Profitability is one of the most important factors in any commercial enterprise, banks are no exception. Apart from social responsibility and the need to spur economic activities though financial intermediation which are the primary function of banks like GTbank and others in any economy, bank owners and shareholders who have invested in their businesses expect to profit from their heavy investments.
Profitability of Nigerian banks is not questionable at least from the hug figures that characterized both the top and bottom lines of the audited and reported financials. But beyond the billions and trillions and the positive fundamentals showcased in quarterly and annual reports, there are profitability ratios that speaks to how profitable banks are.
Using Investopedia’s ratios for analyzing the financials of retail banks and the Motley Fool’s ratios for calculation bank’s profitability. The profitability of five Nigerian banks that has released their 2018 audited reports to the Nigerian Stock Exchange (NSE) was determined. The banks were selected base on their reported Total Asset base. N3 trillion Total Asset was used as the lower benchmark.
GTBank with Assets of N3.28 trillion has the lowest Asset base among the 5 banks while Ecobank (Ecobank Transnational Incorporated – ETI) with N8.23 trillion in Asset has the highest Asset base among the 5 banks, largely because of it spread across different part of African. Zenith Bank is currently the biggest Nigerian bank (according to Bloomberg) in terms of Asset size with N5.96 trillion in worth. Access Bank hedge out UBA marginally with both banks closing 2018 Financial year with N4.95 trillion and N4.87 trillion respectively.
The ratios used to analyze the bank’s financials are:
- Return on Asset (ROA) – The ratio measures how well a bank is sweating its asset, it shows how much income the bank is making per Naira of its Asset.
- Return on Equity (ROE) – Similar to ROA, it measures how much a bank is making per Naira of its investor’s funds.
- Net Interest Margin (NIM) – The ratio shows how much Interest income the bank is making from the use of its investment Assets
- Loan to Asset Ratio (LTA) – Loan-to-Asset ration shows where the income of banks are from, whether from Loans or from other diversified, non-interest sources.
- GTBank is making more money per every Naira of its Assets than any other bank of its category in the industry, returning 6k in net profit for every Naira of its N3.28 trillion assets. Followed by Zenith bank with 3k return on its asset. UBA and Asset bank makes 2k each from N1 of their assets while Ecobank with the largest Asset base make 1k in net profit on every N1 of its over N8 trillion Asset.
- Shareholders of GT Bank are also better rewarded than any other banks of its size in the industry as the management of the bank makes 32k for every N1 of their investment in the bank’s shares. Trailing again is Zenith bank with 24k returns on shareholder’s N1 investment. While Access bank, UBA and Ecobank makes 19k, 16k and 15k respectively for every N1 of their shareholder’s investment in the 2018 financial year end.
- GTBank made the most Interest Income from its interest earning Asset among banks of its size in the industry in 2018. This shows that the bank is making more from its loans and other investment security that other banks. Zenith bank follows with 5k net interest earnings per N1 of its Assets while the 3 other banks makes same 4k each.
- Access bank is making 43% of its income from Loans to customer followed by Ecobank with 41%, GTBank with 38% and UBA with 35%. Zenith Bank makes the least of its income from Loans at 34%. Banks with least income made from loans have been able to devise alternation earning streams and are better positioned to survive even with decreasing or declining MPR.