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Liquidity gap tears Tier-one banks, others on profit rebounds

One of the major negative facts emerging from the sustained impacts of recession and the attendant economic downturn cannot be far from the widening gas of liquidity and market dominance by tier-one banks over mid-sized lenders, Business Hilights can authoritatively report.

The development stemmed from the rising large cap bank shares rallies in profits because Tier one banks; lead by Zenith Bank, Guaranty Trust Bank, Access Bank, First Bank, and United Bank for Africa  are better placed by their size to smartly whether the storm of non-performing loans, forex crisis and shocks from TSA.

It would be recalled that loan-loss provisioning charges for Nigerian banks amounted to over 2.5 percent of gross loans at the end of year-end 2016 and there are indications that tier II banks were relatively more exposed to less earnings buffers to take on additional asset quality stress.

As of year-end 2016, the banking sector reported a capital adequacy ratio (CAR) of 14.8 percent, and return on assets (ROA) of 1.3 percent.

And according to Ayodele Ebo, Managing Director and chief executive of Afrinvest Limited, “The gap will continue to widen but the midsized banks can bridge this gap by identifying investors that have the capital to invest in them. Robust capital would give them the leeway to compete favourably with the big ones.”

In the same vein, Taiwo Yusuf, Head Asset Managment, Meristem Securities Limited averred that “Profit growth is largely dependent on mid-tier banks’ ability to boost their interest and non-interest income and also moderate their cost to income ratio. Revenue generation is always skewed towards interest income, which is constrained by the size of their loan book (since there is little flexibility on loan pricing, due to competition) and to some extent on their investment securities.

“In addition, their ability to mobilise deposits determines their capacity to grow their loan book. Ultimately, their profit, balance sheet and market size are hinged on their deposit mobilisation drive and success.

Besides, the five leading tier one lenders have also consolidated in terms of total assets as far away in 2015, when they can be said to have prepared for the current hiccups, their total assets rise to 72.09 percent of the combined total assets of the 13 lenders of N27.1 trillion at the end of 2016 compared to 69.23 percent in 2015.

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