Polaris Bank Limited
recently published its audited financial results for the year-ended
December 31, 2019 after one year of operation. Save for a bit of legacy
issues that are already being addressed, from all indications, things
are looking up as the bank is strong in profitability and has
significantly expanded in assets. Kunle Aderinokun reports
The Nigeria’s economy has been going
through a spell of challenges in recent years. The banking industry,
being the lifeblood of the economy, is directly affected. As a matter of
fact, the slump in prices of oil, on which the economy depend for its
major income, has perennially taken its toll on government’s operations
and by extension, economic activities of the country, with the banks
taking the major brunt. Specifically, the debilitating impact triggered
by the oil & gas industry’s sorry state, which was occasioned by oil
price crash at the international market between 2014 and 2016,
escalated the non-performing assets of some of the commercial banks,
causing their operating capitals to be eroded. The oil crash saw Brent
crude price plummeting to below $50 per barrel from $115 per barrel as
at the second half of 2014.
In fact, as at the end of first quarter
of 2016, the adverse impact of oil volatility on Nigeria’s foreign
earnings was evidenced in the retarded accretion to the foreign
reserves. Coupled with scarce foreign currencies – especially the United
States dollar, which forced the federal government through the Central
Bank of Nigeria (CBN) to discourage importation, particularly of goods
that could be produced locally- and the attendant pressure on the naira,
the commercial banks were troubled.
Given this scenario, some quoted banks,
including FCMB Group, First Bank Holding, Diamond Bank Plc (now part of
Access Bank), Ecobank Transnational Incorporated and the then Skye Bank
Plc, sent notices of profit warning regarding their 2015 full-year
audited financial results to the stock exchange, for compelling reasons
given the prevailed unfavourable economic condition. Profit warning is a
statement issued by a company advising the stock market that profits
will be lower than expected.
Although the Nigerian banks have since
recovered from the then oil shocks with the industry’s total assets at
about N44 trillion by the end of 2019, the current crisis in the global
oil market caused mainly by the COVID-19 pandemic poses a fresh threat
to the country’s economy and banks. It is, however, expected that the
impact will now be minimal on the banks’ bottom lines as many of them
have restructured their risk assets to be less vulnerable to the whims
and caprices of crude oil.
From the Rubbles
]Despite the fact that its legacy bank
was adversely impacted by the global oil crisis and pressed heavily by
the consequences of the ensuing loan impairments, Polaris Bank has
started strong.
Following the defunct bank’s
predicament, the CBN effected key changes in its board and management
effective 4th July 2016. The changes, the apex bank explained, were
related to the chairman, all non-executive directors on the board as
well as the managing director, deputy managing director, and the two
longest-serving executive directors on the management team. The board
and management, then reconstituted, but still holding sway at Polaris
Bank, has Alh. M. K. Ahmad, former director-general of National Pension
Commission, as chairman and Mr. Adetokunbo Abiru, a seasoned banker and
former Lagos State commissioner for finance, as managing director.
In 2018, immediately after the
transition to Polaris, the bank worked with a team of first-class
advisers to develop both corporate strategy and corporate transformation
blueprints to provide direction for the bank into the future and define
its corporate and strategic aspirations. While KPMG served as anchors
to the project apart from working on business transformation; they also
looked at cost optimisation-it was necessary to realign the
institution’s corporate footprint especially as this had not been done
after the merger with Mainstreet Bank (former Afribank); EY carried out a
deep and detailed review of Polaris Bank’s technology infrastructure
and digital transformation needs. This was an important exercise given
that investment in technology had stagnated in the precursor institution
for over five years. Insight Communications worked with Polaris on
brand transformation, while Deloitte advised on tax issues. Adetokunbo
Abiru also engaged leading Nigerian consultancies to advise on specific
value-adding areas including RTC Advisory Services, Agusto and Co. and
Financial Derivatives Company. The bank also worked with leading
payments company, Interswitch,on aspects of technology strategy and
organisational learning.
More than a year after its take-off,
Polaris Bank has grown tremendously in assets and strong in
profitability. In all indices, the bank has performed better and its
business can be described as sustainable.
Financial Status
After its first year of operation,
Polaris Bank, last weekend, published its 2019 audited annual statement
and financial results, which is IFRS9 compliant. According to the
results, positive performance was recorded across most major key
prudential ratios: capital adequacy, liquidity, non-performing loans
which is significantly in compliance with stipulated regulatory
requirements.
A look at the financial statement
revealed that the bank declared gross earnings of N150.8 bilion and a
profit before tax (PBT) of N27.83 billion as at December 31, 2019. Also,
the bank amassed total assets of N1.1trillion at the end of the 2019
financial year with a shareholders’ fund of N83billion. In the area of
deposit mobilisation, a total of N857.8billion was collected as deposits
from customers in the review period, representing a marginal decline
from the previous level of N861 billion. Available information on the
bank revealed that despite the pay-down of outstanding legacy
obligations of over $200million (N77billion) within the period, the
bank’s deposit stood at N857billion and still ranked the bank among the
top 10 in the industry.
Analysts believe the slight drop in
deposits was actually positive–as a result of the bank restructuring its
deposit base from high cost fixed deposits to low cost current and
savings account balances….that is more stable and sustainable and more
profitable for the bank.
Likewise, the loan book stood at
N261billion in December 2019 providing the bank with the desired
headroom to accommodate the required growth in risk assets to support
the nation’s economic growth.
The positive results are declared in a
highly challenging business environment which has pushed many businesses
to cut down on their operating expenses. Analysts believe the bank’s
remarkable achievement within a span of one year of operation is a clear
validation of regulatory-induced interventions in the nation’s history.
They also posited that the bank may be winning the confidence of the
banking public to have garnered such magnitude of deposits and realised
the level of earnings and profit within a short period of time.
Commenting on the financial performance,
Abiru said, “The emergence of Polaris Bank on September 21, 2018, has
heralded a new dawn as it laid the foundation for institutional
competitiveness and service innovation in Nigeria’s challenging banking
space.”
He added that, “Our strategy, which
anchors on rebuilding the franchise and strengthening the balance sheet
position, provides enablers for ongoing initiatives towards lean
operations and efficient balance sheet management devoid of capital
erosion risks.”
On the new corporate governance regime,
Abiru gave the assurance that, “We shall continue to run an ethically
governed bank upholding sound risk management practices and proactively
taking measures to mitigate the impact of the adverse business
environment while the board and management continue to guide the bank
towards a path of sustainable growth.”
Ratio Analysis
At N82.9billion, the bank’s capital is
in multiple of the regulatory minimum of N25billion. With a capital
adequacy ratio of 14 per cent, the bank is providing sufficient capital
buffers to customers and other counterparties.
Apart from strong capital adequacy, the
bank’s other ratios are equally impressive-return on assets (ROA) at 2
per cent, return on equity (ROE) is 33 per cent, return on sales (ROS)
is 18 per cent, and liquidity ratio at 81 per cent. These ratios
demonstrate operating efficiency, strong inherent capacity for
profitability and returns to stakeholders, very comfortable liquidity
and asset efficiency.
According to RTC Advisory, the bank’s
cost to income ratio of 59 per cent, is well in line with industry
averages and further reinforces the institution’s underlying reality of
operational and cost efficiencies, which is a significant achievement in
view of its legacy constraints.
“One remaining legacy challenge, perhaps
understandably, is that the bank’s non-performing loans (NPL) ratio is
46 per cent. Even though the management has brought this ratio down to
this level from around 80 per cent at the time of the regulatory
intervention, it is evident that the work of the management of Polaris
Bank to clean up its inherited loan portfolio must continue until
NPLs are within acceptable benchmarks.
However given their success over the last three years in loan recovery,
collateral documentation and cleaning up the portfolio, they appear to
be on course to a successful portfolio repositioning,” they asserted.
The RTC Advisory analysts asserted
further that, “With the exception of its NPL ratio (which as we have
noted is understandable given its context and legacy challenges, Polaris
Bank’s ratios compare favourably with the leading Tier 1 and Tier 2
banks and are in virtually all cases better than industry averages. ROA
at 2 per cent is at par with Zenith Bank; ROE at 33 per cent is
competitive against all Tier 1 banks with the exception of GTBank; ROS
at 18 per cent ranks third behind only Zenith and GTBank benchmarked
against Tier 1 banks; and the bank’s Cost to Income ratio is as
mentioned earlier well within industry averages.”
Commendation
Overall, RTC advisory noted that these
results are commendable especially given the institutional, industry and
environmental contexts and when reviewed along with the strategic and
business transformation accomplished within the bank.
“As the bank’s CEO Mr. Tokunbo Abiru
explained in internal bank communication which we have reviewed, “…I am
confident to state that our bank has indeed stabilised and is now headed
towards our purpose which is to become a “Top Retail Bank” in Nigeria.
This was demonstrated by our collective and sustained performance
trajectory in 2019…our prudential ratios-capital adequacy and liquidity
ratios are now in full compliance with stipulated regulatory
requirements.
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