Bank earnings outlook in 2014: How they stand

Banks are still facing difficulties in growing earnings in the current year but performance is expected to improve from the general slow down in 2013. Most banks closed last year with considerable slow down, even decline in profit but the prospects look good for stepping up once again in 2014. Small- and medium-sized banks are leading earnings growth in the sector this year.

Profit margins declined generally in the banking industry last year, as regulatory tightening on public sector deposits hindered revenue growth. The indications this year are that most banks have adjusted to the regulatory rules and are exploring alternative routes to grow earnings. First quarter performance is indicating stable growth in revenue and a stronger growth in profit for banks this year.

The main operating strength this year therefore lies in improving profit margin. There is bound to be tighter cost controls in response to regulatory induced revenue growth constraints. Improved operating stability can therefore be expected in the banking sector this year, as regulatory pressure is expected to ease and banks devote more time to the corporate purpose of building wealth for shareholders.

The road to recovery and growth in the banking industry remains uneven: while some banks are quite ahead, some are well behind. However the general trend of growing profit and improving dividend pay-out witnessed last year is expected to be sustained this year. The improving quality of bank earnings fundamentals will expectedly improve the attractiveness of bank equities in the medium-term.

The stock market has been cautious on banking stocks despite the improving earnings outlook in recent years. This is an indication of undervaluation with banking stocks looking very much like value stocks. Banking stocks have been trading well below both their historical average p/e ratios and their previous share price peaks. This is despite the fact that most of them have since attained new peaks in profit, earnings and dividend per share.

Renewed investor interest in banking stocks is expected in 2014. This will lead to a general upward trend in share prices and a general increase in p/e ratios.

Based on the first quarter earnings performance, Stanbic Bank is one of the top runners on the banking industry’s profit league in 2014. The bank defied the general earnings slow down in 2013 and lifted net profit by 110%. It seems set again to lead profit growth in the banking sector this financial year.

At the end of the first quarter, the bank lifted net profit by 93% to N6.90 billion over the first quarter figure in the prior year. The rise happened out of only 13.7% improvement in gross earnings during the same period. Full year forecast puts the company’s net profit in the region of N28 billion at the end of 2014. This is indicating a profit growth of more than 51%, up on a profit figure that has just more than doubled.

Another top runner on profit growth this year is Ecobank Transnational, which is rather making a strong recovery from a profit crash of nearly 50% in 2013. Based on the first quarter performance, the West Africa bank looks very good to lift net profit by 158% to N60.8 billion. First quarter earnings figures show new strength in revenue growth and in rebuilding profit margin. Net profit margin is up from 5.7% at the end of 2013 to 13.6% in the first quarter.

At the end of the first quarter, net profit amounted to about N15 billion, which is an increase of 15.3% over the corresponding profit figure in the preceding year. The bank is maintaining a continuing growth in gross earnings though it is experiencing a decelerating growth. At N109.84 billion in the first quarter, gross income is up by 17% from the corresponding first quarter figure last year.

Union Bank is in the group of growth leading banks by profit in 2014. The bank, which has seen two years of gradual recovery from major losses in the preceding years, is expected to achieve accelerated growth in profit this year. At N4.95 billion in the first quarter, after tax profit dropped by 36.4% from the corresponding period in 2013 but remains quit promising if the current growth rate is sustained to full year. The bank closed with a lower profit last year than it reported in the first quarter, which gives it a high growth potential in the current year. If the first quarter growth rate is maintained, the bank could lift after tax profit by 158% to N16.6 billion in 2014. Net profit margin has improved significantly from 5.0% at the end of 2013 to 19% in the first quarter.  The profit forecast is subject to unexpected fluctuations in earnings reports.

Fidelity Bank is on the same track with ETI of lifting profit after a major fall. After a profit drop of 57.6% in 2013, the bank is expected to double its profit in 2014. The bank closed first quarter operations with a net profit of N3.79 billion, which is projected to come to N15.5 billion at full year. This is against the profit figure of N7.72 billion the company earned in 2013. The bank isn’t expected to grow revenue reasonably this year but a recovery in profit margin is propelling profit recovery as well. Net profit margin has improved from 6.1% at the end of last year to 12.2% at the end of the first quarter.

Sterling Bank is looking forward to making its strongest profit growth since its return to profit in 2010. The bank opened the year with a net profit of N3.14 billion on a gross income of N24.62 billion. Net profit is projected at N13.2 billion for the bank at full year, indicating a rise of 59.6% over the N8.27 billion profit it posted in 2013. This will be an accelerated growth from the 19% improvement made in the preceding year. Net profit margin has improved from 9.0% at the end of last year to 12.7% in the first quarter.

Access Bank also belongs to the group of banks making a rebound from a profit fall in the preceding year. The bank could not grow revenue last year and its profit declined by 7.7% to N36.30 billion at the end of the year. This year, the bank is on the way to raising gross earnings and profit to new highs. Its first quarter operations ended with a net profit of N11.63 billion with a full year projection of N47.5 billion. This is indicating an increase of 31% over the 2013 figure. The bank has raised net profit margin from 17.5% at the end of 2013 to 20.3% in the first quarter of the current year.

Next on the high growth track is FCMB, which grew net profit by 15% to N5.0 billion in the first quarter. Full year profit is expected to be in the region of N20 billion for the bank in 2014, which will be an improvement of 23% over the net profit figure of N16.3 billion in 2013. Profit growth is therefore expected to accelerate from 7.8% in the preceding year. Net profit margin has improved from 12.4% at the end of 2013 to 14.3% in the first quarter.

Diamond Bank is likely to sustain profit growth for the third year running but the growth rate may slow down this year. Its net profit improved by 23.4% to N6.29 billion in the first quarter and the full year expectation is N34.4 billion. The growth rate is therefore expected to slow down from 28.9% last year to 20.7% this year. Net profit margin has improved from 15.7% in the 2013 full year to 18% at the end of the first quarter.

First Bank saw a profit decline in 2013 and recovery/growth is expected in the current year. First quarter operations ended with a further profit decline of 12.7% to N21.55 billion year-on-year but full year outlook       is promising. A new profit peak can be expected from the bank in 2014.

Full year profit is projected at N87.3 billion for the bank, which will be an increase of 23.6% over the 2013 figure. This will compensate for a decline of 6.7% in profit  in 2013.           Net profit margin has improved from 17.8% in the 2013 full year to  20.3% in the first quarter.

Guaranty Trust Bank is expected to stay on the slow lane on profit growth for the second year. The bank improved after tax profit by just 2.0% to N23.11 billion in the first quarter. A full year projection of N93 billion in net profit is indicating a marginal improvement of 3.8% for the bank in 2014. Profit growth was equally modest at 3.0% in the 2013 financial year. Net profit margin went down from 40.3% in 2012 to 36.9% in 2013 and is further down at 34.2% in the first quarter.

UBA isn’t expected to achieve a reasonable growth in revenue this year based on the first quarter growth rate. Its strength this year lies in improved ability to convert revenue into profit. The bank is expected to make a recovery move in profit in 2014 but it isn’t expected to match the peak profit record in 2012. It had recorded a profit drop of about 15% in 2013 but an improvement of 10.9% is expected with a profit projection of N51.7 billion in 2014. Net profit margin has improved for the bank from 17.6% at the end of last year to 25.2% in the first quarter.

Zenith Bank is also headed for a moderate recovery in profit in the current year after a decline of 5.6% in 2013. Profit continued to decline marginally in the first quarter but a step up in profit growth is expected in the course of the year. At N96.8 billion, net profit forecast for the year will remain below the peak record of N100.15 billion in 2012 but will be a marginal improvement of 2.3% over the 2013 figure. Revenue growth is expected to remain stable but the ability to convert revenue into profit is likely to weaken further. Net profit margin continues to decline from 32.6% at the end of 2012 to 26.9% in 2013 and further to 25.1% in the first quarter.

Skye Bank made a weak first quarter opening for the current year and the bank’s two-year profit improvement looks likely to be interrupted this year. Net profit amounted to N2.77 billion in the first quarter on gross earnings of N34.33 billion. Full year projection is in the region of N12 billion, indicating a likely drop of up to 24% in profit from the N16.02 billion it posted in 2013. Profit weakness reflects a drop in net profit margin from 12.6% at the end of 2013 to 8.1% in the first quarter.

Unity Bank grew profit by 25.9% to N2.67 billion year-on-year at the end of the first quarter. This came from an increase of only 7.0% in gross earnings during the same period. Revenue outlook indicates a moderate improvement at full year but the bank looks set to make up for the loss of N22.58 billion in 2013. With improving profit margin, it is likely to extract more profit from the naira of revenue than it has achieved in recent years. Full year profit is expected to be in the region of N15 billion for the bank, as net profit margin is expected to improve further in the course of the year.