By Omoh Gabriel,Business Editor
Metropolitan Bank limited in the financial year 2003 recorded an appreciable positive performance. The bank’s total asset base grew by 51.67 per cent to N15.36 billion. The bank’s asset expansion resulted mainly from the bank’s investment in money market instruments such as the Nigeria Treasury bills which increased substantially by 102 per cent to N4.7 billion. The bank took a deliberate decision to invest in cash and short term funds in order to remain liquid. Consequently, the bank was able to grow its income above the 2002 level. The growth in the bank’s cash and short term funds is in line with trends in the industry where banks invest more in liquid assets in order to meet and surpass the demands of customers as at when necessary. During the period the bank grew its deposit base by 52.8 per cent. Metropolitan bank’s Loans and Advances also inched up during the year thus giving the bank more earnings by way of interest income. However, non performing loans increased in volume as well as in proportion so also was the needed provision which impacted negatively on gross income and profit margin. Fixed asset also grew by 63.2 per cent. The increase in the bank’s asset base empowered it to grow its business in 2003. The bank’s operations were however dampened by the decrease in net interest income which fell by 3.1 per cent.
Non interest income however experienced a leap rising by 108 per cent thus compensating for the drop in interest income. With improvement in revenue lines, the bank grew its net income to N2.929 billion in 2003. The bank’s cost of operation maintained its previous ratio of 91 per cent. The bank also saw interest expenses rising higher than the previous year’s thus constraining revenue generated by the bank and profit levels.
In the 2003 financial year, Metropolitan Bank‚Äôs interest expenses fell well below interest income thus resulting in a lower average cost per naira of deposit of 9 kobo as against the 12 kobo the bank paid the previous year. The bank earning per naira of deposit also dropped from the previous year’s record of 25.7 kobo to 14.2 kobo in 2003. As a result, net interest margin remained at the 2002 record of 8.3 in the 2003 financial year.
Further encroachment on earnings came from loan loss provisioning, which rose to N1.5926 billion in 2003 for which a total provision of N458.9 million was made. The rise in privisions was however, 48.3 per cent. This had a negative effect on the bank’s income as it constrained income and reduced profit margin.
Non-interest income, increased from N399.4 million record in 2002 to N832.2 million in 2003, a 108.3 per cent increase, thus enhancing gross revenue and profit figures. The bank credit quality improved in proportion as its non performing loans/total loans inched up from a ratio of 45.7 per cent in 2002 to 32.97 per cent in 2003. At 32.9 per cent the ratio is higher than the 20 per cent average industry level. Capital adequacy ratios decreased marginally with equity/total asset dropping to 9 per cent from about 11 per cent in 2002. The bank liquidity position was good at 58.5 per cent which was well above the regulatory benchmark of 40 per cent.
Interest margin
Interest cost during the financial year ended September 30, 2003, increased in volume just as interest income increased in higher proportion in volume but declined in proportion below interest cost elements. That gave a decrease in the average interest earned per naira of deposit liabilities outstanding from 25.7 kobo in 2002 to 14.2 kobo in 2003. Interest paid equally fell from 12.5 kobo in 2002 to 9 kobo in 2003. The spread in margin between interest earned and that paid by the bank gave the bank enough to post a modest profit as net interest margin remained at the previous year’s record of 8.3 per cent.
Profit margin inched up
The bank’s profit before tax rose marginally from N213.3 million in 2002 to N241.9 million in 2003. This is a 13.4 per cent increase in profitability. The bank’s operating expenses to total revenue moderated and remained at 91.6 per cent in 2002 as well as in 2003. However, loan loss provisioning for the year decreased in figure than the previous year’s. But provision for bad and doubtful loans stock increased in line with the general increase in loans and advances. Provision for the year stood at N458.9 million as against the N514.9 million made in 2002. The provision took toll on revenue and profit. The decrease in interest income combined with the high cost of doing business to reduce the rates of return in the year. Return on average assets dropped from 2.1 per cent in 2002 to 1.5 per cent in 2003. The figure is however below industry standard which stands at 4per cent. Return on average equity also declined from 19.5 per cent in 2002 to 17.5 per cent in 2003. This ratio is equally lower than industry average of 50 per cent. The decrease in return on equity was as a result of the growth in pre-profit which was slower than the growth in equity.
Revenue base
The bank’s gross revenue base during the year increased in proportion with the increases in revenue lines. Gross earnings, as a result, rose, thus pushing up the bank to an earning bracket of N2.929 billion in 2003 from N2.564 billion in 2002. Interest and discount income decelerated from N2.165 billion in 2002 to N2.097 billion in 2003. The decrease was 3.1 per cent. With that, the bank was unable to sustain its previous years growth rates in interest income as is the trend in the industry. Interest income from treasury operations had a moderate growth as the bank applied brakes in loans and advances.
Metropolitan gross earnings, therefore, rose by 14.2 per cent in the year.
Liquidity
During the year the bank embark on a deliberate policy of remaining liquid by investing in cash and near cash instruments. As a result the bank’s liquidity position remained strong and above the regulatory minimum of 40 per cent at the end of the year. The bank’s liquidity, which stood at 68.4 per cent in 2002, dropped to 58.5 per cent at the end of 2003. The bank, during the year, complied with the CBN minimum liquidity ratio of 40 per cent. During the 2003 financial year demand deposit accounted for 58.6 per cent of Metropolitan bank’s total deposit liabilities. Time deposit accounted for 18.6 per cent, while Savings was 2.3 per cent of total deposit. The low interest cost structure of the bank during the year is explained in the bank’s deposit portfolio which is skewed toward low cost bearing deposit. Equity/Total deposit ratio rose from dropped from 13.2 per cent in 2002 to 10.8 per cent in 2003. This showed that the bank’s equity base has been growing at much slower rate than its deposit liabilities which has risen considerably. In fact 90 per cent of the bank’s operation are financed with depositors money. Similarly, the bank’s equity/total assets recorded a further decrease from10.7 per cent in 2002 to 8.9 per cent in 2003.
The bank’s equity base, which stood at N1.09 billion in 2002, grew by 26.2 per cent to N1.380 billion. Share capital increased to N1.008 billion in 2003 from the N741.75 million record in 2002. Statutory Reserves increased tremendously from N176.9 million in 2002 to N238.6 million in 2003. This put the bank’s capital at the regulatory base of N1 billion.
High credit quality sustained
Metropolitan Bank Limited sustained its average credit quality standard. With marginal growth in classified assets, the percentage of classified loans against total loans stood at 32.9 per cent. The percentage of classified loans inched up in 2003 by 2.2 per cent. The bank’s loan quality is average. Reserve against loan losses increased from 50.4 per cent in 2002 to 61.2 per cent in 2003 which compares favourably with those of its peers and is within the industry average. During the year the bank wrote off N47.2 million. The amount written off helped to reduce non performing loans in the bank’s credit stock.
Management
The bank has seven members on its board of directors. Five of the board members including the chairman, Chief S. O. Bakare are non-executive, while the managing director, Mr. M.M Bakare and Mr. Opeyemi Agbaje are executive members of the board. The managing director is supported by a five man management team made up of tested bankers. The management of the bank is fairly stable, qualified and experienced.
The bank unlike most others in the industry during the year did not contravene any of the banking regulations and was therefore not subjected to the payment of any fine. This is a credit to the management of the bank. During the year the bank paid a dividend of N100.8 million to its share holders and reinvested the sum of N104.8 million
Outlook
Metropolitan Bank limited has a growing market share as shown by its asset expansion which is an indication of growth in all indices. The bank has emerged as a strong and viable financial institution that is determined to grow its business. In line with its expansion policies, the bank reinvested the sum of N104 million out of its 2003 profit. With N1.112 billion cash with CBN, the bank’s cash base has risen. It is, however, faced with the challenges of branch network development and deployment of staff and information technology as its focus in the incoming financial in order to bring its services to the doorsteps of existing and prospective customers. Its level of profitability is good but the bank need to improve on its credit quality. The cost to revenue ratio at 91.7 per cent is high and the bank must embark on cost cutting to free resources and improve its profitability.
