Cost remains a major threat to banks in Nigeria, says Rewane

The bearish run on the Nigerian Stock Exchange (NSE) continued on Tuesday as  all share index (ASI) plunged by 1.02% to close at 31,313.36 points.

Trading results at the close of market showed that poor performance of banking stocks were largely responsible for the drop.  

The banking index, a gauge that measures the performance of bank stocks, dropped by 2.26%, led by GT Bank Plc.

GT Bank’s stocks shed 4.83% or N1.8 to close at N35.5 per share.

Other losers in the banking sub-sector included FCMB Plc, which depreciated by 3.84% to close at N2 per share and Diamond Bank Plc which shed 1.62% to close at N2.42 per share.

Investors lost N120 billion as market capitalisation closed at N11.677 trillion down from N11.797 trillion the preceding day.

‘Fundamental problem in Nigeria’s banking system’

Despite having their stocks in a downward trajectory, Nigeria’s biggest banks have been able to grow their topline revenue, with record-high profits seen in the fiscal year ended December 2018.

GT Bank, for instance, raked in N184.6 billion profit in 2018, with income from electronic products hitting N9.5 billion in the review period.

Zenith Bank, another big player in the sector, made N20.4 billion from its electronic products, recording a profit of N193 billion in 2018.

Commenting on the cost structure of the banking sector in relation to stock performance, Bismarck Rewane, chief executive officer, Financial Derivatives Company, said a “fundamental problem” exists and needs to be addressed soon.

“The banking industry is facing some very challenging times because if you look at the results, the revenue profile is growing at a rate of about almost 3% or 4% in top-line while the incomes are more from extraordinary income rather than from normal operations,” he said.

“The cost structure of the banks is a major threat to their sustainable earnings, so I think that this is a temporary dip…but there is a fundamental problem in the banking system in Nigeria which has to be addressed in the near term.”