By Omoh Gabriel, Business Editor
FOR Oceanic Bank Plc, 2006 was indeed a year of encomiums and awards. In virtually every aspect of its operations, several bodies and institutions conferred the bank with recognition for excellence in performance. From the ‚ÄúBank of the Year in Nigeria‚Äù, conferred by the Banker, Financial times of London, Best Bank under Small and Medium Enterprises Equity Investment Scheme (SMEEIS) awarded by the Central Bank of Nigeria to Lagos Clearing House Award, it was a harvest of accolades all the way. As if these were not enough, the Bank‚Äôs Managing Director and Chief Executive Officer, Mrs. Cecilia Ibru also got her fair share of recognition both from within and outside the country.
As if to confirm the objective justification of these awards, the Bank‚Äôs stock received generous reward by the Capital Market by way of substantial price runs during the review period and accordingly, witnessed capital appreciation of more than 100 per cent.
It is therefore, clear that the Bank created real value for different stakeholders for which these awards were earned. The small-scale entrepreneurs shared tremendously from this value. Under the Small and Medium Enterprises Equity Investment Scheme, Oceanic Bank had by 2005 spent a total of N1.21 billion in 21 qualifying projects and this increased to N1.92 billion in 27 projects in 2006. One good thing about the Bank‚Äôs record in this area is that projects financed spanned areas of agriculture, telecommunications, services, food and beverages, tourism, printing and publishing.
Apart from this, the bank‚Äôs customers enjoyed an array of innovative products and services. As a way of ensuring a match between cash flow and requirements for a wide range of salaried workers and middle-class, it introduced the Pay Advance Salary (PASS) into the market. Records show wide acceptance of this product and encouraged the Bank to fast-track the introduction of other financial solutions. It accordingly introduced the Easy-Save Account, Vintage Fund, Oceanic Credit Card and numerous Automated Teller Machines as additions to a rich profile of innovative products and services that exist. The others include Oceanic Safebox, Premium Thrift Account, Quality Education Plan, Pearl Account, Quality Life Scheme and Executive Savings Account.
The Bank is also a key franchisee of the Western Union Money Transfer Service with one of the largest points of collection nationwide. Oceanic Bank is perhaps one of the banks that have recognised extensive network of branches as a veritable route to a fast-paced organic growth. For the records, it opened the highest number of branches during the review period. From 81 branch outlets in 2005, the Bank opened as many as 83 branches in 2006 alone bringing the total to 164. There also existed some 24 mini-electronic banking facilities located in such a way as to complement these branches. And yet the bank remains positive and ambitious in its strategic retail network expansion plans as it hopes to have as many as 300 branches by September 30, 2007. There are plans to pursue this aggressive expansion drive beyond the shores of Nigeria.
Not surprisingly, this massive expansion in branch network has come with remarkable increase in the number of personnel thereby complementing the wider economy in the area of employment generation. From average 1,507 in the Bank‚Äôs employment in 2005, personnel increased to 2,275 in 2006.
Interestingly during the year, a total of 737 fresh graduates and 543 experienced hands joined the bank just as 1,344 benefited from different training programmes organised during the year.
Within the last two years, there arose the felt need to expand the company‚Äôs core business by inorganic means and non-core business through the establishment of subsidiaries.
Taking advantage of the recent consolidation exercise in the industry, it acquired the erstwhile International Trust Bank. This business combination helped put the Bank in an advantaged position to compete effectively in the market.
As a way of enhancing its capacity to deliver one-stop financial solution to a wider clientele based, the Bank established a number of subsidiaries to operate in the Trusteeship, stock brokerage, shares registration and insurance markets.
In the next few months, it intends to effectively enter the Asset Management, Custodianship, Development Finance and Housing Loan Markets through subsidiaries after successfully rendering some of such services internally for some time.
These are inherent parts of the Bank‚Äôs overall strategy for growth and such organic and inorganic strategies are still on the cards for the next phase.
Perhaps, one area the market had to, at the time, raise anxiety on the sustainability of the Bank‚Äôs value-creation chain for shareholders, is the area of corporate governance arising largely from the nature of Board-Management linkages. It is widely believed in the theory and best practices of Corporate Governance that where biological links dominate Board/Management relationships, there is bound to be a breakdown in the responsibility-accountability chain and hence sustainability of value.
But Oceanic Bank had since adopted core values defined around Transparency, Equal Opportunity, Accountability, Merit and Service Excellence (TEAMS). This drives the Bank‚Äôs Corporate Governance practice with an express commitment of the Bank to fully comply with the new CBN‚Äôs ‚Äúcode of Corporate Governance for Banks in Nigeria Post-Consolidation‚Äù before the next Annual General Meeting.
Nonetheless, the Bank has since established four Board Committees and eight Management Committees through which best practices are implemented in management of the Bank.
EARNINGS AND PROFITABILITY
As mentioned earlier, 2006 was a significant one for Oceanic Bank Plc in practically all areas of performance measurement. Growth in business size was remarkable as total assets grew from N218 billion in 2005 to N372 billion, fifth in the Nigerian banking industry. This growth in asset base naturally gave the impetus to grow gross earning from N24 billion to N44 billion, another fifth in the industry, arising largely from increase and improved management of risk assets. This improvement eclipsed a marginal decline in income from marketable securities and modest increases in fees and other non-interest income to produce an earnings efficiency level that is superior to that of the preceding year, thereby reversing a decline that seemed to set in by 2005. Our Analysis rated the efficiency level at 24 per cent, up from 22 per cent in 2005 and this was even made more significant by the massive increase in asset base recorded in 2006.
But notwithstanding about 106 per cent increase in interest income, net interest margin declined from 66 per cent in 2005 to 57 per cent as a result of equally substantial increase in cost of funds. Overall expenses efficiency declined, by our Analysts‚Äô proxy, from 30 per cent to 26 per cent arising largely from the above.
However, in deference to the massive rise in interest earnings, Profit After Tax rose absolutely from N5.9 billion to N9.6 billion which still assured for the Bank’s 5th position in the industry. Though this translated to a marginal decline in return on average equity from 32 per cent to 31 per cent, earnings per share, however, increased remarkably from 63 kobo to 103 kobo.
In consolidation of this impressive performance, shareholders are soon to be paid cash dividend of 42 kobo per share against 32 kobo they received in 2005. This is in addition to a bonus dividend of one in every four previously held by them. As a result, the shareholders are certainly revelling in one of their best moments in the stock market.
CAPITAL BASE AND SAFETY
It is a known fact that virtually all banks in the industry were regulatorily induced to firm up capital base to be in a position to safely expand frontiers of services offerings both locally and internationally. In response to this, the Bank had, before the review period, gone to the market to raise new funds to meet this requirement in addition to the acquisition of the operations of International Trust Bank. Accordingly, shareholders‚Äô fund increased from N10.4 billion to N31.1 billion in 2005. This further increased to N37.7 billion at the end of September, 2006 arising from retention of about N5.6 billion profit as reserves.
It is, however, interesting that though volume of core capital base is about the fifth in the industry and the highest attained by the Bank so far, it translates to its lowest in terms of risk asset coverage in the last four years.
As a proportion of estimated risk assets weighted according to pre-determined standard of default risk, the Bank‚Äôs core capital accounted for 17 per cent. Compared to traditional standard expectation of 10 per cent, the capital base provided appreciable level of comfort and safety margin to inspire confidence in its relationship with its counter parties.
But it is to be noted that massive expansion of business, and more especially risk assets, led to a decline in this critical measure from 23 per cent in 2005. It was 21 per cent in 2004 and as high as 26 per cent in 2003. Other measures relating to one capital to net loans and deposit liabilities also moved in similar direction suggesting that current capital base may not just be able to withstand the pace of growth witnessed in 2006 for long without compromising on the level of comfort implied to stakeholders.
Already, the Bank has in place, strategic plans to move to a capital base equivalent of $1.0 billion in the near future and this is expected to make current pace of growth sustainable in a long while. Meanwhile, the Bank‚Äôs authorised share capital is being adjusted already to accommodate the new moves.
Experience has shown that long-run sustainability of operations of banks lies not so much on absolute measures of performance but more on quality of operational indices.
A look at the Bank‚Äôs product range reveals its attraction to the word ‚Äúquality‚Äù just as it has made conscious efforts to enable this permeate all areas of operation.
One key result area here is the loan asset. In order to generate high earnings, the Bank recorded massive expansion in loans and this paid off. In the process, managers of the Bank did not compromise quality based on reported figures. Hence, notwithstanding this rapid growth, non-performing loans ratio declined to four per cent in 2006 from five recorded by end of the preceding financial year.
In other words, one by one in an average of 25 facilities was classified as non-performing as against one in 20 in 2005.
Industry average in the period preceding the new era was 22 per cent although Analysts contend this must have improved to a level between 15 per cent and 20 per cent presently.
Another key result area in quality measurement is liquidity or capability to meet obligations on a continuing basis. Again all the proxies used in the data base of P.A. Data & Management Services suggested that quality for the Bank improved in 2006 in this result area.
For instance, proportion of cash and short term assets to total asset portfolio increased from 60 per cent to 64 per cent, just as liquidity ratio adjusted for vulnerability in liabilities increased from 55 per cent to 59 per cent. The implication is that though deposit liabilities virtually doubled from N167 billion to N310 billion, the report suggested that the Bank demonstrated higher capacity to meet customers/regulators‚Äô expectations in 2006 than in 2005. This perhaps has contributed to burgeoning customers’ confidence which is considered essential to sustain the Bank‚Äôs rapid business expansion.