Hike in interest rate: First Bank, 8 others generate N469bn profit in Corporate/Commercial banking

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By Kayode Tokede

Amid hike in interest rate and macro economic  challenges, a total of nine Deposit Money Banks (DMBs) generated N469 billion Profit Before Tax (PBT) from Corporate and Commercial banking in 2017.

Performing key financial obligations via lending to real sector, the nine DMBs had generated N336 billion PBT from Corporate and Commercial banking in 2016.

Despite the unfriendly business environment, Nigerian NewsDirect can report that DMBs average lending rate to key sector of the nation’s economy rose to 30.6 per cent in 2017 from 27.30 per cent charged in 2016.

The Central Bank of Nigeria (CBN) throughout 2017 maintained the status quo on its interest rate at 14 per cent, in a move to curb inflation rate and stabilized the naira.

According to Nigerian NewsDirect investigations, DBMs were lending to Multinationals and large corporate organisations with average turnover of about N5billion.

The nine DMBs include four Tier-1 DMBs that comprise FBN Holdings Plc, Access Bank Plc, United Bank for Africa and Guaranty Trust Bank Plc (GTBank).

Others are Tier-2 DMBs that include Diamond Bank Plc, Union Bank of Nigeria Plc, FCMB, Stanbic IBTC Holdings and Fidelity Bank Plc.

Of the Tier-1 DMBs, GTBank generated the highest PBT in corporate banking of about N145 billion in 2017 as against N114.9 billion recorded in 2016.

The banks reported an increase of 35per cent in Commercial banking to N12.7 billion from N9.4 billion reported in 2016.

For Access Bank, its Corporate Banking PBT rose by 51 per cent to N74.57 billion in 2017 from N49.26 billion in 2016 while PBT generated from commercial banking slumped by 45 per cent to N26.2 billion in 2017 from N47 billion reported in 2016.

FBN Holdings had reported significant increase in corporate banking, gaining 433 per cent to N44 billion in 2017 from  N8.27 billion in 2016.

However, UBA reported 10 per cent drop in corporate banking in 2017 and 26 per cent increase in commercial banking to N39.27 billion and N37 billion respectively.

Meanwhile, for the second consecutive year, FCMB posted a loss in both corporate banking and commercial banking operations.

FCMB reported a loss before tax of N71.8 million in corporate banking last year as against N1.6 billion loss before tax reported in prior year.

Also, the Group reported N19 billion loss before tax in commercial banking in 2017 from N1.2 billion loss before tax reported in 2016.

Analyst, who does not want his name in print, told Nigerian NewsDirect that Tier-2 DMBs were struggling to survive in core banking operations, attributable to liquidity and capital base.

The other Tier-2 DMBs, Stanbic IBTC Holdings reported N48.86 billion in corporate banking to N16.7 billion in 2016 while Fidelity Bank’s PBT in corporate banking dropped by 62 per cent to N2.57 billion from N6.8 billion reported in 2016.

In addition, Fidelity Bank reported a N14.19 billion in commercial banking in 2017 from N2.7 billion reported in 2016.

Diamond Bank  had reported N1.8 billion loss before tax in corporate banking in 2017 from N16.19 billion PBT reported in 2016 while commercial banking reported 992 per cent increase to N22.5 billion from N2.06 billion reported in 2016.

Finally, Union Bank of Nigeria reported 38 per cent and 68 per cent drop in corporate banking and commercial banking to N4.66 billion and N799 million in 2017 respectively.

Early in the year, a survey conducted by Manufacturers Association of Nigeria (MAN) had disclosed that banks’ average lending rate to manufacturers rose to 22.65 per cent in the first half of 2017 from 21.4 per cent charged in the corresponding half of 2016.

According to the MAN survey, lack and high cost of credit were major bottlenecks to the manufacturing sector in the period under review.

The report by MAN stated that, “It is important to fast-track the recapitalisation of the Bank of Industry (BoI) to enable it meet up with huge credit demands of the industrial sector.”

MAN stresses the need for the government to open up access to various development funds created by the Central Bank of Nigeria (CBN) such as the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) and the N300 billion Real Sector Support Facility (RSSF) by relaxing stringent conditions denying manufacturers access to these funding windows.

“It is critical to intensify the implementation of the Moveable Collateral Registry and Credit Reporting system which were recently passed into law,” MAN explained.

Frank Jacobs, President of MAN, believes that only a single-digit rate of five percent can revive the sector which has been badly hit by policy flip-flops and poor infrastructure.

Financial experts, however, disagree, saying that it is impossible for banks to lend at rates below the Monetary Policy Rate (MPR) set by the CBN.

But manufacturers and business leaders noted that they are not expecting any magic from banks, insisting that what they need are specialised banks like the DBN that will lend at single-digit rates.

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