Key Highlights
- The gross earnings of six Tier-2 banks listed on the NGX increased by 32% year-on-year to N1.272 trillion billion in 2022.
- The growth in gross earnings was primarily driven by impressive growth in interest income, and Fidelity Bank emerged as the top bank with an interest income of N278.406 billion.
- The banks collectively accumulated a profit after tax of N190.258 billion, reflecting a significant 48.51% year-on-year increase. Among these banks, Stanbic IBTC emerged as the top bank with a profit after tax of N80.814 billion.
Nigeria’s Tier-2 banking industry subsector has become highly competitive, with players in this sector striving to establish market niches for themselves. This competitiveness has resulted in some banks gaining higher market share while others may experience a decline.
The analysis focused on the published 2022 full-year (FY) financial results of six Tier-2 banks listed on the Nigerian Exchange (NGX) in the banking sector. The analysis includes Fidelity Bank, FCMB, Stanbic IBTC, Sterling Bank, Unity Bank, and Wema Bank.
Based on the analysis of performance using key performance indicators such as gross earnings, profit after tax (PAT), market valuation, deposits from customers, loans and advances to customers, and return on equity, it has been observed that Stanbic IBTC and Fidelity Bank are emerging as dominant players in the Tier-2 segment of the banking industry.
The combined profit after tax (PAT) of the covered Tier-2 banks amounted to N190.258 billion, generated from cumulative gross earnings of N1.272 trillion. Among the coverage banks, Stanbic IBTC recorded the highest PAT figure of N80.814 billion, indicating its strong profitability and ability to generate substantial earnings after accounting for expenses and taxes. Following closely is Fidelity Bank with a PAT of N46.724 billion, also demonstrating a solid financial performance.
| S/NO | BANK | PAT in Millions of Naira | ||
| 2022 | 2021 | % Chg | ||
| 1 | STANBIC IBTC | 80,814 | 56,966 | 41.86% |
| 2 | FIDELITY BANK | 46,724 | 23,104 | 102.23% |
| 3 | FCMB | 31,129 | 20,917 | 48.82% |
| 4 | STERLING BANK | 19,298 | 15,022 | 28.46% |
| 5 | WEMA BANK | 11,352 | 8,927 | 27.16% |
| 6 | UNITY BANK | 941 | 3,173 | -70.33% |
| TOTAL | 190,258.05 | 128,108.98 | 48.51% | |
Fidelity Bank achieved higher gross earnings of N337.05 billion compared to Stanbic IBTC’s gross earnings of N287.537 billion, despite Stanbic IBTC having a higher PAT. This scenario suggests that Stanbic IBTC might have been more effective in managing its expenses and taxes, resulting in a higher bottom-line profit.
Fidelity Bank achieved the highest percentage growth in profit after tax (PAT) with a growth rate of 102%. This indicates a significant improvement in profitability compared to the previous period. Following closely is FCMB with a growth rate of 48.82%, reflecting strong performance and increased profitability.
On the other hand, Unity Bank experienced the highest percentage decline in PAT, with a decline of 70.33%. This decline in profitability can be attributed to factors such as the high cost of funds and operating expenses. The higher growth in interest and similar expenses by 28.19% YoY compared to the growth rate of 13.45% YoY in interest income suggests that Unity Bank faced challenges in growing its interest income while experiencing an increase in interest costs. These factors impacted the bank’s bottom-line performance negatively.
It is indeed surprising that Unity Bank’s share price has continued to rally with a Year-to-Date (YtD) gain of 103.6%, positioning it as the second-best performing bank in terms of share price appreciation. Sterling Bank leads the pack with a YtD gain of 110.71%, indicating a strong market performance for both banks.
| S/NO | BANK | S/PRICE | MKT CAP | MKT CAP | PRICE | S/O | YtD |
| 1/1/2023 | 1/1/2023 | CURRENT | CURRENT | CURRENT | CURRENT | ||
| “N’ | N’M” | N’M” | N’M” | N’M” | % | ||
| 1 | STANBIC IBTC | 33.45 | 433,412 | 686,073 | 52.95 | 12,957.00 | 58.30% |
| 2 | FIDELITY BANK | 4.35 | 126,040 | 210,067 | 7.25 | 28,974.80 | 66.67% |
| 3 | FCMB | 3.85 | 76,240 | 99,014 | 5.00 | 19,802.71 | 29.87% |
| 4 | STERLING BANK | 1.40 | 40,307 | 84,932 | 2.95 | 28,790.42 | 110.71% |
| 5 | WEMA BANK | 3.90 | 50,147 | 62,876 | 4.89 | 12,858.16 | 25.38% |
| 6 | UNITY BANK | 0.55 | 6,429 | 13,092 | 1.12 | 11,689.34 | 103.64% |
| TOTAL | 732,574.88 | 1,156,053.99 | 57.81% |
On the other hand, Stanbic IBTC retains its position as the most valuable company among the covered banks, with a market capitalization of N686.073 billion. This represents a substantial 59.35% share of the total market capitalization of the banks under consideration.
The outperformance of Unity Bank and Sterling Bank in terms of share price appreciation despite their comparatively weaker financial performance suggests that market dynamics and investor sentiment play a significant role in determining stock prices, suggesting also that market participants are placing value on other aspects of these banks’ operations and growth potential.
Indeed, each bank has its own unique strategy to penetrate the market and achieve growth. In the current landscape, there is a strong focus on the digital space as banks aim to cater to the evolving needs of customers and capitalize on the increasing adoption of digital banking solutions.
For instance, Wema Bank places a strong emphasis on digital channels and closing the financial inclusion gap, showcasing its commitment to leveraging technology to serve a broader customer base and meet the evolving needs of customers
On the other hand, Stanbic IBTC’s aggressive approach involves leveraging its strong subsidiaries, particularly in the areas of pension, asset management, and stockbroking, to drive growth.
Coming to deposit generation, Fidelity Bank generated the highest deposits from customers, reaching a total of N2.581 trillion in 2022. This represents a growth of 27.45% or N555.794 billion compared to the previous period. Fidelity Bank’s strong performance in deposit mobilization indicates a high level of trust and confidence from customers.
| S/NO | Bank | Customers’ Deposit | ||
| 2022 | 2021 | % Chg | ||
| 1 | FIDELITY BANK | 2,580,597 | 2,024,803 | 27.45% |
| 2 | FCMB | 1,944,909 | 1,554,414 | 25.12% |
| 3 | STERLING BANK | 1,327,805 | 1,208,753 | 9.85% |
| 4 | STANBIC IBTC | 1,245,346 | 1,126,535 | 10.55% |
| 5 | WEMA BANK | 1,165,934 | 927,471 | 25.71% |
| 6 | UNITY BANK | 327,430 | 322,285 | 1.60% |
| TOTAL | 8,592,020 | 7,164,260 | 19.93% | |
Following closely is FCMB, which generated N390.495 billion in deposits from customers, positioning it as the second bank with the highest deposit base. FCMB’s ability to attract significant deposits reflects its effective customer engagement and competitive offerings.
On the other hand, Unity Bank experienced the least growth in deposits, with a modest increase of +1.60% to reach N327.430 billion in 2022. This suggests the need for Unity Bank to focus on strengthening its deposit mobilization strategies to enhance its market position and customer trust.
Overall, the significant growth in total deposits from customers among the covered banks, reaching N8.592 trillion in 2022 with a year-on-year increase of 19.93%, indicates the positive trend of customer trust and confidence in these banks. This growth reflects the banks’ ability to attract and retain deposits, which is crucial for their liquidity, lending capacity, and overall financial performance.
Among the covered banks, the total deposits generated from customers amounted to N1.428 trillion, while loans and advances to customers reached N1.022 trillion, resulting in a loan-to-deposit ratio of 72%. This indicates that the banks utilized a significant portion of the deposits to provide loans and advances to their customers.
Fidelity Bank had the highest loan disbursement value, with N457.80 billion in loans and advances to customers. This amount represented approximately 82% of the deposits generated from customers. Fidelity Bank’s proactive lending approach contributed to its position as the bank with the highest interest income.
Stanbic IBTC and Unity Bank stood out by providing more loans and advances to customers than the deposits they generated. Unity Bank disbursed loans and advances amounting to 390.39% of its deposits, while Stanbic IBTC provided loans and advances equivalent to 239% of its deposits. This indicates that both banks leveraged other funding sources to support their lending activities and meet customer demand.
In contrast, Sterling Bank adopted a more conservative lending approach, as it disbursed only about 22% of the deposits generated from customers, totaling N25.835 billion. This conservative lending strategy impacted the bank’s interest income growth, which recorded about 14% growth compared to the previous period.
The variations in loan-to-deposit ratios and loan disbursements among the banks reflect their individual lending strategies, risk appetite, and market positioning. It is important for banks to strike a balance between prudent lending practices and meeting customer credit needs to ensure sustainable growth and profitability.
Investors consider various factors when evaluating the attractiveness of an investment, including the return they can expect and the financial health of the bank. In this context, Fidelity Bank and Stanbic IBTC have demonstrated notable performance in different areas.
Fidelity Bank stands out in terms of dividend yield and returns on equity growth. The bank offers a dividend yield of 6.90%, which is higher than the average yield of 4.95% among the six banks. This indicates that Fidelity Bank rewards its shareholders with a higher dividend payout than its stock price. Furthermore, Fidelity Bank’s return on equity grew by 102% to reach 16% in 2022, highlighting the bank’s improved profitability and efficient utilization of shareholder equity.
On the other hand, Stanbic IBTC presents the highest return on equity at about 28%, showcasing its ability to generate substantial profits relative to its shareholder equity. The bank’s strong return on equity suggests effective capital management and profitability.
Stanbic IBTC has a higher price-to-book ratio of 1.08x and a price-to-sales ratio of 1.51x, surpassing the average ratios of 0.44x and 0.49x, respectively. These ratios indicate that investors are willing to pay a premium for Stanbic IBTC’s stock, reflecting their confidence in the bank’s financial performance and growth prospects.
However, investors should consider a combination of factors such as dividend yield, return on equity, and valuation ratios when making investment decisions. It’s important to assess the financial health, profitability, and growth potential of a bank to determine its attractiveness as an investment option.
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