• Three tier-one on track for N1 trillion post-tax profits
• Commissions, fees of Zenith, GTCo, UBA nearly triple
• Ovia, Elumelu, Agbaje earn N41 billion in dividend
• Industry ranks sixth in Africa on high non-interest income ratio

Like a vulture, the banking industry continues to feast on a bleeding economy, with the latest financials of the lenders diverging significantly from the performance of the real sector.

In the face of constricted real sector growth, including manufacturing and agriculture, banks are demonstrating an unusual resilience, with the tier-one players entering a 12-digit post-tax profit era.

For the first time in their corporate sojourn, GTCo Plc and Zenith Bank Plc broke the N1 trillion profit after tax (PAT) mark, emerging as the first Nigerian banks to hit the milestone.

Whereas GTCo almost doubled its PAT to N1.02 trillion in the year, many business operators considered as one of the toughest in recent years, Zenith almost grew by 50 per cent to cross N1 trillion as well.

Access Holdings Plc, the biggest player by asset size, also shows a great prospect of exceeding N1 trillion. The group would only need to grow its 2023 N619.3 billion by 62 per cent – which is a mean fit in the industry it operates – to reach N1 trillion.

In 2023, Access Holdings, which has reinvented growth by acquisition, quadrupled its post-tax profit. It does not need to double the figure this year to join the league of N1 trillion PAT banks the market witnessed last week.

Last week, three out of the three systemically important banks (SIBs) – otherwise considered too big to fail – posted what many investment analysts could consider as head-turning results and announced corporate actions.

The trio – GTCo, UBA Group and Zenith – posted a combined PAT of N2.78 trillion, an impressive 53 per cent jump from the N1.82 trillion they recorded in 2023.

Besides Lagos, the amount posted by the three banks can fund the budget of any state in the country. Lagos state plans to spend N3.37 trillion while Niger, Rivers and Ogun states are to spend N1.56, N1.19 and N1.05 trillion respectively. Some six states have a combined yearly budget of less than N2 trillion.

The three tier-one banks grew their interest income by 73.4 per cent – from N1.88 trillion to N3.23 trillion. As remarkable as the interest income appears, it is far behind the speed of growth of their fees and commissions, which form the bulk of their non-interest incomes and demonstrate how less the lenders depend on financial intermediation to grow their earnings.

At 31.4 per cent, Nigerian banking is sixth with the highest non-interest to total income ratio in Africa. It comes behind Egypt, the Republic of Benin, Ghana, Sierra Leone and Tunisia. Globally, it is the 94th.

In the year, fees and commissions grew by 178 per cent, nearly threefold, to reach N920 billion. As of 2023, their combined fees and commissions were a mere N330.5 billion.

Today, many banks are investing heavily in consumer products as part of the broader strategy to transition to transaction-led institutions – a cheaper option for risk-based financial intermediation.

Daily, Nigerians take to social media to protest the widespread ‘extortion’ by the financial institutions, which are more interested in deposit mobilisation and general transactions than credit underwriting. Deposit money banks (DMBs) fund trade and only stable businesses, while risky small businesses are left to source funding from the informal market and cut-throat microlenders.

A few small businesses that secure funds from mainstream banks are handed unaffordable interest rates. Data by the Central Bank of Nigeria (CBN) put the maximum interest rate at 29.79 per cent in January. But no bank currently charges less than 35 per cent. In some cases, borrowers pay as much as 40 per cent.

At 35 per cent, most banks are still indifferent to lending funds to risky businesses. At an asymmetric corridor of +500/-100, MDBs can warehouse funds mobilise at 8.3 per cent, which is the regulatory threshold of interest on savings, at 26.5 per cent through the standard deposit facility (SDF). It also leaves much to be questioned on how banks could lend at below 30 per cent when short-term liquidity from the CBN comes at 32.5 per cent.

The banks also have sufficient options in treasury bills with yields hovering around 20 per cent in over a year. Most banks would rather push their excess liquidity into these investment windows than fund businesses that are grappling with industry, economic and political risks, perhaps an explanation of the divergence of negative correlation between banks’ profitability and economic performance.

The trend appears to be on a spiral, even as the banks are likely to continue to crowd out the scanty investments flowing to other sectors. In the past few years, when many manufacturers buckled under rising losses and single-digit growth in profit at best, banks’ profits have grown in leaps, leading to higher shareholders’ earnings and executive bonuses.

For one, the directors of Zenith Bank will pocket N25.88 billion as dividends for the 2024 financial year. Jim Ovia, the founder and majority shareholder of the bank, will receive 98.2 per cent of the amount or N25.4 billion. The bank has declared a final dividend of N5 per share in the year, subject to shareholders’ ratification at its yearly general meeting.

With a total shareholding of 2.542 billion in UBA, Tony Elumelu would similarly be handed a pay cheque of N12.7 billion by the bank for staking his interest in the company last year. The bank had declared N2 interim and N3 final dividend for the year.

Elumelu’s colleague at GTCo, Segun Agbaje, will earn N3.33 billion from the bank’s dividend payout for last year’s operation.

The trio, the last of the lineage of Nigeria’s 2000s super bankers, will earn N41.4 billion from the three institutions that shape and define the Nigerian banking industry.

The oversize and disproportionate dominance of the sector reflect its role in economic growth. Last year, the financial sector’s contribution to real GDP was a mere six per cent, but it saw the highest growth – an astronomical 28 per cent. Agriculture, with an overwhelming 25 per cent control of the gross domestic product (GDP) and manufacturing, which should determine the size and pattern of banking, were capped at 1.8 per cent each.

Of the disconnection, Agusto & Co wrote: “Notably, the seven largest sectors, which collectively contribute 76.45 per cent of Nigeria’s GDP, experienced growth slowdowns during the quarter. This trend underscores the prevailing constraints within the business environment and, in some cases, highlights deep-rooted structural challenges that continue to hinder sectoral expansion and overall economic resilience.”

Next year, the banks will have raised their capital thresholds significantly, enabling them to expand their business outreach. But with so substantial efforts made to derisk the core of the economy – manufacturing and agriculture especially – it does not appear that bigger banks would benefit the growth sector to stimulate an inclusive economic expansion.

At best, Nigeria may have bigger banks with more aggressive profit growth plans that would not be achieved with the support of the lethargic real sector but on its graveyard- perhaps by licking its sores.

-The Guardian