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 Tier 11 Reclassification: Tier 2 Banks in the Afrinvest Paradigm

Tier 11 Banks: How They Measure Up

Gross Earnings

The gross earnings of listed banks classified as tier 11 banks had an average growth rate of +4.03% in 2021. Fidelity bank recorded the highest growth rate of +20.97% and also ranked first in gross earnings, kicking off Stanbic IBTC which had the highest gross earnings in 2020. Stanbic IBTC’s gross earnings declined by -12.22% just after Union Bank which had the highest percentage decline of -23.20% in gross earnings in this group. Not surprisingly, Unity Bank ranked last in topline earnings amongst these banks, recording US$86.87mn (N50.38bn) in gross earnings, however, in terms of percentage growth rate, the bank had the second-highest growth rate of +17.97% in 2021

Profit Before Tax

On the side of profit before tax, five banks recorded growth in PBT in 2021. Wema Bank topped the list with a growth rate of +90.32% and ranked sixth in the value of PBT, which was largely driven by +31.7% growth in operating income and a significant decline in impairment of -76.9%

Fidelity Bank attained the second position both in percentage growth and value in PBT, reporting growth of +44.84% to US$70.06mn (N40.63bn) in PBT.

Although Stanbic IBTC reported the highest PBT of US$113.83mn (N66.02bn) in 2021, PBT declined by -30.30% which was the second-highest percentage decline amongst its counterparts. Union Bank had the highest percentage decline in PBT, declining by -37.66%, while Unity Bank had the least value in PBT of US$4.63mn (N2.69bn), however, Unity Bank ranked amongst the banks in terms of the percentage growth rate of PBT

Total Asset

All the listed tier 11 banks reported a significant growth in assets with an average growth rate of +17.35% in 2021. Sterling bank had the highest growth of +20.54% and positioned fifth in the value of the asset, the increase was largely attributed to a +120.63% rise in the “other assets” line item of the bank, +32.13% increase in the cash and balances held with the central bank grew and +20.09% rise in loans and advances to customers.

Fidelity Bank had the second growth rate of +19.27% in assets and had the highest value in total assets amongst tier 11 banks. This was on the back of a significant rise of +17.85% in cash and balances with the central bank.

Unity Bank ranked last both in value and percentage growth, attaining a single-digit growth of +8.59% in total assets and US$921.15mn (N534bn) in value

Shareholders Fund

On the stance of equity, Wema Bank had the highest percentage growth in shareholders fund, which rose by +12.38% from US$101.97mn (N59.14bn) in 2020 to US$114.59mn (N66.56bn) in 2021, the strong performance was as a result of a +99.82% increase in the retained earnings of the bank. Fidelity Bank has the highest value of shareholders fund and recorded a +9.79% growth. Stanbic IBTC’s shareholder’s fund declined in the period, dipping slightly by -0.45% to US$649.8mn (N376.88bn). Unity Bank still maintained its negative shareholder’s fund 

Tier 11 Banks: How They Measure Up

Return On Equity (After Tax)

All the banks in the tier 11 sector reported growth in equity except unity bank which has been on five years negative shareholder’s fund. In its recent financials, Unity Bank reported a zero growth in the component of equity, other reserves of the bank declined by -11%, and a -1% decrease in retained earnings. Stanbic IBTC gave investors the highest return on equity amongst tier the listed banks in 2021


Customers Deposit

With US$3.49bn (N2.02trn) in 2021 in customers deposit, Fidelity Bank ranked first amongst tier 11 banks, with FCMB coming second. However, in terms of percentage growth, Stanbic IBTC recorded the highest growth in customers deposit which grew by +37.39% and Unity Bank had the second-highest growth in this category. Union Bank of Nigeria (UBN) customers deposit had the least percentage growth, it edged up by +13.63% to US$2.21bn (N1.28trn) 

Net Loans and Advances

Tier 11 banks had double-digit growth in net loans and advances in the period, Stanbic IBTC led the pack with a +47.33% rise in loans and advances to customers.

In terms of value, Fidelity Bank had the highest net loans and advances of US$2.86bn (N1.66trn) and FCMB trailed behind with US$1.83bn (N1.06trn). Wema Bank recorded the least growth of +16.13% to US$720.98mn (N418bn) in 2021. Unity Bank which had the lowest loans and advances to customers had a +32.76% increase in the period 

Some Ratio Analysis for Nigerian Banks

The analysis of the price-to-earnings ratio (P/E ratio) of Nigerian banks reveals that investors in most banks in the country are getting value for their investment. Analysts note that a P/E ratio between 8 and 15 is appropriate for value stocks in the industry. However, stocks with lower ratios have hidden values that may prompt investors to take a long position. The beta values above 1 for most banks reveal that the portfolio of banking stocks moves in line with the market direction, reflecting the high volatility of the banking stocks. Albeit, Access Bank, Stanbic IBTC, and Union Bank had beta values that reflect lower volatility.

Analysis of the net interest margin reflects the gaps in the investment profitability and efficiency of banks in the country. Available data shows that Sterling Bank had the most profitable investment return at 7.7% while Stanbic IBTC had the least return at 2.7% and others had net interest margins that oscillate within the range. On the flip side, investors across the banks made high returns on their equity investment as the cost of equity for the banks was high at an average of 15.96% with a variance of 2.70 in 2021. Conversely, a lower cost of funds is indicative of cheaper access to funds in the interbank market. Available data reveals that most Tier 1 banks and Stanbic IBTC had access to cheaper funds than others in the industry within the period under review.  GTCO had the lowest cost of funds at 0.88% while WEMA Bank had the highest cost of funds at 4%


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