Surging operating expenses erode Resort Savings’ profit

Surging operating expenses have eroded Resort Savings and Loans plc’s profit, as the Nigerian mortgage firm continues to be aggressive about lending to customers.

For the year ended December 2013, the bank posted a loss after tax of N1.56 billion, from a profit position of N163.48 million in the same period of the corresponding year (FY) 2012.

Analysis by BusinessDay of the bank’s audited financial statement shows the bottomline took a hit due to surging operating expenses, a situation that calls for urgent cost reduction mechanism.

The bank had expenses eating up operating profit as cost to income ratio, a measure of efficiency, jumped to 185.63 percent in FY 2013 from 82.09 percent in FY 2012, while operating expenses increased by 197.34 percent to N3.36 billion.

Despite the unimpressive performance at the bottomline, the bank recorded growth at the top-line as gross earnings increased by 41.93 percent to N2.20 billion while interest income jumped by 21.06 percent to N855.75 million.

Analysts interviewed say growth in mortgage and housing business in Nigeria is stunted by debilitated disposable income on the part of consumers, adding that in a country where over 60 percent of its citizenry live below $1(N200) a day, owning a home is luxury.

A remarkable gain in employment and consumer confidence will drive the growth of mortgage business in Nigeria as many people are more likely to marry early, have children and own a home.

Additionally, low borrowing costs and more access to credit would raise the odds that a household will decide to a property rather than rent.

Nigeria already has 17 million housing deficit to bridge in order to put shelter over the heads of over 75 million people, portending an opportunity for Resort Savings to tap into and also bolster performance.

Resort Savings is aggressive about lending to customers as loans to customers increased by 26.25 percent to N4.04 billion from N3.2 billion as of December 2012, while total deposit spiked by 104.10 percent to N3.41 billion.

Loans to deposit ratio reduced to 118.47 percent in 2013 from 191.61 percent in 2012. Total assets were up by 44.06 percent to N8.50 billion as against N5.90 billion the preceding year.

With the proposed US housing refinancing model (Fannie Mae) about to be imitated by the Federal Mortgage Authority of Nigeria, all things being equal, Resort Savings is on the right growth trajectory.

The bank was incorporated as a private limited liability company on June 17, 1992, and obtained a licence to operate as a mortgage bank in November 29, 1993.

The bank’s share price closed at N0.50 on the exchange while market capitalisation was N5.70 billion.

BALA AUGIE