Fidelity Bank takes the lead as top-performing tier-2 bank in FY 2022

Tier-2 Nigerian banks remained resilient in 2022 despite economic headwinds, which saw the nation’s aggregate GDP growth decline to 3.10% from 3.4% recorded in the previous year.

Nairametrics analysed the audited 2022 financial reports of the tier-2 banks listed on the Nigerian Exchange, namely Fidelity Bank, FCMB, Stanbic IBTC, Sterling Bank, Unity Bank, and Wema Bank. The analysis considered various financial metrics and performance indicators to determine the top-performing banks within this group.

Tier-2 banks’ 2022 financial indicators
The banks collectively generated a profit after tax of N190.258 billion in the 2022 financial year, reflecting a significant increase of 48.51% compared to the N128.108 billion recorded during the corresponding period in 2021.

Also, the tier-2 banks’ loans to customers grew by 20.27% YoY to N6.065 trillion in 2022, representing a new loan of N1.022 trillion in 2022

Customer deposits of the banks under coverage increased by 19.93% to stand at N8.592 trillion as of December 31, 2022

Four out of the six tier-2 banks recorded a positive year-to-date (YTD) growth in their share prices in 2022 at the local equities.
The six tier-2 banks recorded an average cost-to-income ratio of 72.66% in the review period. This represents a decrease from the 74.96% ratio recorded in the corresponding period of 2021.
A cost-to-income ratio measures the proportion of operating costs (expenses) incurred by a bank in relation to its operating income. A lower ratio indicates that the banks had a higher income relative to their expenses during the review period. In this case, the decrease from 74.96% to 72.66% suggests improved cost management or increased income generation by the banks.

Also, the banks achieved an average return on average equity (ROAE) of 13.37% in 2022. This is a notable increase compared to the 10.51% ROAE recorded in the previous year.
Return on average equity is a financial metric that measures the profitability of a company in relation to its shareholders’ equity. A higher ROAE indicates that the banks were more efficient in generating profits from the shareholders’ equity during the year.

The improvement from 10.51% in the previous year to 13.37% in 2022 suggests that the banks were able to generate higher returns for their shareholders and improve their overall profitability.

Best Performing Tier-2 Banks in 2022
Nairametrics presents a ranking of the best Tier-2 banks in the 2022 financial year, using metrics from their publicly released financial statements and performance at the local exchange.

Given that each metric carries a different measure of impact, we assign weights to each category, especially for investors.

Thus, our analysis applies a weight of 5% for asset growth, 15% for profit growth, 15% for loan book growth, 15% for customer deposit growth, 20% for change in return on average equity, 10% for changes in cost-to-income ratio and 20% for share price appreciation respectively.

A. Leading banks by total asset growth: The six banks under coverage grew their total assets by 16.57% from N11.855 trillion recorded as of December 2021 to N13.855 trillion as of the end of December 2022, representing an increase of N1.964 trillion in twelve months.

Fidelity Bank, Stanbic IBTC and FCMB recorded the highest asset value as of the period under review, however, the position changed in terms of growth rate. The table below shows the leading banks

B. Leading Bank by Customer Deposits growth: Customer deposits to the six Tier-2 banks increased by 19.93% YoY to N8.592 trillion in 2022 from N7.164 trillion recorded as of December 2021.

Fidelity Bank, FCM, and Stanbic IBTC recorded the highest customer deposits as of December 2022. Below are the leading banks by growth in customer deposits.

C. Leading Banks by loan book growth: The loan book of the six banks grew by 20.27% YoY to N6.065 trillion as of December 2022 from N5.043 trillion recorded as of December 2021.

Fidelity Bank had the highest loan book of N2.116 trillion, representing 26.60% YoY growth (or N457.80 billion). 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, totalling 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.

Meanwhile below are the top banks in terms of loan book growth

First position – Stanbic IBTC (+30.81%)

Second Position – Fidelity Bank (+27.60%)

Third Position – Wema Bank (+24.49%)

Fourth Position – FCMB (+12.41%)

Fifth Position – Unity Bank (+7.46%)

Sixth Position – Sterling Bank (+3.63%)

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.

D. Leading banks by profit after tax (PAT) growth: A bank’s profit after tax is a crucial metric that indicates its ability to generate earnings after accounting for all taxes and expenses. It provides insights into the bank’s profitability and capacity to distribute dividends to shareholders and retain funds for future growth and expansion.

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.

In terms of profit after tax growth, Fidelity Bank led the list with 102.23% YoY growth. Others are:

Second position – FCMB (+48.82%).

Third position – Stanbic IBTC (+41.86%)

Fourth position – Sterling Bank (+28.46%)

Fifth position – Wema Bank (+27.16%)

Sixth position – Unity Bank (-70.33%)

E. Leading banks by the cost-to-income ratio: The cost-to-income ratio is a financial metric that measures the efficiency of a company, particularly in the banking industry. It indicates the proportion of operating costs incurred by a bank in relation to its operating income. It helps to give investors a clear view of how efficiently a bank is being run.

Notably, the lower the ratio, the more profitable, productive and competitive the bank will be. Here are the banks with the highest decline in their cost-to-income ratio:

First position – Stanbic IBTC (-13.48%)

Second position – FCMB (-9.61%)

Third position – Unity Bank (-1.96%)

Fourth position – Sterling Bank/Wema Bank (+0.81%)

Fifth position – Fidelity Bank (+3.39%)

F. Leading banks by return on average equity (ROAE): The return on equity is also an important metric that shows the percentage of profit made on every N1 of the shareholders’ fund. It is used to measure the performance and efficiency of the banks. The metric shows how well banks have maximized any increase in shareholders’ wealth. Below are the top banks with the highest increase in their ROAE year-on-year:

First position – Stanbic IBTC (+38.78%)

Second position – FCMB (+34.83%)

Third position – Fidelity Bank (+24.80%)

Fourth position – Sterling Bank (+17.70%)

Fifth position – Wema Bank (+14.58%)

Sixth position – Unity Bank (-70.33%)

G. Top banks by share appreciation: Investors take positions in companies in exchange for capital appreciation and dividends. While they do not have control of dividends, they have control over when to sell their shares and pocked capital appreciation. This makes the metrics very important to us at Nairametrics

The Nigerian equities market gained 19.98% in 2022 to close at N27,916.26 in market capitalisation.

Out of six Tier-2 banks, only four of them recorded share price appreciation in the review period.

First position – Wema Bank (+441.67%)

Second position – Fidelity Bank (+70.59%)

Third position – FCMB (+28.76%)

Fourth position – Unity Bank (+1.85%)

Fifth position – Stanbic IBTC (-7.08%)

Sixth position – Sterling Bank (-7.28%)

Final Scorecard: The final ranking allocates equal weights to each of the metrics considered in this analysis, with the bank with the highest weighted rating selected as the best-performing Tier-2 bank for the 2022 financial year.

Based on our analysis Fidelity Bank is the best-performing bank in the 2022 financial year. The bank scored a weighted average score of 2.00 points, having ranked first in two categories, second in three categories, and third in two categories.

FCMB and Stanbic IBTC followed with 2.70 points and 2.75 points respectively.

How do we determine the best performers?

We focus on seven key metrics, Asset growth, PAT growth, Loan growth, Deposit growth, ROAE, cost-to-income, and share price growth.

The percentage change between the 2022 FY and 2021 FY is considered.

Growth in the context of any metrics counts as a positive in our ranking while a decline is negative. An example of context setting is profits and costs. For example, a rise in profits year on year-on-year is growth, while a decline in the cost-to-income ratio is also growth

Banks are not ranked based on the achieved growth in any of the seven key metrics. For example, 3the bank with the highest growth in any metric ranks first.

We then multiply the bank’s position in each category with the assigned positions for the category to determine the final weighted score.