Nigeria:Profit returns as banks cut cost

In the midst of dwindling earnings, banks are cutting down on their cost of doing business in order to remain profitable. As a result, despite recording significant drop in their earnings, many banks still managed to post significant rise in profit as seen in recent results.

For most banks, while gross earnings dropped, profit before tax rose due to what analysts at Afrinvest, a financial research firm, refers to in Zenith Bank's case as "improvement across the bank's key efficiency and operating ratios." Despite a 13.6 per cent drop in gross earnings, the institution posted a profit before tax of 196.3 per cent.

In its update for the bank's third quarter result released on October 27, Afrinvest noted that "continuous improvement across the bank's key efficiency and operating ratios has fuelled this performance even as top-line growth continues to come under intense pressure." A similar scenario played out in First City Monument Bank (FCMB) as gross earnings dropped by 19.02 per cent from N55.02 billion to N44.55 billion. Interest expense however when down from N21.8 billion to N16.7 billion while profit before tax rose by nearly 2000 per cent from N298.13 million to over N6.1 billion.

For Sterling Bank, while gross earnings declined by 13 per cent from N26.6 billion in September 2009 to N23.1 billion in the corresponding period in 2010, profit after tax rose to N5.3 billion from a loss of N6.2 billion last year.

The bank attributes this significant increase in profit to efficiency and cutting down on its cost of doing business. Thus, funding costs declined 38 per cent to N8.1 billion from N13.0 billion. "Sterling Bank emphasis on efficiency and profitability has been the cornerstone of its performance in the third quarter. Discretionary costs have been kept in tight check and new processes brought on stream at the beginning of the year continue to show expected results", said the bank's executive director, Lanre Adesanya.

Common experience across board

Access Bank's third quarter results showed that gross earnings declined by 15.2 per cent from N91.93 billion to N77.95 billion. From a loss position of N10.64 billion in the third quarter of last year to a profit before tax of N14.06 billion this year.

Aigboje Aig-Imoukhuede, Access bank group managing director, said the bank has achieved significant growth in its deposit base with a 24 per cent increase in customer deposits quarter on quarter as it continues to benefit from the continuing success and effectiveness of its value chain strategy. "With our focus on maintaining a high quality service-centered business model supported by a robust enterprise risk management framework, the bank is well positioned to deliver a strong full year performance in line with the positive results achieved year to date," Mr Aig-Imoukhuded said.

First Bank also posted a gross earnings of N177.1billion, an 11 per cent drop over the N197.9 billion posted last year.

However, profit before tax rose to N40.7 billion from a loss of N6.6 billion posted last year. Guaranty Trust Bank similarly showed an 11.9 per cent drop in third quarter earnings from N136.1 billion to N119.8 billion, while pretax profit rose significantly by 82.1 per cent from N21.4 billion to N39 billion.