Polaris Bank: Confirms a Resurrection, Tackles Loan Bullets
Tuesday, April 28, 2020 /12:27PM /
Polaris Bank Limited, the Central Bank of Nigeria (CBN) backed bank created from the legacy Skye Bank Plc, over the weekend announced the approval of its 2019 financial statements, and appears to be clawing back to 'sustained' profitability as it recorded a financial year end (FYE) 2019 profit before tax figure of N27.34bn (Group figure; Bank is N27.85bn) which was 1,110% higher than the pre-tax profit number between September and December 2018 of N2.46bn (the comparison between both periods is simply a "low-base" place holder to suggest direction rather than scale of Polaris Bank's profit movement as the two periods are technically incomparable).
Related Link: Polaris Bank 2019 Annual Financial Statement
The improved profitability of the bank reflects a combination of hardnosed cost cutting and gradual rebuilding of the bank's loan book quality and efficient allocation of assets. The key highlights of the bank's 2019 performance were characterized by the following:
Highlights/Takeaways
In the course of writing this report, the bank represented that "AMCON injected fresh capital and the bank has been relieved of the burden of carrying delinquent loan through the take-over by AMCON and derecognition from the Bank's books."
While we have no reason to doubt the representation, the validation of course, would be our reference to AMCON's statement of accounts for 2018. Unfortunately, this document was not available as at the time this report was put together, and remains a document to be reviewed in the near future.
Table 1 Summary Financial Performance of Polaris Bank FYE 2019
Metrics
POLARIS Bank 2019
Gross Earnings (N'bn)
150
PBT (N'bn)
27.34
Deposits from customers (N'bn)
857.9
Total Assets (N'trn)
1.16
Capital Adequacy (%)
14.67
Return on Assets (%)
2.27
Return on Equity (%)
30.26
Liquidity Ratio (%)
74.38
Cost-to-income ratio (%)
40.67
NPL (%)
Source:https://www.proshareng.com/news/Sto...olaris-Bank--Confirms-a-Resurrection,-T/50707
Tuesday, April 28, 2020 /12:27PM /
Polaris Bank Limited, the Central Bank of Nigeria (CBN) backed bank created from the legacy Skye Bank Plc, over the weekend announced the approval of its 2019 financial statements, and appears to be clawing back to 'sustained' profitability as it recorded a financial year end (FYE) 2019 profit before tax figure of N27.34bn (Group figure; Bank is N27.85bn) which was 1,110% higher than the pre-tax profit number between September and December 2018 of N2.46bn (the comparison between both periods is simply a "low-base" place holder to suggest direction rather than scale of Polaris Bank's profit movement as the two periods are technically incomparable).
Related Link: Polaris Bank 2019 Annual Financial Statement
The improved profitability of the bank reflects a combination of hardnosed cost cutting and gradual rebuilding of the bank's loan book quality and efficient allocation of assets. The key highlights of the bank's 2019 performance were characterized by the following:
Highlights/Takeaways
- Gross earnings ended 2019 at N150bn, this reflected a push for greater market share of industry gross revenues and a conscious effort at gathering cheaper deposit liabilities which were converted to loan assets that pushed earnings up a few notches.
- The Bank had a modest return on asset (RoA) of 2.3% which compares favourably with Nigeria's tier-1 banks and is arguably best-in-class for the sectors second-tier deposit money lenders (DMBs).
- The bank's equity return (RoE) in 2019 of 33% was impressive and signpost a cheery outcome for the new managers that took over the running of the bank in 2018. The new management led by Mr. Tokunbo Abiru has had a tough but successful stab at turning the bank from a hard stop to a hand break swerve towards stability.
- A return on Gross Earnings (GE) of 18% was also comparatively remarkable and reflected efforts of the bank's management to widen its net interest income as a proportion of gross revenue. The statistic emphasizes attempts at improving core business revenue relative to cost with interest income rising faster than interest expenses. The management has deliberately forged a strategy of increasing low cost deposits as opposed to the strategy of the old Skye Bank which depended heavily on public sector placements with attendant uncapped interest arbitrage expenses.
- The ghost of the old Skye Bank still haunts Polaris Bank as the persistence of huge non-performing loans characterize an otherwise impressive turnaround story. Nevertheless, the new bank has been able to cut non-performing loans as a proportion of total loans outstanding from 80% in 2018 to 46% in 2019. The delinquent loan book of the bank is still heavy but the direction of delinquency as proportion of loans outstanding has declined, creating more wiggle room for the bank's management to grow its assets without hurting liquidity.
- However, in a COVID-19 situation and a soft economic meltdown, IFRS 9 requirements may see Polaris suffering a disproportionate fall in 2020 FYE gross revenue and operating profit due to an economic slowdown.
- It must be noted that for some unexplained reason the bank's 2019 financial result was juxtaposed with what was essentially its Q4 2018 result with an added week from September 2018. The odd reporting made it difficult to discern the precise extent of improvement in the banks audited account between 2018 and 2019. The fact that Polaris bank is a legacy bank that started in September 2018 does not obliterate the history of the bank from its Skye Bank days, unless AMCON suggests that the banks delinquent loans had been totally written off and that fresh capital had been injected into the bank by way of equity. Since no such statement was available from AMCON or any other sector regulator, we are of the opinion that it would have been more transparent to have presented a full year report for 2018 with the necessary caveats concerning AMCON intervention; and highlighting improvements in performance achieved by the new management.
In the course of writing this report, the bank represented that "AMCON injected fresh capital and the bank has been relieved of the burden of carrying delinquent loan through the take-over by AMCON and derecognition from the Bank's books."
While we have no reason to doubt the representation, the validation of course, would be our reference to AMCON's statement of accounts for 2018. Unfortunately, this document was not available as at the time this report was put together, and remains a document to be reviewed in the near future.
Table 1 Summary Financial Performance of Polaris Bank FYE 2019
Metrics
POLARIS Bank 2019
Gross Earnings (N'bn)
150
PBT (N'bn)
27.34
Deposits from customers (N'bn)
857.9
Total Assets (N'trn)
1.16
Capital Adequacy (%)
14.67
Return on Assets (%)
2.27
Return on Equity (%)
30.26
Liquidity Ratio (%)
74.38
Cost-to-income ratio (%)
40.67
NPL (%)
Source:https://www.proshareng.com/news/Sto...olaris-Bank--Confirms-a-Resurrection,-T/50707
