In 2020, the global economy suffered an unexpected shock following the emergence of the novel Coronavirus. Virtually all countries went into lockdown and economic activities were virtually suspended. For a significant oil-dependent economy like Nigeria, the shock was compounded by the falling demand for oil and the crash in oil prices. What was thought to be only a brief lockdown lasting only weeks dragged on for much of the year following the surging infections and deaths from the virus. It is taken for granted that most companies operating in Nigeria will have a difficult year. For a relatively young bank like Polaris, they weren’t only contending with the effects of Covid-19, but also lost their pioneer Managing Director to politics in August 2020.
However, it appears the bank weathered all these storms to report another impressive performance for the second year running since its inception in September 2018. In its 2020 full year audited financial results (ended December 2020), the bank posted a Profit Before Tax (PBT) of N28. 9 billion, a 4 percent Year on Year (YoY) increase in PBT from last year’s N27.83 billion. The bank also grew its return on asset (ROA) from 2 percent in 2019 to 2.4 percent in 2020, although return on equity (ROE) declined slightly from 33 percent in 2019 to 29.4 percent in 2020. This compares favourably with top performing banks in the industry in Nigeria.
Five years on, the CBN action appears to have borne fruits. The rescue team did a pretty good job of cleaning up loan and collateral documentation
Furthermore, the bank’s Total Assets stood at N1.18trillion, a 3% growth on the previous year while Shareholders Funds grew by N14 billion (17%), largely due to additional value creation through internally generated profits. It was also able to grow customer deposits in 2020 by N56 billion (mainly through low cost deposits) and its loan exposure grew by N38 billion, indicating a modest but careful risk appetite to growing risk assets and to optimise income generation.
The performance, according to RTC advisory services, is “driven by the combination of the significant reduction in interest expense due to the Bank’s pursuit of low interest-bearing deposits as well as lowering impairment charges on loans and other financial assets.”
This performance is particularly impressive given the legacy constraints of the bank. Its legacy bank – Skye bank, was particularly plagued with the problem of nonperforming loans (NPLs)
On July 4 2016 the Central Bank of Nigeria (CBN) took over Skye bank and sacked the management of Skye bank for essentially breaching established prudential guidelines, especially in relations to insider loans and failures of corporate governance procedures and practices. It constituted a new board and management to fix the bank’s declining prudential ratios and return it to sustainable profitability with a mandate to reduce cost to income ratio, improve asset quality, improve liquidity and capital adequacy and restore profitability. The bank consequently suffered significant deposit attrition as customers, depositors, shareholders and institutional partners panicked at the news of the CBN take-over.
Five years on, the CBN action appears to have borne fruits. The rescue team did a pretty good job of cleaning up loan and collateral documentation, embarked on aggressive loan recovery and restructuring to ensure loan performance, divested from several local and international subsidiaries, and undertook a massive investment in the bank’s IT infrastructure to enable it deliver fast, efficient and savvy digital banking in line with the demands of the 21st century. Ultimately, it was the investment in technology and the digitisation of products and services that enabled the bank to continue to operate seamlessly throughout the period of covid-19 induced lockdowns. It is heartening to know that the trend of customer attrition and loss of faith by customers and partners have been firmly arrested.
Banking, more than any other form of business, entails and is sustained by trust. The licence to collect depositors’ money underlines that trust. The breach and abuse of that trust as was prevalent in the industry especially in the period leading to the 2009 financial crisis and beyond had the potential of damaging trust in the entire financial system. That justified the firm regulatory action. The board and management of the bank must be congratulated for repaying the trust of the regulator and restoring customer and partner confidence and most importantly, returning the bank to sound corporate governance footing and profitability.
There is a painful observation I have made regarding Nigerian-run businesses and enterprises over the years – and it is the lackadaisical approach towards sound corporate governance. It is as if corporate governance is a drag on flexible, efficient decision-making and smooth business practices. But nothing could be farther from the truth. Good corporate governance is a sine qua non for sustainable business growth and profitability. It not only enables businesses operate more efficiently, as Paul Tsoi puts it, “it improves access to capital, mitigate risk and safeguard stakeholders. It also makes companies more accountable and transparent to investors so as to minimize expropriation and unfairness for shareholders.” For as long as we continue to treat corporate governance as an inconvenience, so long our companies and firms will continue to remain small, unprofitable, undercapitalised and one-man dominated enterprises that withers away at the slightest challenge.
As we congratulate the board and management of Polaris bank, we urge them to continue to strengthen its corporate governance culture and practices to ensure that the mistakes of the past are never repeated again and most importantly, to lay a solid foundation for the sustainable growth and profitability of the bank.
