By Omoh Gabriel, Business Editor
Afribank is one of the survivors of the con-solidation exercise in the banking industry. The bank having merged its operation with its affiliate bank, Afribank International Merchant Bankers is forging ahead with great strides. The bank as a result of the consolidation exercise formally took over assets of the former Lead Bank and Assurance Bank. The take-over followed the announcement of the Bank as the winner of the bid for the assets of the two former banks by the Central Bank of Nigeria (CBN) under a Purchase & Assumption transaction (P & A). The acquisition of the former banks was one of the key initiatives to competitively position Afribank in the industry. Accounts of the former depositors of the banks are being integrated into the operations of Afribank.
The financial Accounts released by the bank for the year ended March 2006 have proven beyond doubt that the 46 year-old bank is on the right track to the top. The fundamentals of the Accounts showed that the business strategies and market re-engineering initiatives of the Bank deployed as part of its consolidation plan delivered on its promises.
Despite the challenges that faced the banking industry, Afribank not only grew its fundamental indices, it also showed robust prospects to deliver superior returns and retain its legacy as an enduring financial institution. The Bank reaped from its strategic re-positioning and succeeded in growing vital performance indices.
The Bank‚Äôs Balance Sheet recorded a significant improvement in the year as it rose to N131.27billion from N95.75 billion in the corresponding period in the previous year, representing an increase of 37 per cent. Deposits and other Accounts grew by 53.93 per cent from N61.60 billion in the previous year to N94.82 billion in 2006.
EARNINGS AND PROFITABILITY
The Gross Earnings of the bank rose from N12.49 billion to N14.65. The Bank posted N3.70 billion Profit Before Exceptional Item and Taxation as against N530.50 million in the previous year, representing a huge 596.4 per cent increase. The sharp rise in PBT was largely made possible by efficient use of assets and cost effectiveness in the operations of the bank. Net interest earning ratio grew to 75 per cent from 72 per cent. This shows that the bank‚Äôs risk asset managers were relatively more efficient in 2006. Non-performing loans was 24 per cent declining from 32 per cent. Interest earnings accounted for about 71 per cent. This strategy impacted positively on the bank‚Äôs bottom line because of the efficiency in the Bank‚Äôs management of its risk assets. Earnings per share increased substantially from 5 Kobo in 2005 to 52 Kobo in 2006, the best in the last 4 years. This underlies the quantum leap in performance.
With adjusted cash ratio of 48 per cent in 2006 against 37 per cent in 2005, the bank‚Äôs liquidity ratio is impressive. The adjusted liquidity ratio increased marginally from 22 per cent to 23 per cent. The implication of the adjusted liquidity ratio is that the bank‚Äôs specified liquid assets cover almost 73 per cent of volatile deposit liabilities. Those specified liquid assets are cash and related items, deposits with banks, operating balances with CBN, treasury bills, etc. At this level, it is adequate and over and above the specified liquidity ratio of 40 per cent. With this high level of liquidity, the Bank‚Äôs dependency on inter-bank dropped from 4 per cent in 2005 to 3 per cent in 2006.
The bank maintained a very good safety margin in its capital adequacy measures in 2006. Risk weighted assets ratio in 2006 was 39 per cent. The implication is that the bank can prudently expand its risk asset base by more than 3 ¬Ω times without compromising the safety of counter parties. However, the level this year was below last year‚Äôs 47 per cent. This was because part of the bank‚Äôs safety net was used up to increase risk assets, which generated more profit for the bank.
The Bank‚Äôs shareholders‚Äô funds moved up from N21 billion in 2005 to N27.059 billion. Tier one capital to net loan was 68 per cent in 2006 while tier one capital to deposit liabilities was 25 per cent in 2006. These are comfortable figures. The minimum tier one to net loan is 10 per cent. This shows that the bank‚Äôs capital base (Using the conventional measures) is comfortable. However, with increasing competition in the market, the bank needs to source for more funds.
Staff productivity in the bank rose considerably. On the average, in terms of Gross Earnings, a staff accounted for N4.15 million in 2005. This figure increased to N4.9 million in 2006. Net productivity also increased from N85,000.00 to N831,000.00. The bank made considerable impact in the level of efficiency in the management of its expenses. Managerial Efficiency in the area of expenses increased from a measure of 2 per cent in 2005 to 25 per cent in 2006. Remarkable improvement in the management of the Bank‚Äôs cost of fund led to increase in its net interest earnings. The Bank also recorded remarkable improvement in the management of its administrative expenses. Success in both areas made the expense efficiency ratio to increase significantly from 2 per cent to 25 per cent.
To grow its presence in the specialised financial services sector, Afribank has put up elaborate plan to establish more subsidiaries in addition to the existing ones. The Bank recently established Afribank Capital Markets to handle capital market operations. The establishment of the new subsidiary was consistent with the bank’s overall objective of creating a one-stop financial institution. The company has effectively taken off and would leverage on business opportunities in investment banking. This development would free Afribank to concentrate on its core businesses. Afribank Registrar‚Äôs Department was recently upgraded to a full-fledged subsidiary under the name ‚Äî Afribank Registrar‚Äôs Limited. The Company is adequately equipped to handle big registrar services. It is already working for many big quoted companies.
Afribank remains a major player in the industry. To achieve this, the Bank is putting finishing touches to plans that will see it increase its capital base to a competitive level. It intends to access capital market as part of its long-term plan to boost its capital base from its present position to N100 billion.
The Bank has initiated several strategic moves to make the Bank a frontline financial institution locally and globally in the post consolidation era. The measures being employed are geared toward building profit capacity in the medium to long term, increasing clientele base, increasing investment in strategic sectors, improving efficiency, diversification of operations, empowerment of staff, streamlining and restructuring of operations among others. The desire is to make Afribank a topmost financial institution in all the essential indices.
Building Profit Capacity In The Medium To Long Term
Afribank investments in major sectors are geared towards keying in into such businesses and redirecting the flow of patronage to Afribank on a fairly long-term basis. The Bank‚Äôs strategic investment in African Petroleum Plc has positioned it for emerging opportunities in the energy sector and enables it to reap the huge collateral benefits of opening of LCs, cash collections and a host of other businesses offered by the investment.
Afribank has entered into strategic alliance with Mr. Biggs. To date, it has financed 30 outlets and all cash evacuation is handled by Afribank so are all other attendant businesses.The Bank has acquired the private sector deposits of Lead Bank and Assurance Bank. This immediately beefs up the bank‚Äôs deposit base and asset base. Also, through this strategy, all the 35 branches of Lead and Assurance banks have automatically become Afribank branches. Out of the 35, 27 branches have been delivered to Afribank. Apart from this, the bank will in the near future open 49 new branches. This will bring total branch network to 251.
Afribank‚Äôs aim is to enlarge its market share with unique market penetration strategies with clear emphasis on areas the Bank has comparative advantages. The move is to increase the worth of the brand and retain a decent market share.
The bank’s strategies are perfect brand roll out, speed to market, cost efficiency, accelerating service delivery time by 100 per cent, total customer relationship management with 24-hour access and control, total quality assurance, and comprehensiveness of IT. From day one, all the bank’s new branches will be linked on-line real-time.
Afribank recently engaged in information technology system upgrade to increase the Bank‚Äôs stake in e-banking business. The bank intends to drive its post-consolidation era with its state-of-the-art banking application, which will enable it serve the needs of its growing local and global clientele. The Bank has deployed Automated Teller Machine (ATM), Africash, strategic branches and centres in major cities.
The Bank also took advantage of the liberalization of the foreign exchange policy of CBN. The Bank now offers Bureau De Change services in most of its branches nationwide. This has increased the bank’s capacity in the foreign exchange business. All these are aimed at enhancing shareholders value.
Afribank entered into a business relationship with Industrial and Commercial Bank of China to facilitate international payments and trade services between the two countries. The partnership was initiated to eliminate bottlenecks and problems associated with current means of payment, settlement for international businesses and remittance between customers in Nigeria and Asian countries.The alliance has positioned Afribank to offer specialized services to the Chinese Community in Nigeria and Nigerians doing businesses in China. The United Nations Development (UNDP) early this year appointed Afribank as a sole paying institution for the Population Census nationwide. The Bank satisfactorily executed the national assignment to the admiration of the local and international communities.