Sometime in May 2018, many Nigerians were shocked by the news that the Central Bank of Nigeria (CBN) had ordered the immediate removal of some key directors of eTranzact International Plc, alongside the company’s then Chief Executive Officer, Valentine Obi. This was due to an alleged N11 billion fraud which occurred on one of the company’s platforms and involved three other principal players namely: Smartmicro Systems Limited, Delta State Government, and First Bank of Nigeria Limited.
As you can expect, a scandal of this magnitude had serious negative impact on the ICT Company’s public image, which invariably affected its business operations and financials. It has been over a year since the alleged fraud and the consequent investigations, board reshuffling, and damage control measures. So, on this week’s Nairametrics company profile, we examine how the company is faring now. And as is our tradition, we shall also be examining the company’s business model, its target market, ownership structure, competitors, and most especially, its overall financial performance.
Corporate information about eTranzact International Plc
Initially incorporated as a Limited Liability Company in 2003, eTranzact International Plc is a Nigerian tech firm which provides payment solutions. It became a public company in 2019, the same year it was listed on the Nigerian Stock Exchange (NSE), specifically on August 7th eTranzact International Plc is one of Nigeria’s six listed ICT firms. With its market capitalisation of N9.9 billion, it is also the most capitalised.
The company’s business model and target audience
eTranzact International Plc is a dominant player in the Nigerian electronic payment ecosystem. Some of its services include payment processing, Point of Sale (POS), and training services. The company has tech solutions for players in various sectors of the economy including banking, education, the financial market, travel and transportation, telecommunications, and public administrations. Some of the company’s most notable products include:
- ATM Cardlex Cash
- eTranzact Strong Authentication
- Payoutlet, etc
The company does not operate in Nigeria alone, it also has operations in Ghana, Kenya, Zimbabwe, Cote d’Ivoire, and even UK. Information available on its website says that it is, “currently expanding operations to more and more countries in the world.”
The company’s ownership structure
According to information contained in eTranzact International Plc’s full-year 2018 financial result, the company is majorly owned by eTranzact Global, with 50.33% shareholdings. The rest of the shareholdings are, “held by a diverse group of shareholders, including institutional investors.”
A look at the competition
As earlier mentioned, there are six other IT companies that are listed on the Nigerian Stock Exchange, asides eTranzact International Plc. These companies are Courteville Business Solutions Plc, CHAMS Plc, CWG Plc, NCR Nigeria Plc, OMATEK Ventures Plc, and Tripple Gee and Company Plc. While each of these companies renders unique services they, their interests often conflict in terms of market audience. This creates competition.
Besides the listed companies, there are a number of other emerging payment solutions companies that also pose competitive challenge to eTranzact International Plc. Two good examples of such companies readily come to mind: Paystack and Flutterwave.
While competition understandably remains a major challenge facing the company, it is not the only problem it has faced recently. For instance, the aforementioned 2018 fraud scandal combined with other factors led the company to record a loss after tax of N3.1 billion in full-year 2018. To understand how this happened, let us go back to the story for a moment.
More on the 2018 fraud scandal
The whole scandal began on March 8th 2018 when First Bank of Nigeria Limited reported an N11.49 million fraud to the Central Bank of Nigeria. This fraud allegedly occurred on eTranzact’s Fundgate platform and involved Smart Micro Systems Limited, a merchant onboard the platform.
How it all began
Smart Micro Systems Limited approached eTranzact to help deploy a bulk purchase solution which would facilitate payments to Delta State employees. Additionally, the company allegedly configured an additional outbound fund transfer solution which required Smart Micro to maintain a pre-funded settlement account with a first-generation bank for settlement.
In March 2018, First Bank of Nigeria Limited informed eTranzact that the settlement account was in debit to the tune of N11.49 billion. That same March, the Managing Director of Smart Micro Systems Limited, Michael Obasuyi, wrote a petition to the Economic and Financial Crimes Commission (EFCC) against eTranzact. In a twist of events, eTranzact also wrote a counter-petition against Smartmicro Systems Limited. All these led to an investigation by the EFCC, which implicated Michael Obasuyi. He was then arrested for alleged cybercrime and money laundering.
Nigeria’s apex bank also ordered the removal of the company’s CEO, two directors and others. This, the company later explained in its financial report, was not because these individuals were a party to the alleged crimes. Instead, they had to go because the alleged crime happened under their watch.
How the scandal affected the company’s financials
eTranzact International Plc recorded a loss after tax of N3.1 billion for the 2018 financial year, as against N208 million profit after tax made in 2017. This was largely due to a spike in operating and administrative expenses. For instance, administrative cost for the period stood at N2.3 billion, as against N1.6 billion in 2017.
The company also had to make provision for the N11.49 billion fraud case it found itself immersed in. Below is how the company summarised how much it expended in this regard, according to information it provided on page 20 of its 2018 financial results.
“…This relates to provision for Fraud Assets in relation to a portion of the N11.49 billion fraud reported by First Bank of Nigeria Limited (FBN) on March 8th, 2018, involving Smart Micro Systems Limited (SM), a merchant on-board to the eTranzact Fungate platform as an aggregator for Micro Finance Banks. As directed by the Central Bank of Nigeria (CBN) in a letter issued on Match 13 2019 the net liability was shared equally between eTranzact International Plc and First Bank of Nigeria Ltd at N5.75 billion each. Also, the sum of N5.95 billion recovered from Smart Micro System Limited was shared equally and used to reduce the impact of the liability.”
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How has the company performed so far in 2019?
For its H1 2019 financial results, eTranzact International Plc reported a profit after tax of N96 million, against a loss after tax of N231.8 million during the comparable period in 2018. Revenue also jumped to N6.4 billion in H1 2019, compared to N4.2 billion in H1 2018. Administrative expenses reduced to N470.9 million, compared to N600.3 million in H1 2018. All these are indicative of the possibility that the company may record positive performance at the end of full-year 2019, compared to 2018.
However, eTranzact International Plc needs to do more to clean up its image, especially as it pertains to corporate governance lapses on its part. Its shares are currently below listing standard (BLS) with just 10.06% free float. Note that the Nigerian Stock Exchange requires companies on its main board to have a free float of 20%, while those on ASEM are required to have a 15% free float.
Strong performance from Stanbic IBTC, despite weak retail banking position
Will Stanbic IBTC be able to generate profit from its personal banking division by full year?
Stanbic IBTC made a profit after tax of N45.2billion, growing its profit by 24.7% when compared with this period last year.
The feat is remarkable; given that a majority of financial institutions responded as expected to the economic downturn triggered by inflationary pressures, oil price instability, and lack of notable business activities, necessitated by the corona-virus pandemic that has characterised the 2020 business calendar year.
These other organizations reflected positions worse off than their escapades in 2019. In cases where improvements in bottom-line were seen, it was only marginal.
Stanbic IBTC was not exempted from these economic trials, their immensely diversified business portfolio boosted their numbers on multiple fronts. Robust presence in Asset Management paid off, as commissions and fees represented a massive 62% of general fees and commission income. It’s Corporate and Investment division continues to produce astoundingly, contributing the highest and growing profit after tax of 49.2%.
This focused and efficiently monitored diversification, is turning Stanbic IBTC into world-beaters, reflecting in the expansion of its gross earnings by 7.8%, from N117.4billion in HY’2019 to N126.6billion so far this year.
This position could have appeared even better; had STANBIC been able to demonstrate in its personal and business banking segment, the same excellence, noticeable in its other business segments (Wealth, Corporate and Investment).
It’s Personal banking (generally regarded as Retail banking), encompasses the provision of banking and financial services to individual customers and SME’s (Small and Medium scale enterprises), mortgage lending, leases, card products, transactional and lending activities such as telephone banking, ATM’s, etc. The segment suffered this year, closing with a loss of N3.2billion, despite being responsible for over 58.4% of general staff costs. This poor position was sponsored by a reduction in income levels, especially non-interest income from fees and commission.
Unsurprisingly, given CBN’s policy at the start of the year to implement a much-reduced transfer fee rate, an increase in Non-performing loans is another causal factor for its loss this half-year. STANBIC cannot afford to bask in the euphoria of the massive successes of its Wealth and Corporate segment, at the expense of Retail banking.
Retail banking is fundamental to any bank looking to be a force, or preserve its going-concern status in this critically competitive economic environment. It has been the subject of immense research in the last decade, with many banks devising strategies to acquire a large chunk of the market share in this business segment. The banking landscape is evolving amidst growing competition, such that a bank that generally does well in its retail banking segment, is perceived as strong by the public. This has an underrated capacity to effortlessly attract more customers. Banks need to revisit the drawing board and re-embrace their sacred purpose of serving the basic and pure needs of their individual customers.
Michael Lafferty, Chairman of the Lafferty Group, whilst describing Retail banking said, “Retail banking is the foundation on which global banks are built,” It is a vast retail and consumer banking market, pointing out that the world’s biggest banks built their financial empire from the mass market.
Stanbic IBTC must be conscious in its quest to provide universal banking and find a balance in product and service offerings across its business segment.
A summary of the performance parameters in its financial statement, shows growth in gross earnings, from N117.4billion to N126.6billion, and improvement in earnings per share from 342kobo to 419kobo.
Attention now shifts to the impact of the bank’s new super app, supposedly a one-stop-shop for its diverse offerings, including banking, investing, pensions, trading, and insurance, and how it affects the bottom line in subsequent quarters.
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Lastly, will Stanbic IBTC be able to generate profit from its personal banking division by full year? We await their H2’2020 results.
Is Zenith Bank thriving on the strength of sound financial indices?
Zenith Bank posts N103.8bn profit in half-year financial result.
Sound financial indices have made Zenith Bank one of the largest banks in the Nigerian banking Industry. It was recognized as the Most Valuable Banking Brand in Nigeria 2019, in the Global Banker magazine Top 500 Banking brands; and Best Commercial Bank in Nigeria 2019, by the World Finance.
Zenith Bank has successfully bolstered this narrative even further with the release of its Half Year 2020 Financial Report, where it closed with a profit of N103.8 billion.
Growing profit position in these perilous times, speaks remarkably of the suppleness and elasticity of any establishment. A lull in economic activity caused by inflationary pressures, precariousness of the market, and the coronavirus pandemic has forced most Deposit Money Banks (DMBs) to cave in, and reveal achievements worse off than their 2019 results y/y – but not Zenith Bank Plc. The institution has showcased beyond reasonable doubt, that the apparent limitations are incapable of distorting its active growth pattern.
Zenith Bank closed H1 2020, 16.8% better off than it did in 2019 y/y, in terms of profit after tax. Although this massive leap, hugely resulting from tax paid as profit before tax, noted just a 2.2% growth. Further analysis of its HY’2020 results, demonstrates more efficiency, a focused cost of fund optimization, and an aggressiveness in generating income across its business heads and segments. This strategy had begun since 2018, and was shared by the bank when it disclosed planned implementation of an improved core banking system, hoping it would ultimately enhance efficiency while reducing costs.
Zenith Bank has thrived on the strength of its sound business model, corporate governance, conservative risk management, and strategic corporate social investment. The bank has been very forceful in the market, improving massively across all of its income generating segments, despite the plausible and obvious hindrances. This is a testament to its superiority, and sponsors its claim for supremacy.
The bank made N22billion from foreign exchange revaluation gains and despite evidence to the contrary, it endeavored in operating expenditure (OPEX). OPEX may have grown by 7.7%, but disclosures and note to the accounts shows that in virtually every expense head, costs dropped. The 7.7% was triggered majorly by Information Technology related costs, fuel and maintenance, and an increase in the compulsory banking cost fund, set up for the Asset Management Company of Nigeria (AMCON) by the CBN.
Now, like every hero susceptible to their hubris, Zenith has its own problems, which questions its position at the top. Yes, the bank may have an amazing and constantly improving interest expense to interest income ratio, but it does not possess the finest result in this regard as of yet. HY 2019 interest expense took as much as 33.6% of its income, while HY 2020 dropped to 27.4%. This is good, but still considerably high, if we carry out a peer-to-peer analysis with Guarantee Trust Bank Plc (masters of low-interest expenses), whose ratio stands at 16% for HY 2020.
However, Zenith has sustained the momentum of positioning itself as the crème de la crème in the Nigerian Banking Industry for quite some time. The bank’s pattern of growth and performance, strongly indicates its capabilities to manage its interest expense in subsequent quarters. It will be interesting to see how this pans out by year end.
In summary, despite economic difficulties this year, with most bank’s bottom-line at a worse position than the corresponding period last year, Zenith posted improved profit yet again. Could this be enough to portray supremacy?
UBA Plc H1’2020 results, a true reflection of its rightsizing decision?
UBA’s H1 2020 result is yet another demonstration of the resilience of its business model.
The upward review in benefits of some employees and directors this year, coupled with the rising operational costs, constitutes the hot topics from the 2020 semi-annual results released by UBA Plc.
Widely regarded as the banking sector’s largest employer of labour in Nigeria, the bank in December 2019, embarked on a ‘rightsizing’ exercise, which partly resulted in new hires, as well as promotions, improved remunerations, and benefits for existing employees.
The Group Head, Media and External Relations, UBA Plc, Nasir Ramon commenting on this said, “over 5000 staff of UBA Plc, started the new year with a lot of cheer, as the bank promoted to new grades, coupled with salary upgrades. Beneficiaries of this exercise will receive up to 170% increase in their salaries and benefits, whilst a good number have been moved to higher grade levels.”
Directors saw their emoluments amplify by 177.7% (Fees and Sitting allowances) as demonstrated in the financial statements of the bank. Rising to N50million in June 2020, from N18million in 2019 y/y.
Now, Deposit Money Banks (DMB’s) might be adjudged to be honorable in all of their objectives, but the truth is they are neither self-sacrificing nor are they expected to be. DMB’s are established for profit, and would incessantly prioritize business good sense over social empathy, for the sake of their owners. The import of this is, UBA Plc expects its colossal investments in employees and directors to overwhelmingly reflect in its bottom-line.
Half-year 2020 results is clearly not in sync with this philosophy, as it reflects a weakened position compared to the corresponding period last year, despite the investments in human capital. Profit before tax dropped by 18.7%, from N70.3billion recorded in HY’2019 to N57.1billion in the current period. Profit after tax waned as well by 21.7% to N44.4billion from N56.7billion in HY’2019.
Interestingly enough, the top-line fared pretty well. Interest income and fee income showed improvements, albeit marginally by 0.3% and 6.7% respectively. This makes it illogical to attribute the entirety of the decline in profit to the recent austerity measures put in place by the CBN, reducing funds transfer fees and card maintenance charges.
The Coronavirus pandemic played a big role too, by widely stunting the economy in the second quarter of 2020, and negatively impacting profit. But even these do not provide substantial and sufficient convictions as to why the Tier-one bank did not hit the profit-bar it set for itself, from its truly emphatic 2019 financial year. Does this mean that UBA Plc got the decision wrong at the start of the year?
Six months seem too short a period to immediately class management’s decision to jack up the benefits and emoluments of its internal customers as a failed one. Although, no one anticipated the travails of COVID-19 and its resulting consequences, investments in human capital is widely proven to yield tremendous growth in the long haul. Besides the fact that it has given UBA Plc a solid reputation in the market place, it also makes the company very attractive to the very best of industry talents. Furthermore, employee engagements of this nature, foster brand loyalty which ultimately trickles down to how passionately these personnel undertake their tasks and deliverables. The true bearing of this investment is expected to reflect in due course, in subsequent quarters.
Commenting on the result, UBA’s Group Managing Director/Chief Executive Officer, Mr Kennedy Uzoka said, “Our H1 2020 results is yet another demonstration of the resilience of our business model in an extremely uncertain and tough operating environment. We recorded commendable growth in our underlying business in terms of customer acquisition, transaction volumes, and balance sheet whilst inflation, depressed yield environment and exchange rate volatility impacted our net earnings as anticipated.”
In today’s increasingly aggressive marketplace, where consistently generating revenue, is paramount to preserving the longevity and going-concern status of any establishments, costs must also be accorded as much attention and significance. Tightening and managing costs with the aim to improve and generate profit is genius strategy especially in today’s banking industry. The banking industry is under threat from ruthless competitions. Multifarious streams that had hitherto been available for generating income for DMB’s are being severely hindered by the ‘austere’ policies (from the perspective of commercial banks) from the apex bank, making effective cost management a survival mechanism.
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Employee benefits rose by 20% from N37.2billion in HY’2019 to N44.6billion in HY’2020, while Directors’ emoluments (Fees and Sitting Allowance) as earlier stated, surged by 177% from N18million in 2019 to N50million in 2020 y/y. The total operating expenses increased 22.6% in 2020. UBA Plc, unavoidably expended N22.4billion on Banking Sector Resolution cost trust fund, in compliance with the CBN’s requirement to contribute to the cause of the Asset Management Company of Nigeria (AMCON). Security and other payments for core services experienced increase as well compared to the preceding year.
Avoidable expenses like Penalties and Premises Maintenance Charge, should be extensively reviewed and extinguished wherever possible, to improve bottom line. UBA plc has forked out N565million in penalties so far in 2020, representing 6177.7% increase from just N9million in 2019 y/y. This is a prime example of the operational brick walls, UBA Plc must properly address to improve its fortunes in subsequent quarters.