Afribank sustains investor confidence with rising profits
Category: Capital Market
Afribank continues to maintain a leadership position in the banking industry with the posting of its 1st quarter 2007 result. MADUKA NWEKE examines the strength that propels the bank.
The Afribank brand has continued to grow within the Nigerian banking industry. Arising from its seamless consolidation, the bank is already implementing a broad strategic plan that would help it emerge as a market leader in the African continent in the next five years.
Managing Director, Sebastian Adigwe, says Afribank has gradually recaptured most of the lost business through aggressive marketing, proactive management, market development and increased visibility.
Adigwe adds that the bank won the acquisition of Lead and Assurance banks through competitive bidding, and it signifies a demonstration of the confidence which the regulatory authorities ÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â€šÂ¬Ã…Â¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã¢â‚¬Â¦ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œ Central Bank of Nigeria, and the Nigeria Deposit Insurance Corporation (CBN/NDIC) have in Afribank. All branches of the acquired banks have been reopened as Afribank and all their customers absorbed.
He notes that the bank has continued to increase its presence and impact in the last few months through opening of more business offices. He explains: \"The market has also responded positively to the initiatives and they have started to impact positively on the performance of the bank. The bank now has 250 branches and is at advanced planning stage to have 300 branches by the end of year 2007.\"
To chart a new strategic direction and redefine its business focus, Afribank adopted a new vision in December 2006m which is:
\"To establish Afribank as a prominent financial institution in the commercial banking sector and the leading provider of investment banking services to retail customers.\"
To ensure a successful buy-in, this vision has been communicated to all stakeholders of the bank. The vision is capable of taking Afribank to the level stakeholdersÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¾ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ desire it to be. The bank assures that it would continue to operate within the ambit of the new vision.
Afribank has succeeded in growing its fundamentals as efforts of stakeholders yield positive results. It has overcome the initial challenges of consolidation and turned them into opportunities as shown in the performance indices.
The aggressive market development initiatives of the Afribank Group enabled it to record modest growth in its gross earnings which stood at N27.53 billion this year up 76.1 per cent from N15.63billion in 2006. Profit before exceptional item and taxation also rose 129.356 per cent to N9.13billion from N3.98billion in same period.
Business expansion activities made the bank gain more market share in the year. Total Deposits and other Accounts grew 54.82percent from N91.89billion to N142.27 billion, while Total Assets and Contingent Liabilities increased 40.1 per cent from N158.89billion to N217.4billion. For shareholders of Afribank Nigeria Plc shareholders, 2007 can be described as the best in recent times.
Earnings and Profit
Gross earnings rose 68 per cent over the 2006 level, which was 17 per cent higher than the level in 2005. Commissions and fees constituted a greater percentage of earnings in 2007 and indication that the bank relied less on risk assets in building its income base this year. It also explains why the net interest earnings ratio declined from 75 percent in 2006 to 68 percent in 2007. The bank has diversified its earnings base.
Afribank has also done well in the efficiency of using resources to generate earnings for shareholders. Return on Average Assets increased from 8 percent in 2006 to 9 percent in 2007, while Return on Average Equity at 2 percent in 2005 increased to 13 percent in 2007. This is a significant improvement. It means thatevery N1 the bank spent in the period under review was more productive and explainswas whyearnings per share rose to an all time high of 68 Kobo per share in 2007 from just 5 Kobo in 2005.
Staff productivity improved considerably in 2007. In 2006, one Afribank staff generated an average income of N4.9million. The figure rose markedly by 81.63percent to N8.9 Million in 2007. During the period, management increased the motivation of staff with more pay and skills training. In the same manner, staff on the average accounted for N1.3 million profit after tax in 2007 up from N0.8 million in 2006. These improvements are for the benefit of shareholders who the directors decided to reward handsomely with a cash dividend of 30k per share and bonus of 1 share for every 5 shares.
From the figures made available to us, Afribanks Asset Quality is another area it recorded its best performance in recent years. The prudent measures adopted helped to improve asset quality.The proportion of loan facilities classified as non-performing in accordance with prudential guidelines, declined remarkably from 24 percent in 2006 to 16 percent in 2007. This also underlines an improving trend in risk asset management whose figure declined from a high of 32 percent in 2005, just as profit is improving.The ratio of provisions to risk assets also declined from 21percent in 2006 to 14 percent in 2007
As a result of its strategic expansion, Risk Weighted Assets Ratio declined from 39 percent in 2006 to 24percent in 2007.This level is still very comfortable (minimum is 10percent). It means that there is enough headroom for the bank to expand its risks assets. However competition makes it imperative for it to capitalize further, accelerate the pursuit of its strategy and reclaim the leadership position target set by management. The BankÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¾ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢s Tier 1 to Net Loan is 38 percent while its Tier 1 to Deposit Liabilities is 18percent. These figures are alright and comfortable.
The bankÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¾ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢s liquidity is within regulatory comfort level. Adjusted Liquidity Ratio is 55 percent for 2007 while its Ratio of Liquid Assets to Total Assets is 47percent. These levels are still comfortable and indicate that the bankÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¾ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢s liquid assets can comfortably meet its obligations to customers.
The strategy of expansion and the desire to access the Capital Market for more funds is welcomed by investors.
With its large size, the bank benefits from the law of average numbers. As an old generation bank, the structure of its assets is more stable and with itsdynamic management, the Afribank is a financial institution investors look out for.
As promised in 2006 and in line with its dividend policy, N1.53billion is being proposed as dividend for 2007. This translates to 30 kobo per share. The Board is also proposing a bonus of one share for every five held. \"We believe that shareholders should grow along with the bank and share in its fortunes. We also appreciate the understanding shareholders have demonstrated in the last few years. We assure you that the good times are back and can only continue to get better. The interests of the shareholders will be adequately protected,\" says the Board
Afribank introduced innovative products to the banking public this year to meet changing needs of customers and expand operations. Some of theseare: Cheque Purchase Facility, Afribank Mobile Banking, Share Purchase Loan, e-service and Advance payment Guarantee.The bank also secured mandates form private and public institutions for business relationships. The Central Bank of Nigeria appointed it as a Primary Dealer in Federal Government Bonds while the Nigeria Immigration Service also appointed it for e-payment services. The bank has made significant improvements in relations with several state governments, parastatals and private institutions. The approach is to proactively meet the needs of the banking public.
New Branch Outlook
The bank is improving the internal and external aesthetics of its branches.This has improved its corporate image and acceptance of the Afribank franchise. The branches are now more business friendly and attractive, and management is determined to keep it up and remain competitive in all ramifications.
The Afribank Group
Afribank continues to leverage on its diversified structure. The subsidiaries have been restructured and empowered to be market leaders in their respective sectors. Group turnover increased from N15.6 billion in 2006 to N27.53 billion . The contribution of subsidiaries to gross income increased from N0.99 billion in 2006 to N2.87 billion in 2007 while their contribution to profit before tax increased from N0.28 billion to N2.2 billion.
The subsidiaries have become more focused and responsive to market demands. They are now more than ever before positioned to help the Afribank Group realise its business objectives.
Operations during the year attracted recognition locally and abroad. The bank received the Industrial Deal of the Year Award presented by Project Finance International, UK for its participation in loan syndication for the United Cement Company, Nigeria. It also won the Corporate Excellence Award in Education from the PostGraduateSchool (Banking & Finance Programme), University of Ibadan, and an Award for Excellence for Sports Development from the Grassroots Sports Federation of Nigeria. The Sokoto and Enugu CBN Zonal Offices also presented Best Clearing House Awards to Afribank in the Year. - Businessday
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