As at December 31, 2013, the gross loans of the eight strategically important banks (SIBs) in Nigeria amounted to ₦7.1 trillion, representing 74 per cent of the entire industry’s loan book, a report by Agusto & Co. has revealed.
The Central Bank of Nigeria (CBN) had in 2013, designated eight banks as strategically important banks. By virtue of their size and systemic importance to the Nigerian banking industry, the apex bank deemed these banks as “too big to fail”. This implies the regulator has placed stricter control and enforcements on these banks.
The banks are: First Bank Limited, Zenith Bank Plc, United Bank for Africa Plc, Guaranty Trust Bank Plc, Access Bank Plc, Ecobank Plc, Diamond Bank Plc and Skye Bank Plc.
Tagged, “2014 Industry Reports,” the report exposed several challenges facing the banking, telecommunication, agric and other important sectors of the Nigerian economy and examined the financial condition of the eight banks vis-a-vis the industry.
According to the report, the total assets and contingents of the eight SIBs amounted to ₦19 trillion. This represents an 18 per cent growth over prior year and accounts for 72 per cent of the industry’s total assets (2012: 69%).
The portfolio of loans, the report revealed, was the largest earning asset class, forming 36.5 per cent of total assets and contingents.
“Collectively, the SIBs’ impaired loans amounted to ₦202.3 billion or 58 per cent of the Industry’s impaired loans. This translated to impaired loans to gross loans ratio of 2.89 per cent, which is lower than the Industry average of 3.6 per cent.
"This would be in line with our expectations, given that the larger banks are more likely to book larger, blue-chip companies with better credit ratings. In addition, we would expect the SIBs to have greater capacity to invest in risk management, the report stated.
The eight SIBs, the report stated, control vast resources in the banking industry, accounting for 72 per cent of total assets, 59 per cent of bank branches and generate 85 per cent of profit before tax (PBT).
Agusto & Co also revealed that there is renewed appetite for lending with loan growth of 25 per cent in 2013 and most banks recording double digit growth, “however, credit penetration still remains low at 12 per cent of GDP (South Africa: 73%).
“The level of coverage for SIBs was good, with cumulative level of loss provisioning amounting to 92.5 per cent of impaired loans. This was higher than the Industry average of 88.2 per cent. The addition of regulatory reserves to loan loss provisions further enhances coverage to 168 per cent. In our opinion, the asset quality of the SIBs is good, “Agusto & Co. said.
The report added that during the year ended December 31, 2013, the eight designated SIBs generated net earnings of ₦1.2 trillion, which represent a modest 6 per cent rise over prior year.
“This accounted for 71 per cent of the entire Nigerian banking Industry’s net earnings in 2013, while the other banks contributed 29 per cent. Similar to the industry, fund-based activities is the principal driver of earnings, forming 69 per cent of net earnings during the year, while commissions, fees & other income accounted for 31 per cent.
Interestingly, the other banks’ market share of non-interest income has increased gradually from 29 per cent in 2011 to 27 per cent in 2013, owing largely to their inability to compete effectively with the larger bank on loans and the need to drive revenue from other sources," it stated.
THISDAY
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