations to the services sector, general services accounted for 25.8 per cent while finance, insurance and capital market received 17.5 per cent.
The report, however, showed a contraction in e-payment adoption, a development that underlined the spate of infractions and glitches that had marked customer experience in recent period. The proportion of electronic-channel payments to total number of processed payments dropped from 92.7 per cent in 2020 to 88.2 per cent in 2021. The value of e-channel payments meanwhile remained almost unchanged at 97.7 per cent and 97.6 per cent in 2021 and 2020 respectively.
Channel-by-channel analysis meanwhile showed that internet and web-based transfers accounted for 40.2 per cent of total volume of e-channel payments while point of sale (POS) and Automated Teller Machine contributed 27.9 per cent and 15.2 per cent respectively. But users depended more on internal bank transfers for large-value transactions with RTGS transfers accounting for 55.3 per cent of total value of e-channels payments while internet and web-based transfers and NEFT transfers accounted for 27.6 per cent and 6.3 per cent respectively.
Analysts at Afrinvest West Africa, which tracked the NBS data, said strong operational growth in the banking sector underscored the impressive contribution of 10.5 per cent growth to gross Domestic Product (GDP) by financial institutions in 2021, outperforming the broader economy by 710 basis points.
Analysts noted that the surge in operating expenses might not be unconnected with increase in average inflation rate which rose to 17.0 per cent in 2021 as against 11.4 per cent and 13.2 per cent in 2019 and 2020 respectively.
Analysts said the decline in staff strength was not a cheering development when considered from the perspective of job creation as Nigeria’s unemployment rate is already at a disturbing level, at 33.3 per cent in fourth quarter 2020.
A market intelligence report earlier conducted by The Nation had shown that at the last audit; total assets of Nigerian publicly quoted banks had risen by some N10 trillion to about than N70 trillion, with average growth in the banking sector at about 17 per cent.
The report indicated that total assets of the publicly quoted banks rose by about N9.99 trillion from N60.37 trillion in 2020 to N70.36 trillion in 2021, representing an increase of 16.55 per cent.
The report was based mainly on the audited reports and accounts of the 14 publicly quoted banks, including the main first tier banks, nationally regarded as systemically important banks. The publicly quoted banks account for more than 90 per cent of Nigeria’s banking operations and mirror the sectoral performance.
The banks included the six largest banks-Access Holdings Plc, Ecobank Transnational Incorporated Plc, Zenith Bank International, United Bank for Africa (UBA), Guaranty Trust Holding Company (GTCO) and FBN Holdings.
Other banks included FCMB Holdings, Wema Bank, Union Bank of Nigeria (UBN), Sterling Bank, Stanbic IBTC Holdings, Jaiz Bank, Fidelity Bank and Unity Bank.
A review of the audited financial statements indicated that the assets’ growth was driven mainly by improving profitability of the bank, rather than issuance of additional share capital.
A bank’s audited report goes through four major layers of approvals and is generally regarded as a reflection of operational performance of the bank. These approvals included by the board of directors, Central Bank of Nigeria (CBN), capital market regulators and shareholders. Besides, extant corporate governance rules provide institutional and personal liability for the bank and its directors in the event of any misstatement.
The outlook for Nigerian banks is largely regarded as stable. Fitch Ratings recently affirmed its ratings on many Nigerian banks in a report based on the last full-year audited reports of the banks. In the latest ratings review, Fitch affirmed its ratings on United Bank for Africa (UBA) , Stanbic IBTC Holdings, Stanbic IBTC Bank, Sterling Bank and First City Monument Bank (FCMB).
Fitch Ratings affirmed UBA’s Long-Term Issuer Default Rating at ‘B’ with a stable outlook, Viability Rating at ‘b’ and National Long-Term Rating at ‘A+(nga)’.
The rating agency also affirmed Sterling Bank’s Long-Term Issuer Default Rating at ‘B-’ with a stable outlook, Viability Rating at ‘b-’ and National Long-Term Rating at ‘BBB+(nga)’.
Also, Fitch Ratings affirmed FCMB Limited’s Long-Term Issuer Default Rating at ‘B-’ with a stable outlook, Viability Rating at ‘b-’ and upgraded the bank’s National Short-term Rating to ‘F1(nga)’ from ‘F2(nga)’ due to the bank’s improving funding and liquidity.
Fitch Ratings also retained the National Long-Term Ratings of Stanbic IBTC Holdings and its 99.9 pe rcent owned subsidiary, Stanbic IBTC Bank at ‘AAA(nga)’.
In a review, S & P Global Ratings stated that the ongoing Russia-Ukraine conflict would have no major negative impact on the overall operations and assets quality of Nigerian banks. The global rating agency noted that given the minimal exposure of Nigerian banks to Russia and Ukraine, the ongoing conflict would have no major impact on the asset quality, cost of risk or profitability of Nigerian banks.
In the review titled “How The Russia Ukraine Conflict Could Affect Middle East and African Banks”, S & P Global Ratings stated that financing exposures of rated banks in Nigeria are largely concentrated in Africa, United Kingdom and Asia and thus stand no contagious risks from the conflict.
According to the report, while the evolving nature of the conflict implies considerable uncertainties, current assessment of the lending and operations of Nigerian banks showed no significant direct impact.
The report was generally positive for the Middle East and Africa (MEA) banking system, noting that like Nigerian banks, South African banks also have limited possibility of any major direct impact from the conflict. The report pointed out that whereas some South African corporates have exposure to Russia, rated South African banks’ loan exposures are well diversified and thus such exposures are not expected to indirectly affect South African banks’ financial profiles.
“Overall, we forecast a limited direct impact on rated MEA banks’ cost of risk from the Russia-Ukraine conflict, if the situation does not worsen,” S & P Global Ratings stated.
The S & P Global Ratings’ report however noted that wider economic effects related to the Russia-Ukraine conflict have potential to negatively impact MEA banks, especially if the crisis worsens.
“In our view, the economy is one of two main channels for current events to potentially hit MEA banks, alongside refinancing. The conflict has triggered a significant increase in energy, transport, and food prices because of higher commodities prices, including oil and gas,” S & P Global Ratings stated.
The leading global rating agency however noted that the impact of the crisis on MEA countries and banks depends on their resilience to external shocks, especially in the areas of economic diversification and wealth levels.
While the increase in commodities prices is generally positive for well-structured and financially strong oil and gas exporting countries, the effect is likely to be negative for commodities or oil and gas importing countries with higher imports and current account deficits, additional external financing requirements, increased government spending in the form of rising subsidies where they exist, higher inflation, and reduced repayment capacity of retail and corporate clients if price rises are fully passed on.
The report stated that the conflict could also hit tourism sectors in some countries at a time when they are recovering from the COVID-19 pandemic, especially those that depend on Russian or Ukrainian visitors, such as the United Arab Emirates (UAE), Turkey, Egypt, and Tunisia.
In the area of refinancing risks, the report pointed out that the Russia-Ukraine conflict could result in a significant increase in risk aversion from investors. “Any further adverse developments could affect investors’ appetite and trigger some outflows,” S & P Global Ratings stated.
But within the MEA bloc, countries such as Qatar, Turkey, and Tunisia would be the most vulnerable to refinancing risks. Other MEA countries like Nigeria and South Africa looked at either have a net external asset position or manageable net external debt. Even with the risks, the report estimated that the vulnerable national banking systems have sufficient capacities to ameliorate the risks.