An analysis of the quarterly results of the quoted banks, submitted to the Nigerian Stock Exchange (NSE), indicates that 18 banks posted total profit before tax (PBT) of N121.4 billion at the end of December 2006, as against N72 billion PBT posted by the entire 89 banks which made up the banking sector before the consolidation in 2005. This represents an increase of 68.6 per cent over the previous year’s figure.

According to the CBN’s 2005 Banking Supervision Annual Report, the industry recorded profit before tax of N72 billion in 2005.

The CBN report also stated that the gross income of the entire banking industry was N499-billion in 2005, just N9-billion higher than the N490.4-billion recorded by the 18 quoted banks as at December 2006.

Business Day’s analysis, based on unaudited first, second and third quarter 2006/2007 quarterly results so far submitted to the NSE, showed that 18 out of the 21 quoted banks accounted for a gross income of N490.4 billion, an increase of 74.7 per cent over the N280.7 billion recorded in the corresponding period of 2005.

The 18 banks include Access Bank, Diamond Bank, Ecobank, First City Monument Bank, Fidelity Bank, First Bank, First Inland Bank, Guaranty Trust Bank and IBTC/Chartered Bank.

Others are Intercontinental Bank, Oceanic Bank, Bank PHB, Skye Bank, Sterling Bank, UBA, Union Bank, Wema Bank and Zenith Bank. Afribank, Unity Bank and Spring Bank are yet to submit quarterly reports for the current financial year to the NSE.

While the results seem to portray better performance by Nigerian banks, post-consolidation, market analysts believe banks still need to look into their assets quality.

Bismark Rewane, managing director, Financial Derivatives Limited, said that profitability can be either quality or quantity.

What the banks are declaring could be merely nominal growth, in which case it would be nominal increase, while the quality of the growth could be declining. This, he said, would not really portray the real growth of the sector.

He advocated that the profit should be placed side by side the earnings per share of such banks for the period to determine the quality of the profit.

The banks could also be declaring bad profit if they have not made adequate provisions for their bad loans, he said, adding that the level of provision made for bad loans would determine the quality of the earnings, and in effect the profit.

The banks’ performance on assets, as reported by the CBN in the Banking Supervision annual report, showed that the assets quality of the banking sector deteriorated in 2005 as non-performing credits increased by 13 percent, from N316 billion in 2004 to N356 billion in 2005.

It also stated that the ratio of non-performing credits to total credits was 24.1 percent during the review period. Though this was below the 35 per cent trigger level for setting up a Crisis Management Unit as stipulated in the Contingency Planning Framework for Systemic Distress, it was however, higher than the 20.45 percent and 21.6 percent recorded in December 2003 and 2004, respectively.

Provision for bad and doubtful debts increased from N94.2 billion in 2001 to N138.8 billion in 2002, N227 billion in 2003, N256 billion in 2004 and N282 billion in September 2005, showing annual increases of 47.3, 17.49, 12.78 and 10.16 percent, respectively. The ratio of bad debt provision to total credits increased from 11.9 percent in 2001 to 14.9 percent in 2002, 19.8 percent in 2003, 22.59 percent in 2004 and 19.09 percent in 2005.

Profit before and after taxation for the period of analysis stood at N121.4 billion and N96.3 billion respectively, indicating increases of 68.8 per cent and 71.56 per cent over the N71.9 billion and N56.13 billion respectively recorded in the corresponding period of 2005.