Zenith Bank, Four Other Tier-1 Banks’ Impairment Charges Up 137% To N996.6bn
In an apparent move to reduce the negative impact of macroeconomy challenges on their risk’s assets, Zenith Bank Plc and four Tier-1 banks reported N996.6billion impairment charges in 2023 financial year.
The provisioning showed a jump of 137 per cent compared with N421.32 billion recorded in 2022.
An impairment charge usually reflects a fall in value or worse-than-expected performance of the asset.
While banks increased their lending partly due to the Central Bank of Nigeria (CBN)’s policy on loan-to-deposit ratio (LDR), which is put at 65 per cent, the weakening of the local currency and the double-digit inflation rate, which disrupted economic activities, is expected to affect most risk assets.
InsideBusiness’ checks showed that the other Tier-1 banks that increased their impairment charges are: Guaranty Trust Holding Company Plc, United Bank for Africa Plc, Zenith Bank Plc and FBN Holdings Plc.
Access Holdings is the only Tier-1 bank with decline in its impairment charges in 2023.
Zenith Bank Plc made provisioning of N409.62 billion in 2023, up 232 per cent from N123.25billion in 2022.
UBA’s impairment charges stood at N102.95 billion in 2023, indicating an increase of 632 per cent from N19.67 billion in 2022, while GTCO announced N102.95 billion loan impairment charges in 2023, a significant increase of 759 per cent from N11.99 billion declared in 2022.
GTCO in a presentation to investors and analysts said, “The Group increased its loan impairment charges to N103 billion in 2023 from N12 billion in 2022 as a precautionary provision against the impact of unfavourable changes in macroeconomic variables on its Stage 2 Facilities as permitted under IFRS 9.
“The Group also recognised N95.0billion in 2023 as an impairment charge on other Financial Assets (FA) also by way of Management overlay as loss rate heightened on its other Financial Instruments whose underlying values are sensitive to adverse exchange rate movements, especially its investment in Ghanaian sovereign securities and other Contingents.”
Access Bank Plc posted impairment charges of N139.53 billion, showing a decline of 29per cent from N198.79 billion in 2022.
In addition, FBN Holdings in its unaudited results announced N200.44 billion Impairment charge for losses in 2023, a growth of 192.1 per cent from N68.62 billion in 2022.
Investment and financial analysts said the higher impairment charges did not come as a surprise given the headwinds in the economy last year.
Commenting on impairment by these banks, the Vice President, Highcap securities Limited, David Adnori attributed the higher impairment charge of banks to the lagged impact of the weaker economy and attendant impact on borrowers’ ability to meet obligations.
“I believe the market is already pricing this expectation in the valuation of banks’ stocks, as we look forward to a higher credit loss in 2024, a phenomenon that may aggravate the volatility risk of their treasury portfolios in the year, given the dynamics of the interest rate environment over the cycle.
“Nonetheless, we are not at a systemic risk situation, and I believe the rise in NPL ratio and impairment charge should be moderate, even so, it may constrain the return on equity and dividend growth prospect of banks,” he said.
Adnori explained that with the conservative dividend payout ratios of these Nigerian banks, which hovers between 30 per cent and 50 per cent, the impact of the higher cost of risk on dividend should be muted, even so, it may undercut profit growth.
“To this end, we still see value in the leading Nigerian banks and selective mid-sized players, albeit timing, is important, and this is why we at Funds Matrix & Asset Management continue to provide relevant advisory services to our clients in addition to our commitment to best execution,” he said.