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It is end of free money for banks as the precipitous drop in yields on government securities continues to undermine revenue, as interest income from treasury bills has been growing at a slow pace.
Of course, the low yield environment means profit will grow at a snail pace compared to mid 2017 through the third quarter of 2018 when treasury bills yields were high.
The tough and unpredictable macroeconomic environment does not encourage lending, as a lot of companies are scaling back on expansion plans. Moreover, it is very risky granting credit to businesses whose cash flows cannot absorb interest payment and deliver strong margins.
Data combined by Meristem Securities shows the largest Banks in the country saw cumulative gross earnings grow by a mere 3.75 percent to N1.16 trillion in the period under review.
Investors have not been swooping on bank stocks because they are yet to be convinced that President Buhari led administration’s reforms will invigorate the economy.
Nigeria’s stock index is down 0.4 percent year-to-date while emerging markets are up 2.3% and the MSCI Frontier Markets 100 is up 10.2 percent.
Nigeria’s GDP contracted 13.8 percent in the first quarter, wiping out last year’s economic gains.
Amid the challenges hindering the growth of financial institutions,Wema Bank Nigeria Plc is thriving, as it leapfrogged its peers, recording the fastest profit and revenue expansion.
For instance, Wema Bank’s interest income increased by 26.89 percent to N16.07 billion in March 2019 from N12.64 billion the previous year; this compares with a mere 3 percent increase Fidelity Bank’s interest income; First City Monument Bank (FCMB), (4.85 percent); Sterling Bank, (-3 percent), and Union Bank of Nigeria, (-15 percent).
Wema Bank’s net income expanded by 49.79 percent in the period under review, this compares with 5.15 percent … Read More...