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Nigeria: Full Year 2018 Banking – Logic, Outlook, and Gist

Nigeria: Full Year 2018 Banking – Logic, Outlook, and Gist

Am I the only one who walked into the office this morning with an extra grin on their face and bounce in their step, knowing that it’s going to be a short week and a four day weekend? Well, just so you know, here’s my plan for the Easter: sleep, study, répéter.

Sorry to be a party-pooper, I just don’t have that energy. Before we run off for our Easter holidays – and now that we have FBNH’s result – here is a quick assessment of 2018 banking performance and what lies ahead, in my opinion.

In my last assessment, November 2018, I mentioned that banks were not willing to expand their exposure to risk assets anytime soon on the back of looming political risks and rising interest rates at the time. Fast forward five months, this position seems to have changed. The biggest banks genuinely intend to grow their retail book this year, and this makes sense.



Retail banking translates to more transaction volumes via digital channels (USSD, ATM, POS, Mobile Banking, etc). The bigger retail book means more Fee and Commission income, and of course better PBT.

For your sake, I attended routine earnings conference calls with some of the bank’s management and spoke to our banking analyst to get some key points: 

  • Most banks were aggressive with taking IFRS-9 induced write-offs in 2018
  • Growth in Internet banking has tapered industry-wide, however, there is no cause to worry here, as the slowdown is due to cannibalization by other digital channels which have recorded significant growth.
  • FBNH recorded a significant increase in their NPL, which could be attributed to a sharp decrease in their loan book (-15.86%). However, huge provisions were taken in the year and their long-standing NPL issue is gradually being resolved affirmed by lower loan loss provisions and cost of risk.
  • According to management of Access Bank, the merged entity is not expected to carry Diamond’s NPL burden, because Diamond is to make significant write-offs (of about N150bn) in FY2018 – Diamond is yet to release FY2018 results.
  • Retail, Oil & Gas, and General Commerce are the sectors banks are most interested in extending loans to this year.
  • Finally, guidance for loan growth, 10% – 15% on average, remains relatively weak this year when one considers inflation which is currently at 11.31%.
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2018 Banking in a Nutshell

Source: Coronation Research, Company Filings, Bloomberg

Finally, I had Coronation Research’s banking analyst share his opinion on banking stocks in 2019. 


Another major impediment to industry loan growth is the Cash Reserve Ratio (CRR) set by the Central Bank (CBN). The apex bank maintained tight monetary policies all through last year with CRR at 22.5% of weighted average deposits (WAD).


When a bank’s WAD increases, the CBN debits their accounts for the increase, however when its WAD reduces,  the CBN does not reimburse their accounts. Banks are not happy about this, and those losing deposits are probably wailing. During their earnings call, management of the tier-1 bank, GTBank (deposit growth 10% YoY), disclosed that their effective CRR is as high as 30.5%. One can only imagine what some of the smaller banks are going through.

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What’s happening this week?

  • March 2019 Consumer Price Index Report – 16 April 2019
  • Game of Thrones season 8 premieres today!!!

For the GOT lovers, S08E01 will be screening free at Harbour Point, VI Lagos, by 6 pm


Written by: Babatunde Makanjuola, Coronation Merchant


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