As more banks release their financial results for 2017 full year, the disappointment is growing among investors. However there is also encouragement from at least banks from what we have seen in the results so far. We have been quietly observing and its now its time to break silence on banking sector.
First City Monument Bank Plc ( FCMB ) – FCMB released full year results that showed a significant spike in loan loss provisions. Non-interest income declined so sharply for FCMB that on a full year basis, PBT of 11.46 billion declined by 30% y/y. The bank still proposed a dividend of 10 Kobo per unit, but given the current high stock price, that is not very exciting. Many would question the sharp increase in the stock price over the past 6 months given the disappointing result.
Diamond Bank Plc ( DIAMONDBNK ) – Another mid-tier bank, DIAMONDBNK delayed filing of their annual results. This again disappointed investors who wonder about the reason for such a delay.
On the other banks two banks that did excite this earnings season are UBA & ACCESS Bank Plc. We believe these two stocks are to be considered if one is thinking about investing in the Banking sector.
United Bank for Africa Plc ( UBA ). Gross earnings grew 20% to N 461 billion. Net interest income grew 26% to N 207 billion while non-interest income grew 13% to n 118 billion. Profit after tax grew 9% to N 78.59 billion in 2017. Loans and deposits grew 10% as well. The bank showed resilience in spite of increased loan loss provisions. The bank also showed a solid FX trading business in the fourth quarter particularly boosting NIM.
Access Bank Plc ( ACCESS ) – Nigeria’s 5th largest Bank, Access Bank Plc ( ACCESS ) posted Top line earnings growth of 20% to N 459 billion. Net interest income grew 17% to N 163 billion. Non-Interest income grew 4% to N 139 billion. Loans grew by 10% while deposits grew by 7% during the year. Profit after tax declined 13% to N 61.99 billion for full year 2017.
However ACCESS bank was very positive about 2018 on its conference call, management was confident that a reduction in funding cost via the re-pricing and gradual winding down of expensive structured funds would translate to a 70bp expansion in NIM, and that any ‘lost’ revenue on derivative income as its fx swaps mature could be replaced by funding income.
So Stock market can be irrational at times and disappointing Companies can have a better stock performance due to reasons one cannot explain. For example stock price of Unity Bank Plc ( UNITYBNK ) rose 3 times over the past 6 months just because of rumors of investment from a US based private equity firm. The stock market forgot the number of times these rumors have risen regarding this bank and foreign investment in the past. Hopefully this time the rumors are true for the same of shareholders of that bank.
But a rational investor must focus on financial performance as the most important yardstick to evaluate a Company before putting hard earned capital at risk.
The biggest banks of Nigeria are GUARANTY & ZENITHBANK and financial results from both those banks were below expectations and we have seen their stocks recede from recent highs. That does not mean we should not consider these stocks to bounce bank in 2018 after falling to more acceptable levels first. Overall these banks are still not performing banking actions and a big portion of their income is coming from risk free T-bills, FGN Bonds and from forex trading which is just not banking in international terms.