FUGAZ’s core banking income beyond forex gains: Who did better? 

Nigeria’s largest banks known as FUGAZ (FirstBank, UBA, GTCO, Access Bank, and Zenith Bank), have experienced impressive bottom-line profits in recent periods, aided by forex gains, trading income, and other non-operating revenue sources.

A review of the first-half 2024 financial statements by Nairametrics shows that the five banks posted a cumulative pre-tax profit of N2.89 trillion, reflecting a 98% year-on-year (YoY) growth compared to the same period in 2023.

However, when stripping away the non-core income sources, a clearer picture emerges of their underlying banking activities.

Further analysis shows that net core banking income, defined as net interest income plus net fees and commissions, minus operating expenses, accounts for 49% of the total pre-tax profit for the first half of 2024.

This indicates that approximately 51% of FUGAZ banks’ pre-tax profits are still derived from non-core banking income.

However, the contribution and performance of each individual bank vary. Below is a breakdown of how the banks performed.

GTCO – N418.305 billion 

GTCO reported the highest net core banking income among the FUGAZ, totalling N418.305 billion; a 241% year-on-year (YoY) growth.

This figure accounts for 42% of its pre-tax profit of N1.003 trillion.

The primary driver behind this core income is GTCO’s relatively lower operating expenses of N174 billion; the lowest among the FUGAZ.

GTCO reported the lowest interest income and net interest income figures in the group.

While the core net income constitutes a healthy proportion of pre-tax profit, the remaining 58% indicates a significant contribution from non-core income sources for overall profitability.

This suggests an opportunity for GTCO to strengthen its core operations by enhancing net interest income, expanding the loan portfolio, etc.

With 25% loan growth in the first half of 2024, the lowest among the FUGAZ, this area stands out for potential improvement.

However, GTCO might argue that maintaining a conservative loan profile aligns with its risk management strategy.

Zenith Bank – N375.560 billion 

Zenith Bank reported the second-highest net core banking income of N375.560 billion.

This figure represents 52% of Zenith’s pre-tax profit of N727.030 billion, indicating a balanced contribution from core operations relative to non-core income sources.

Zenith’s strong core banking performance is driven by its interest income of N1.149 trillion; the second highest in the group, and net interest income of N715 billion, the highest among FUGAZ.

The bank’s aggressive loan growth of 41% in the first half of 2024, far exceeding its 20% loan growth guidance, significantly boosted these numbers.

However, this aggressive growth also led to the highest net impairment provision of N415 billion, reflecting the risks associated with its expanded loan book.

This expansion came with a cost.  The bank recorded the highest net impairment provision of N415 billion, reflecting the risks associated with its expanded loan book.

UBA – N373.496 billion 

Despite ranking fourth in overall pre-tax profit, UBA posted the third-highest net core income of N373.496 billion, representing an impressive 156% YoY growth.

This core income accounts for 93% of its pre-tax profit, making UBA one of the few FUGAZ banks whose profitability comes from its core banking activities.

UBA’s strong core performance is fueled by significant growth in net interest income of N674.62 billion, the second highest after Zenith, and an increase in net fees and commission income.

However, the 7% contribution from non-core income to pre-tax profit was impacted by a net fair value loss on derivatives of N312 billion, which offset potential forex gains of N326 billion.

This contributed to the substantial drop in net trading and forex gains to N98.179 billion, a decline from N418.28 billion in the first half of 2023.

FBNH – N210.573 billion 

First Bank of Nigeria Holdings recorded a net core income of N210.573 billion, reflecting 125% YoY growth.

While core income is a significant contributor to FBNH’s overall profitability, high total operating expenses relative to core income moderated its net core banking income, placing it third among the FUGAZ.

The high operating costs present an opportunity for improvement in operational efficiency, but the fact that core income makes up more than half of its pre-tax profit shows that FBNH’s traditional banking operations are still a substantial driver of profitability.

Access Holding – N46.876 billion 

Access Holding posted a net core banking income of N46.876 billion in the first half of 2024, reflecting 108% YoY growth. However, this figure accounted for only 13.43% of its pre-tax profit of N348.922 billion, ranking it fifth among the FUGAZ banks in terms of core banking income.

The subdued net core banking income can be attributed to the high interest expenses and operating costs that weighed heavily on the bank’s core profitability.

Despite reporting the highest interest income at N1.47 trillion, Access Holding’s interest expenses were significant, moderating the net interest income to N513.39 billion, placing it fourth on the list.

Net fees and commission income of N204.71 billion helped boost the bank’s core banking income to N714 billion, but with operating expenses reaching N671.224 billion, the net core income was compressed to N46.876 billion.

This heavy cost structure led to a moderation in pre-tax profit to N348.922 billion, ranking Access Holding with the lowest PBT among FUGAZ, despite realizing a N406.911 billion gain from fair value and foreign exchange.

Overall while the FUGAZ all reported impressive results for the first half of 2024, a deeper look into their core banking income reveals a wide range of performance.

GTCO and UBA stood out for their strong contribution from core banking operations, with UBA deriving 93% of its pre-tax profit from traditional banking activities.

In contrast, Access Holding non-core income, such as forex and fair value gains, bolstered profitability.

The analysis shows that while all the FUGAZ banks have improved their core operations, there is still room for further growth, particularly in optimizing cost structures and expanding loan portfolios.

In an environment of fluctuating forex markets and volatile non-core income, banks that can strengthen their core operations will be better positioned for sustainable growth.