By Omoh Gabriel
Chartered bank‚Äôs operation moderated in the financial year 2004 as almost all its financial indicators grew by a moderate per centage point. In the year the bank grew its balance sheet. Total asset of the bank expanded by 23.1 per cent thus increasing the bank‚Äôs market share in the banking industry in Nigeria. The growth in asset base of the bank was spurred by the growth in cash and shorterm funds which expanded by 22 per cent. Also loans and advances rose by 23.9 per cent thus expanding the asset base of the bank. The growth in loans and advances did not keep pace with the decline in interest income. This resulted in the drop in interest income per average naira loans given out by the bank. As a result net interest margin increased marginally leading to a drop in pre-tax profit margin. The bank liquidity position remain good and asset quality maintained the previous year high quality.
The bank‚Äôs loans are princpally to the manufacturing sector, commerce-import, export and domestic trade. During the twelve months ended 31st March 2004, the baqnk‚Äôs loans portfolio grew by 23 per cent to N23.6 billion. The level of non performing to total loans reduced significantly to 4.1 per cent to a record of one of the best in the industry. This compares favourably to that of banks with the best asset quality in the industry. Therefor the level of non performing to total loans is lower than industry average of 20 per cent. During the period under review, the bank wrote off bad loans to the tune of 116 million, which contributed to the reduction in the level of non performing loans. Also it made loan recoveries of N2.5 million which boosted profit figures.
Cumulative provision for non performing loans stood at 96.1 per cent, a decline from the previous year figure of 113 per cent. This however compares favourably with that of its peers , better than the industry average of 84 per cent. The bank‚Äôs level of non performing loans is low though the bank has made adequate provisions for it.
During the financial year ended 31st March 2004, Chartered bank‚Äôs net earnings amounted to N5.134 billion an increase of 11.7 per cent. Net revenue from funds accounted for 69.8 per cent of net earnings, while commissions accounted for 18.3 per cent and foreign exchange income was 2.8 per cent, Fees and other income represented 10.2 per cent of the bank net income.
During the period under review, the ratio of operating expenses to net income remained high at 77 per cent. Though this ratio is in line that of its peers. It is slightly higher than industry average of 70 per cent. The banks attribute the high cost to income ratio to the high cost of doing business in Nigeria.
In the period under review, the Bank‚Äôs pre tax return on average asset was 4.2 per cent, while its pre tax return on average equity was 45 per cent. The pre-tax return on average asset is within the industry average of 4 per cent but its pre-tax return on average equity is below the industry average of 50 per cent. The bank‚Äôs profitability requires some measure of improvement.
As at 31st March 2004, Chartered bank had a equity base of N5.07 billion, making it one of the medium sized banks in the country, on the basis shareholders‚Äô fund. The bank as at 31st March 2004 had a N2.0 billion as called up capital and N2.1 billion as statutory reserve while general reserve amounted to N275.9 million. This is far from the new minimum equity base requirement for Nigeria banks in 2005. The bank however is optimistic that it will play a leading role mergers and acquisition talks prompted by the CBN N25 billion minimum equity base requirement for banks. The believes that merger and acquisition will work in its for as a result of public perception, professionalism, managerial competence, and solid performance trend it has recorded these years.
The bank‚Äôs adjusted capital to risk weighted assets ratio at 9.2 per cent is above the industry average and in line with that of its peers. The adjusted capital to total loans at 21.4 per cent is twice the regulatory minimum of 10 per cent. The bank has satisfied all regulatory requirements for capital adequacy. The bank‚Äôs capital base can be said to be strong.
Liquidity and liability generation
As at 31st March 2004, the bank had a local currency deposit base of N37.3 billion, making it one of the growing banks in the Nigerian banking industry as at that date. The bank contorlled about 3 per cent of the industry‚Äôs local currency deposits. The bank‚Äôs growing deposit base is attributable to its age, expanding branch network and reputation.
As at 31st March 2004, Chartered bank‚Äôs demand deposits accounted for 41 per cent of total deposits, savings :6.8 per cent and time deposits:38.2 per cent. This translated to a weighted average cost of funds of 6.2 per cent which compares favourably with those of its peers.
As at 31st March 2004, the bank‚Äôs liquidity ratio was 73.2 per cent, above the regulatory requirement of 40 per cent. The bank‚Äôs loan to deposits ratio remained high at 63.3 per cent , compared to the regulatory maximum of 55 per cent.
Trade reputation checks on the bank confirms that the bank has overwhelming capacity to refinance and market perception is very good. The bank‚Äôs liquidity is very good.
Ownership and management
The bank has only one major, First Century International Limited holding more than 10 per cent of the bank‚Äôs share. Its shares are listed on the Nigeria stock Exchange and the bank has about 14,986 shareholders holding a total of 4 billion shares of 50 kobo each. Its board of directors comprises seven persons who control only 35.2 per ncent of the bank‚Äôs equity. Two directors are executive including the managing director Mr. M. O. Adedoyin, while five others including the chairman Lt. General M. I. Wushishi (rtd) are non executive.
The management of the bank has been stable and consists mainly of persons who have had their the majority of their carrier in other banks.
During the period under review, the staff strength of the bank increased by 15.8 percent to 678 persons. This is as a result of of the early expansion exercise the bank carried out during the period. Staff productivity as measured by net earnings per staff was N7.5 million, which is above the banking industry average of N5 million. Average cost per staff amounted to N1.8, which is lower than the industry average of N2.5 million. The bank should improve on staff cost in order to attract some of the best personnel in the industry. The management of the bank is competent, qualified and experienced, and the performance of the bank is at par with that of its peers.
The bank has a growing position in the Nigeria banking industry. During the twelve months ended 31st March 2004, its asset base increased by 23 per cent to N54.7 billion. This translated to an increase in market share of all key indices, The bank market position is very good.
Strength and weakness
The bank has strength in, good liquidity, strong market position, growing branch network, good management. The bank‚Äôs major weakness is weak earnings, weak capital base,and high cost of operation and high loan to deposit ratio. The bank during the year was penalised by the CBN for contravening banking rules for which it paid N3.6 million.
In the next one year the bank major focus is how to raise the CBN mandatory minimum equity base of N25 billion for banks in the county. The bank board chairman said that the bank is very confident and optimistic that the colossal changings on minimum share capital for banks which has prompted a wave of mergers and acquisition talks will work in favour of the bank considering the bank‚Äôs strong financials. The wave of consolidation going on in the industry will for the next few years command the attention of the bank. How the bank shape up for the competition that will follow will remain a challenge to the management of the bank.