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Admitting new entrants into Nigeria’s tier-1 banks - THE NATION

AUGUST 11, 2022

Given the growth in the financial system, more banks’ll soon join the elite tier-1 club, writes Tofunmi Sanusi

Tier 1 bank is one whose core capital includes disclosed reserves that appear on its financial statements and equity capital. The funds are put to function regularly and form the financial institution’s strength.

In Nigeria, Tier 1 banks are the fulcrum of its finance and economic system. They are referred to as the “too big to fail” banks because of their importance to the economy

According to Proshare report, “in simpler days, banks gained respect by their assets. Tier 1 banks would be banks with the largest assets above the industry’s median asset value.

‘’Today, assets or share capital size would be inadequate to determine whether a bank was Tier 1 or 2. The measuring tape has become elastic.”

The question is, can assets or share capital be the only criteria for determining a Tier-1 bank? As stated  by Proshare, analysts have noted that size and profitability are different concepts.

The largest banks by asset size are not the most profitable, so neither asset size nor gross, or net earnings,  are good enough measures to establish a bank’s industry status.

What this translates to is that big assets and share capital may not necessarily be the most profitable business and cannot be the barrometre for determining Tier-1 banks.

Among the tier-1 banks, First Bank of Nigeria Limited, a  banking subsidiary of FBN Holdings Plc, reported a profit after tax of N117.8 billion, up 73.9 per cent y-o-y from N67.8 billion posted in 2020. Profit before tax was N130.9 billion, up 77.9 per cent y-o-y from N73.6 billion reported in 2020.

The new figure which represents the best result in more than a decade of bank’s history, shows a clear departure from results for previous years.

To mitigate the effect of the low-interest rate on investment securities and revenue generation, the bank was said to have intensified deposit mobilisation and funding strategy to support enhanced loan growth at optimised rates, leading to a 5.7 per cent increase in interest expense to N140.8 billion as against N133.2 billion in December 2020.

During the period, non-interest revenue grew by 96.1 per cent to N364.6 billion as against N185.9 billion in the preceding year on the back of increased fees and commission income, treasury activities, and other operating income.

FBNH oversees subsidiaries in West Coast and the United Kingdom, as well as representative offices in Abu Dhabi, Beijing and Johannesburg. It employs more than 8,300 staff and oversees a network of around 818 branches and over 3,100 ATMs. Its  Net income is  currently NGN 87.99 billion (2020)  while  total assets are NGN 7.84 trillion as at March 2021.

Also, United Bank for Africa (UBA) posted a profit of N118.68 billion in 2021,  representing an increase of  8.72 per cent y-o-y. The bank also reported earnings per share of N3.39, indicating a 9.35 per cent growth from the N3.10 reported a year earlier in 2020. The bank has almost doubled its profits in six years since hitting N60 billion in 2015 with the profit now touching roughly N119 billion.

The statement from the bank shows that in the financial year 2021, interest income grew by 10.84 per cent from N427.86 billion to N474.26 billion in the current period. The bank’s profit performance is on the back of all margin growth as income from interest and fees and commission income, all appreciated year-on-year. The bank earned N316.71 billion, from its lending business as Net interest income grew by 22.06 per cent from N259.47 billion.

UBA employs about 10,500 staff members and serves more than 14 million customers around the world. It operates a network of over 1,000 branches and touchpoints, 13,500 POS terminals, and 1,740 ATMs in Africa. Net income: N109.33 billion (2020).Total assets: N7.89 trillion as at Q1, 2021.

Guaranty Trust Holding Co (GTCO) first Full-year financial result as a group had a profit of N175 billion in 2021, reflecting a decrease of 13.21 per cent y-o-y. The group also reported earnings per share of N6.14, a 13.64 per cent decline from the N7.11 reported a year earlier. The group has reported a steady decline in the performance of topline income since 2017, depreciating by 30 per cent in four years.

The statement shows that in FY 2021, interest income fell by 12.77 per cent from N288.28 billion to N251.47 billion in the current period. GTCO’s profit performance is on the back of all margin declines as income from interest and trading income all depreciated year-on-year.

GTCO has aboutb6,459 employees  and serves over eight million customers. It operates a network of 48 domestic branches, 92 ATMs, and 44 e-branches, as well as several branches in other African countries and in the UK. Net income: N194.96 billion (2020),while total assets is N 4.99 trillion, also in Q1, 2021.

Another of the nation’s tier-1 banks, Access Bank Plc 2021 Full-year financial result revealed a profit of N160 billion in 2021, reflecting an increase of  51.13 per cent  y-o-y. The bank also reported earnings per share of N4.58, a 52.16 per cent growth from the N3.01 reported a year earlier in 2020. The bank has grown its profits by 167 per cent in 4 years since hitting N60 billion in 2017 with the profit now touching roughly N160 billion.

In the financial year 2021, Net Interest Income grew by 14.64% from N262.95 billion to N301.46 billion in the current period. Access Bank’s profit performance is on the back of all margin growth as income from interest, trading income and fees and commission income all appreciated year on year.

Access Bank currently employs 6,781 individuals and operates around 600 branches in Nigeria, as well as two branches in the United Kingdom and a representative office in the Republic of China, UAE, India (Mumbai), and Lebanon (Beirut).

Net income: NGN 104.68 billion (2020)

Total assets: NGN 9.05 trillion (3/2021)

Zenith Bank’s FY 2021 financial performance.

Zenith Bank Plc achieved a profit after tax of N244.5 billion the highest on record last December 31, reflecting an increase of  6.07 per cent  y-o-y.

The bank also reported earnings per share of N7.79 6 per cent higher than the N7.34 reported a year earlier.  The  has now grown its earnings per share every year since 2016. It has taken Zenith Bank about six years to double its profits after first hitting N124 billion in profits in 2016.

The statement from the bank  shows a 7.05 per cent growth in Interest Income from N420.81 billion to N427.60 billion in the current period.

The bank’s profit performance is on the back of an impressive margin growth as income from interest and trading income.

Zenith Bank serves more than 1.6 million customers and employs about 7,500 staff members. It operates  a network of 436 branches, 177 cash centres, 2,042 ATMs, as well as subsidiaries and representative offices in Ghana, Gambia, South Africa, Sierra Leone, the United Kingdom, China, and UAE (Dubai).

Net income: NGN 230.37 billion (2020)

Total assets: NGN 8.68 trillion in Q1, 2021.

Fidelity Bank Plc achieved a 35.7% growth in Profit Before Tax in its 2021 financial year to close the year at N38.1billion. Analysis of the results shows that the bank’s gross earnings rose by 21.6 % to N250.8billion driven by a combination of 60.3% growth in non-interest revenue (NIR) and 15.2 %  increase in interest and similar income. The growth in NIR reflects the significant increase in customer transactions resulting in 84.9 percent growth in trade income, 48.1% in account maintenance charge, and 47.2 % increase in digital banking income

The bank offers a wide range of financial products and services to individual and corporate customers, with a strategic focus on retail and electronic banking, SMEs, and niche corporate banking. It currently oversees 250 business offices, 774 ATMs, and 4,046 POS terminals.

Net income: NGN 26.65 billion (2020) Total assets: NGN 2.89 trillion (3/2021)

The performance of Fidelity  Bank  shows that indeed, the Nigerian banking sector is evolving, with the changes being driven by competition, accelerated adoption of technology and the move by banks to meet the banking lifestyle of an evolving demography. his has seen a lot of banks, including Fidelity, embrace innovative means to satisfy their customers.

In recognition of the efforts by the bank’s management and at a time when some others were being downgraded, Fitch Ratings, a global rating agency, recently upgraded Fidelity Bank’s long-term Issuer Default Rating (IDR) from ‘B-‘ to ‘B’, reflecting the financial institution’s increased credit-worthiness. The rating agency also upgraded Fidelity’s National Long-Term Rating to ‘A(nga)’ from ‘BBB+(nga)’. The global rating agency attributed  the upgrade to  a result of the bank’s improving business profile and resilient financial metrics.

Fidelity Bank reported a 29.4 per cent increase in gross earnings to N71.332 billion for the first quarter (Q1) 2022, which reflects the level of work that has been done by its current management. Its unaudited financial statement showed that its profit before tax grew from N10.134 billion in Q1 2021 to N10.324 billion, with profit after tax at N9.515 billion.

The bank’s comprehensive income for the period jumped by over 200 per cent from – N9.109 billion to N9.908 billion in Q1 2022. Earnings per share stood at 33 kobo.

The bank’s CEO, Onyeali-Ikpe explained that the bank’s digital banking has gained further traction driven by new initiatives in its retail business and the enhancement of existing digital banking products. “We now have 56 per cent of our customers enrolled on the mobile/internet banking products and 90 per cent of total customer-induced transactions done on digital platforms with digital banking business contributing 27.6 per cent to net fee income, “she said.

From the foregoing analysis of the bank , Fidelity Bank meets the requirement for admission into the elite status of Tier I category.  The bank had last year  revealed plans to attain the Tier-1 bank status in Nigeria and achieve 7.5 per cent of total market share of deposits by 2025.


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