By Omoh Gabriel Business Editor
During the twelve months ended 31st march 2001, the bank’s loans portfolio grew by 17 per cent to N42.3 billion. The level of non performing to total loans reduced significantly to 20 per cent. This compares favourably to that of its peers. However the level of non performing to total loans is still higher than industry average of 20 per cent. During the period under review, the bank wrote off bad loans to the tune of N2.7 billion, which contributed to the reduction in the level of non performing loans.
Cumulative provision for non performing loans stood at 88 per cent, which compares favourably with that of its peers , better than the industry average of 84 per cent. The level of non performing loans is high though the bank has made adequate provisions for its non performing loans.
Earning
During the financial year ended 31st March 2004, net earnings amounted to N24.4 billion. Net revenue from funds a
ccounted for 62 per cent of net earnings, while commissions accounted for 28 per cent and foreign exchange income was 3 per cent, Fees and other income represented 7 per cent of the bank net income.
During the period under review, the ratio of operating expenses to net income remained high at 71 per cent. Though this ratio is in line that of its peers. It is significantly higher than industry average of 70 per cent. The banks attribute the high cost to income ratio to the large number of unprofitable rural branches they keep.
In the period under review, the Bank’s pre tax return on average asset was 2.3 per cent, while its pre tax return on average equity was 44 per cent. These ratios are both lower than the industry average of 4 per cent and 50 per cent respectively.
The bank’s profitability requires improvement.
Capital Adequacy.
As at 31st March 2004, the bank had a capital base of N12.3 billion, making it the second largest bank in the country, on the basis of first tie one capital. The bank recently concluded rights issue of this issue was fully subscribed , and is expected to amount to an increase of 14 billion naira to the bank’s shareholders fund. this will make the bank the most capitalised bank in Nigeria. The fund will be invested in information tecnology, utilised in refurbishing and mordenising branches and provide additional working ncapital for the bank.
The bank’s adjusted capital to risk weighted assets ratio at 16 per cent is above the industry average and in line with that of its peers. The adjusted capital tototal loans at 31 per cent is three times the regulatory minimum of 10 per cent. The bank has satisfied all regulatory requirements for capital adequacy. The bank’s capital base is strong.
Liquidity and liability generation
As at 31st March 2004, the bank had a local currency deposit base of N141 billion, making it the largest in Nigeria banking industry as at that date. The bank contorlled 13 per cent of the industry’s local currency deposits. The bank’s huge deposit base is attributable to its age, wide branch network and reputation.
As at 31st March 2004,demand deposits accounted for 37 per cent of total deposits, savings :33 per cent and time deposits:30 per cent. This translated to a weighted average cost of funds of 5 per cent which compares favourably with those of its peers.
As at 31st March 2004, the bank’s liquidity ratio was 43 per cent, above the regulatory requirement of 40 per cent. The bank’s loan to deposits ratio remained low at 27 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’s liquidity is very good.
Ownership and management
The bank has no major shareholders as no shareholder has up to 5 per cent holding. Its shares are listed on the Nigeria stock Exchange and the bank has about 191,670 shareholders. Its board of directors comprises fifteen persons who control only 0.71 per ncent of the bank’s equity. Six directors are executive including the managing director, while nine including the chairman 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 with the bank.
During the period under review, the staff strength of the bank declined by 15 percent to 7,496 persons. This is as a result of of the early retirement exercise the bank carried out during the period. Staff productivity as measured by net earnings per staff was N2.1 million, which is below the banking industry average of N3.5 million Average cost per staff amounted to N667,000, which is lower than the industry average of N813,000. 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.
Market position
The bank has a dominant position in the Nigeria banking industry. During the twelve months ended 31st March 2004, its asset base increased by 41 per cent to N250 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, strong capital, good liquidity, strong market position, wide branch network, good management. The bank’s major weakness is weak earnings, improved but high level of non performing loans.
Outlook
In 1999, the bank commenced a rengineering exercise tagged “Stallion 2000 project”. This exercise involves a huge investment in information technology, and the bank has installed a new software flexcube. Currently about twenty srategic branches are on line and the bank plans to connet a total of 72 branches at the first phase. The bank is also refurbishing its branches with a view to improving service delivery. It plans to install about 100 automated teller machines at strategic branches and off site location by 31st December 2004, in addition to six already in use.
While these initiatives will consolidate the bank’s position in the industry, its average staff cost is lower than both the industry average and that of its peers. Improving the quality of its personel will remain a key challenge for the bank.
