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Will Polaris Bank sustain this new path of profitability?

Polaris Bank seems to be back on the path of profitability, after a turbulent past if numbers from its recently released 2019 financial result is anything to go by.

Under the watch of Adetokunbo Abiru, who took over the reins of the bank in 2016 following a CBN action that dissolved the bank’s then board and management, Polaris Bank has undergone series of restructuring which are already yielding fruits.

By all objective standards, the results are impressive especially given the legacy constraints under which the institution was birthed. A review of the results shows positive performance across most major key prudential ratios: capital adequacy, liquidity, Non-performing Loans which is now significantly in compliance with stipulated regulatory requirements, the bank is set to further benefit from its IT investment in 2020.

Analysis of the bank’s result shows it printed a profit after tax of N28.5 billion for the year well ahead of some tier 2 banks. In its hey days, the defunct Skye Bank was one of the biggest tier 2 banks, but one would have thought that its reincarnation will at least need some time to recover.

A further analysis shows that the bank’s total deposit was N857.9 billion, likewise, the loan book stood at N261billion in December 2019 providing the Bank with the desired headroom to accommodate the required growth in risk assets to support the nation’s economic growth.

The bank’s cost to income ratio, a metric for how cost-efficient banks are, also moderated to 68percent, again far lower than most of the Tier 2 banks. The bank also has a high liquidity ratio of 81percent compared to the CBN’S 27.5percent target. Capital Adequacy ratio of 14percent suggests the bank’s capital is just about right for its balance sheet size.

Expectedly, its loan to deposit ratio was just 22percent significantly lower than the CBN approved 65percent. In fact, out of its total assets of N1.1 trillion, N518 billion was invested into investment securities like treasury bills and bonds. The rest were either held as cash with banks, CBN and AMCON or invested in assets. A way of playing safe on its path to recovery.

Out of the bank’s N131.6 billion in interest income N79.1 billion of it came from investment in CBN securities such as treasury bills and the now restricted Open Market Operations (OMO). Same period last year (2018) the bank earned just N15.1 billion from investment securities.

The Bank also closed the 2019 financial year with Total Assets of N1.1trillion and Shareholders Fund of N83billion

Polaris Bank’s ratios compare favourably with the leading Tier 1 and Tier 2 banks and are in virtually all cases better than industry averages. Return on Assets at 2percent is at par with Zenith Bank; Return on Equity at 33percent is competitive against all Tier 1 banks with the exception of Gtbank; Return On Sales at 18percent ranks third behind only Zenith and Gtbank benchmarked against Tier 1 banks.

Despite the impressive results Polaris bank still lives with scars from its old wound. The nonperforming loans of 46percnet is one of the highest in the industry despite coming down from the high of 80%. Bringing this ratio down to the single digit level espoused by the CBN for other banks will be an onerous task still.

Commenting on the Bank’s performance, Adetokunbo Abiru, managing director/ chief executive officer, Polaris Bank Limited, said the emergence of Polaris Bank on September 21, 2018, has heralded a new dawn as it laid the foundation for institutional competitiveness and service innovation in Nigeria’s challenging banking space. Noting that the bank’s strategy which anchors on rebuilding the franchise and strengthening the balance sheet position provide enablers for ongoing initiatives towards lean operations and efficient balance sheet management devoid of capital erosion risks.

“We shall continue to run an ethically governed Bank upholding sound risk management practices and proactively taking measures to mitigate the impact of the adverse business environment while the Board and Management continue to guide the Bank towards a path of sustainable growth,” he said.

In 2019, Polaris Bank pursued strategic initiatives for future growth which have continued this year including digital transformation and launch of the bank’s agency banking platform, Sure Padi.

Starting from September 2018 immediately after the transition to Polaris Bank, the management worked with KPMG, EY, Deloitte and other first class advisory and consultancy firms to develop a strategy and corporate transformation plan and defined aspirational and inspirational new vision statement, “The preferred partner providing superior financial solutions for customers” and mission statement, “We will leverage our knowledge of an ever changing world to constantly design innovative solutions that facilitate our customers’ enterprise” as well as values-boldness, Sustainability, Innovative, Continuous Learning and Trustworthy.

The bank also adopted a predominantly retail market focus in line with its core strengths and competences and defined new customer value propositions:- Ease, Friendliness and Accessibility: focused on convenience, customer excellence and customer delight; Creating opportunities and providing empowerment for selected sectors: Youths, SMES, Women and the Underserved; Digital First: providing easy and simple banking through digital and being future focused.

The objectives of the Corporate Transformation Plan included sustainability; profitability and capital preservation; regulatory compliance and buy-in; realizing value from investments; aligning business and operating models to strategic aspirations; and execution-achieving quick-wins, and phased implementation. The critical pillars of transformation as designed are Digital Transformation, Enhancement of IT Infrastructure and Technology Platforms, Cost Optimisation and Operational Efficiency, Workforce and Culture Alignment, Brand Equity Enhancement and Business/ Strategic Initiatives.

2020 Outlook

Going into the year 2020 and despite the challenging macroeconomic environment amid devastating impact of COVID-19 on businesses, the Bank says it is poised to reap the benefits of its investment in both the capacity of its employees to improve service experience as well as in critical infrastructures that will support the digitization of its operations.

We believe bank management understands that while Polaris Bank is now well capitalised based on regulatory standards, the institution may benefit from enhanced capital levels if benchmarked against the major banks and telecommunications companies in the context of a competitive, technology- led, globalising financial services industry. These considerations coupled with Polaris Bank’s status essentially as a “bridge bank” owned by the Central Bank and AMCON mean that a divestment by these regulatory/ government entities and investment by a well-capitalised financial services group would have to be a strong consideration.

“We will leverage our knowledge of an ever changing world to constantly design innovative solutions that facilitate our customers’ enterprise” as well as values-boldness, Sustainability, Innovative, Continuous Learning and Trustworthy

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