Polaris Bank FY2020 Audited Results: Marginal Asset Growth Greets Falling Borrowing Costs


Thursday, April 29, 2021, / 6:00 PM /By Adaeze Nwachukwu, Proshare Research / Header Image Credit: Polaris bank

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Polaris bank's FY2020 audited result showed its performance was hit by the impact of COVID-19, however, the banking segment of the group revealed a rise in the top and bottom-line earnings.

Related Link: Polaris Bank 2020 Annual Financial Statement  


Key Highlights

  • Gross earnings down by -14.28% to N129.32bn from N150.85bn in 2019
  • Profit before tax declined Y-o-Y by -18.76% to N22.21bn in 2020 from N27.34bn in 2019.
  • Loan impairment charges improved Y-o-Y, declining by -67.10% to N9.06bn in 2020 from N14.13bn in 2019.
  • Total assets grew marginally by +3.25% to N1.19trn from N1.16trn in 2019.
  • Customer deposits grew by +6.58% to N914.32bn from N857.89bn in 2019
  • Loans and advances to customers up by +8.50% to N204.78bn in 2020 from N188.74bn in 2019
  • Borrowings from local and foreign institutions declined Y-o-Y by -11.42% to N89.39bn in 2020 from N100.92bn in 2019.
  • Total equity up Y-o-Y by +15.07% to N99.99bn from N86.89bn in 2019.
  • The cost-to-income ratio rose to 62% in 2020 from 59% in 2019.
  • The liquidity ratio fell significantly by -44.44% to 45% in 2020 from 81% in 2019.

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Profitability-A Drip Drop

The latest audited result released by the group showed that gross earnings fell by -14.28% Y-o-Y from N150.85bn in 2019 to N129.31bn.


Analysts note that the last audited result of the erstwhile Skye Bank (its predecessor) showed gross earnings of N163.88bn in 2015 which was -21.10% lower than Polaris Bank's 2020 number, a possible sign that the institution was heading in a new and more sustainable direction.


The bank's 2020 fall in net interest and non-interest incomes has been attributed to a drop in the bank's gross earnings. Net interest income fell by -2.77%, net fee and commission income slipped by -33.99% while net trading and foreign exchange income tumbled by a heavy -146.63%. Nevertheless, the 'net interest income grew by +67.67% between 2015 and 2020.


The group's impairment charge recorded a steady improvement between 2015 (as Skye Bank) and 2020 two years after the legacy Polaris Bank was set up by the Central Bank of Nigeria (CBN). Loan impairment charges went down by -67.10% in 2020 and improved (fell) by -35.86% from N14.13bn in 2019 to N9.06bn in 2020 (see table 1 below).


Table 1: Polaris Bank Top-Line Earnings 2015 - 2020

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Profit Before Tax; A Point of Temporary Pain

The COVID-19 did a number on the profit before tax (PBT) of Polaris Bank in 2020. The bank's result showed a significant rebound in PBT between its inception in 2018 and 2019.


In 2020, PBT for the group slumped by -18.76% Y-o-Y from N27.34bn in 2019 to N22.21bn. However, profit after tax recorded a +7.02% increase in 2020 from N26.29bn in 2019 to N28.14bn. This was on the back of N6.21bn in profit from discontinued operations as stated in the bank's financials (see chart 1 below).


Chart 1: Polaris Bank Profit Before Tax 2015 - 2020 (N'bn)

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Source: Polaris Bank Financial Statement, Proshare Research

2015*: Skye Bank Figures


Analysts have noted that in assessing the growth of the future earnings of Polaris Bank, its one-off earnings cash flow should be discarded. This would mean that the N6bn profit from the sale of the bank's discontinued operations should be removed from considerations concerning the bank's forward earnings. This would mean that the bank's adjusted profit before tax would be closer to N16bn than the recorded N22bn. 

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Asset Base; Flexing a Pole Vault

Polaris Bank's total assets grew by +3.25% in 2020 from N1.16trn in 2019 to N1.94trn in 2020. The total asset of the bank was below the N1.20trn recorded in 2015 when the bank still bore the name Skye Bank (this was before the CBN's acquisition and the Asset Management Company of Nigeria's (AMCON's) financial intervention).


The growth in total assets in 2020 was attributed to the growth in cash and balances with Central Bank, an increase in financial assets held at fair value through profit and loss, and a rise in prepayments. Cash and balances with Central Bank and prepayments were up by +100.10% and +358.01% Y-o-Y respectively. Financial assets held at fair market value through profit and loss account grew by over +3000% which was on the back of a +3,156.25% increase in treasury bills in 2020 (see chart 2 below).


Chart 2: Polaris Bank Total Assets 2015 - 2020 (N'bn)

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Source: Polaris Bank Financial Statement, Proshare Research

2015*: Skye Bank Figures


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Loans and Deposits-Ungenerous with the Balance Sheet

The bank saw a notable decline in the bank's loan-to-deposit ratio (LDR) between 2015 and 2020. It witnessed its largest LDR in 2015 when it was still known as Skye Bank.


In 2020, LDR rose to 55.5% from 49% in 2019 but this was still below the regulatory minimum of 65% (see chart 3 below).


Polaris Bank's loans and advances to customers grew by +8.50% Y-o-Y in 2020 from N188.74bn in 2019. However, when compared to 2015 figures, loans and advances to customers declined by -70.95% from N704.89bn in 2015 to N204.78bn in 2020. This was understandable as the bank has become increasingly less adventurous with credit and more selective in its risk asset portfolio.


Deposit from customers also went up marginally by +6.58% in 2020 from N857.89bn in 2019.


Chart 3: Polaris Bank Loan-to-Deposit Ratio 2015 - 2020

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Source: Polaris Bank Financial Statement, Proshare Research

2015*: Skye Bank Figures


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Total Equity

The group saw a +15.07% rise in total equity in 2020, from N86.89bn in 2019 to N99.99bn. The increase in total equity was driven by a +146.35% rise in retained earnings and growth in other notable reserve lines which rose by +25.20% Y-o-Y.


Compared to the 2015 equity numbers of now defunct Skye Bank, equity fell marginally by -4.03% from N104.18bn to NN99.99bn in 2020 (see chart 4 below).


Chart 4: Polaris Bank Total Equity 2015 – 2020 (N'bn)

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Source: Polaris Bank Financial Statement, Proshare Research

2015*: Skye Bank Figures


Borrowings -Scaling Back Better

Improvement in borrowings from both local and foreign institutions has been steady between 2015 and 2020. Polaris bank recorded a -11.42% decline in borrowings in 2020, from N100.92bn in 2019 to N89.39bn. The fall in borrowings was supported by a -46.24% drop in foreign borrowings while local borrowings declined by a marginal -0.88%.


In 2020, the bank's local and foreign borrowings declined by -58.70%  when measured against its alter ego Skye Bank that borrowed N216.45bn in 2015 which was over 100% higher than the bank's borrowing of N100.92bn in 2019 (see chart 5 below).


Chart 5: Polaris Bank Total Borrowings 2015 – 2020 (N'bn)

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Source: Polaris Bank Financial Statement, Proshare Research

2015*: Skye Bank Figures


Ratios-A Case of Ups and Downs

Polaris bank's capital adequacy ratios (CAR) and LDR were both below regulatory minimum, although, both showed improvement in 2020.


The cost-to-income ratio (CIR) rose by +5.08% indicating a +61.85% increase in operating expense while operating income rose Y-o-Y by +58.77% in 2020.


The lender's liquidity ratio fell by -44.44% showing a decline in the bank's liquid assets relatoive to its total assets. The deposit money institution's total assets rose marginally by +3.25% in 2020 (see table 2 below).



Table 2: Polaris Bank Prudential Ratios 2019 – 2020

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Comparing Polaris Bank to its Tier 1 counterparts would be difficult, seeing that Tier 1 banks operate in much higher equity capital, deposit liabilities and physical distribution, which would mean larger liquidity, higher operational costs but stronger gross earning figures.


Polaris Bank appears to have robust liquidity and hence a relatively high liquidity ratio when compared to Tier 1 banks like GT Bank and FBNH. The FY2020 audited result of the bank showed higher investor returns relative to Tier 1 counterparts like UBA, Access Bank, and ETI (see table 3 below).


 Table 3: Polaris Bank vs Tier 1 Banks

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Looking Ahead-A Good Repair Job

Polaris bank appears to be strongly on the mend as it ticks of salient financial indices that show a capacity to gradually improve both top and bottom-line performance in 2021 barring worsening incidences of COVID-19 and an unfriendly economic downturn in the light of a possible sustained fall in international oil prices in the year (recently oil prices have stayed above US$60 per barrel for Brent and WTI).


Sneaking from under the deadweight loss of poor quality risk assets associated with the old Skye Bank, Polaris Bank continues to show signs of an encouraging return to sustainable profitability, even if modest.


Nevertheless, the bank's continued status as a legacy institution needs to be reviewed quickly to enable the institution to attract fresh capital and run along the lines of best corporate governance practice and regulatory independence. However, this may require a massive flow of fresh equity into the business as it removes from its books the artifice of an Asset Management Company of Nigeria (AMCON) mezzanine-equity of almost N1trn(this points to the bank's reorganization reserve of N848.02bn).


An observed accounting figure of a share premium of N873.45bn offsets the negative reorganization reserve of N848.02bn. This aspect of the statement of the bank's financial position may put both analysts and potential investors alike on notice for further clarification. 


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